TRUSTED
PARTNER IN POWER™
2022 ANNUAL REPORT
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
CEO’s Message to Shareholders.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Chairman’s Message to Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Key Figures.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Management Team and Board of Directors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Business Overview.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Schedule 1 – Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management’s Responsibility for Financial Reporting.. . . . . . . . . . . . . . . . . . . 23
BDO Independent Auditor’s Report.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Notes to the Consolidated Financial Statements.. . . . . . . . . . . . . . . . . . . . . . . . . 32
Schedule 2 – Management’s Discussion & Analysis.. . . . . . . . . . . . . . . . . . . . . 70
MD&A, Forward-Looking Information, Presentation of Financial
Information, Key Performance Indicators.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Business Overview.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Summary Financial Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
EBITDA, Adjusted EBITDA, and Pro-forma EBITDA.. . . . . . . . . . . . . . . . . . . . . . 76
Results of Operations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Results of Operations by Reportable Business Segment.. . . . . . . . . . . . . . . . 84
Financial Condition, Liquidity and Capital Resources.. . . . . . . . . . . . . . . . . . . . 89
Outlook.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Off Balance-Sheet Arrangements, Commitments and Contingencies.. . 94
Summary Quarterly Financial Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Significant Accounting Judgements and Estimates.. . . . . . . . . . . . . . . . . . . . . . 95
Financial Instruments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Disclosure Controls and Procedures and Internal Controls
Over Financial Reporting.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Risk Management.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Corporate Information.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
TABLE OF CONTENTS
3
Dear shareholders,
I am pleased to report that in
2022, Spark Power remained
committed to our core values
and have achieved significant
improvements in our results
compared to previous periods.
We have taken important steps
to position the business to
address both current and long-
term opportunities associated
with electrification, with a
focus on maximizing potential
shareholder returns.
During the year, we dedicated
significant effort towards
formulating our new three-year
strategy, “Let’s Grow Better,”
aimed at creating sustainable
and long-term value for
shareholders through a fully
integrated platform company
targeting the period of 2023 -
2025. With our new vision and
mission, we are prepared to
unlock the next phase of our
maturity, built on a foundation
of operational excellence. We
also made significant progress
towards achieving our “One
Spark” operating model, which
brings together our culture,
technology platform, business
processes, and organization as
an integrated platform.
We continued to grow the
business by adding new
customers, including significant
U.S. solar operations and
maintenance agreements, large
scope technical services work,
and expanding our Renewables
Operating Centre in Dallas, Texas,
which monitors solar and battery
storage assets across North
America. These accomplishments
are a testament to the tireless
efforts of our team, and I thank
them for their unwavering
commitment.
In November, we divested our
Bullfrog Power Inc. business
unit. This transaction has
further streamlined the business,
allowing us to focus on our
core Technical Services and
Renewables Services segments.
I want to take this opportunity
to thank our Spark Power
employees for their hard work
and dedication. Especially given
their focus on health and safety
and the continued positive
trending we experienced in 2022.
To our valued customers and
shareholders, thank you for the
trust you have placed in us. We
will continue to work tirelessly
every day to maintain and build
upon this trust. As an integrated
North American electrical
services provider with a strong
strategy in place, we are well
positioned for the years ahead.
Sincerely,
Richard Jackson
President & CEO
CEO’S
MESSAGE TO
SHAREHOLDERS
4
Dear shareholders,
In 2022, Spark Power has once
again demonstrated the strength
of our business and the talent
of our people. Through a year
of strategic planning and long-
term goal setting, Spark Power
has continued to support
communities across North
America that depend on our
services.
We closed the year strong, with
a focus on launching the 2025
Let’s Grow Better Strategy.
Through the establishment of
strategic pillars and supporting
workstreams, we will further
strengthen our ability to serve
customers’ evolving needs, roll-
out our go-to-market plan and
focus on US maturity, invest
in the growth and learning of
our people, and work toward
continuous improvement and
operational excellence. While our
business is amid a transformation,
I have full confidence that we
have the proper team in place to
accomplish our mission.
As we look forward to another
year of progress, the Board
of Directors thanks our
President and Chief Executive
Officer, Richard Jackson, Vice
President and Chief Financial
Officer, Richard Perri and the
entire executive team for their
exceptional leadership and
support through 2022. We want
to recognize the hard work and
commitment our Spark Power
colleagues demonstrate every
day, delivering a range of services
rooted in trust, resilience and care.
I want to thank my fellow Board
members for contributing
their expertise and industry
knowledge, and while I have
made the decision not to stand
for re-election as Chair for
personal reasons.
The continued support from
our shareholders is greatly
appreciated, and we’d like to
thank our customers for the
opportunity to serve them. We
will continue to work each day
to maintain your trust as your
partner in power.
Sincerely,
Lucio Di Clemente
Chairman of the Board
CHAIRMAN’S
MESSAGE TO
SHAREHOLDERS
5
EVOLVING
STRATEGIC
IMPERATIVES TO
DRIVE STRATEGY
Integration (Operations,
Brand, Culture)
• 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
2020
Integration (Operations,
Brand, Culture) & Platform
• Predictable operational excellence
• Recapitalization for stability & growth
2021
Platform for Growth
• Predictable operational excellence
• Embed culture
• Acquisition & integration
2022
6
GROWTH
STRATEGY
The Corporation’s Executive Team reviews its 3-year Strategic Plan on an annual basis to assure that the
business is consistently positioned to properly address both the current and long-term opportunities;
maximizing the potential for shareholder returns. In Q4 2022, the Corporation continued the establishment
of a sound foundation for long-term success through its launch of the 2025 Let’s Grow Better Strategy. The
focus of the new strategy is profitable growth, positive free cash flow generation, and implementation of the
‘Spark Way’, resulting in value creation for all stakeholders. The Strategic Plan is rooted in three key pillars-
customer, people and operational excellence; supported by a clear brand position, and an annual statement of
strategic priorities.
Our Vision: Shaping the future of electrification in
our communities.
Our Mission: As the Trusted Partner in Power™
in North America, we deliver the highest quality
standards in service, reliability and safety.
Our Strength: Our highly skilled and dedicated people,
our knowledge of the power industry, our distributed
branch model, and our commitment to safety ensures
we deliver the right solutions for our customers.
Brand Position & Promise -
Trusted Partner in Power™ The Corporation’s brand
position is to be our customers’ Trusted Partner
in Power. This brand underpins the Corporation’s
go-to-market strategies, including but not limited
to marketing, business development, offerings
development, organization and customer promise.
The Corporation lives this brand overtly through its
messaging (internal and external) and through the
delivery on this promise to our customers.
With the newly formed 2025
Let’s Grow Better Strategy,
the Corporation is set to
transition from a ‘One Spark’
operating model, focused on
the final phase of integration
of all the acquired subsidiaries,
to establishing ‘The Spark
Way’. Over the course of
this strategic cycle, the
organization will transform
to the ‘Spark Way’ which is
described as a set of common
goals, practices, and purpose
to achieve the newly formed
vision and mission as Spark
Power prepares to unlock
the next phase in its maturity
supported by a foundation of
operational excellence.
7
GROWTH
STRATEGY (continued)
The Corporation has established the following strategic pillars and supporting
workstreams as part of its 2025 Let’s Grow Better Strategy:
1. Customer
• Targeted
Go-to-Market
• Customer
Experience
• US Market Maturity
2. People
• Learning & Growth
• Talent Management
• Leadership &
Business Acumen
3. Operational
Excellence
• Workforce Planning
• Enterprise
Governance
• Continuous
Improvement
• Quality
Management
8
GROWTH
STRATEGY (continued)
The Corporation has established the following Guiding Principles that help
clarify the organization’s purpose and establishes a framework for identifying
and pursuing strategic opportunities.
• One Spark
Leveraging our fully
integrated lines of
business, centralized
corporate services
and systems to
deliver a customer-
centric, pole-to-
product service
experience for our
customers.
• Mission First
Serving the need
of our customers,
employees, and
our communities
by applying the
highest standards
of excellence to our
everyday work.
• Profitable Growth
Institutionalizing a
narrow and deep
strategy focused on
margin expansion
and targeting
industry leading
gross margins in our
business through
the ongoing pursuit
of continuous
improvement
opportunities. Our
goal is to advance
the profitable
growth mindset
from being EBITDA-
focused to a free
cash flow focused
organization.
• North American
Brand
Become a North
American Brand
through the
transformation of
our brand position
and promise as the
Trusted Partner in
Power with strategic
customers to expand
our current footprint.
• Predictable Business
Strengthening
rigour and discipline
using governance
and common
processes to evolve
predictability in our
Business.
9
OUR SCALE
CREATES
DIFFERENTIATION
ABILITY TO:
• Invest in our
commitment to
health and safety
• Be responsive to
our customers’
needs at any time
across all our
services
• Scale to serve
our customers –
geographically and
for jobs of any size
• Invest in understanding
markets, technology
and products to
help our customers
identify the right
solutions
• Invest in recruiting,
hiring, training and
retaining high quality
people
~1,200
EMPLOYEES
~700
FLEET
VEHICLES
6,500+ mw
RENEWABLE ASSETS
SERVICED & SUPPORTED
5,500
CUSTOMERS
1,000+
TECHICAL SKILLED
WORKERS
10
Only zero is acceptable. Safety is our top priority
with zero compromised, zero short cuts, and
zero excuses.
1.51
Total Recordable
Injury Frequency
0.00
Lost Time Frequency
28,638
Inspections
34,406
Meetings
7,052
Observations
ZERO
TOLERANCE
SAFETY CULTURE
11
WHAT IS
SPARK 100?
Spark 100 is an employee-led committee focused on promoting sustainable practices, educating our
employees, and engaging with our local communities through impactful initiatives across Spark. Our four
guiding principles coupled with employee suggestions help us identify annual initiatives. The success of
Spark 100 is directly related to the voice of our employees and engagement with the Spark 100 Team –
whether that’s through being directly involved as a Spark100 member, participating in events, or simply
suggesting new ideas.
We are introducing Spark100’s new vision, mission, guiding principles and our 2023 objectives tied to the
Let’s Grow Better Strategic Plan as part of the People Pillar.
Spark 100 – Our Commitment
Vision
To inspire positive, long-term social and
environmental change that will better serve
our people & our communities, now and
over the next century.
Mission
To engage, empower and educate our
employees to create a culture that upholds
Spark 100s four guiding principles.
Diversity, Equity
& Inclusion
Create Industry-leading
opportunities that
celebrate diversity
and promote equity
and inclusion in our
workplace.
Environment
Engaging our
employees in
sustainable practices
that decrease our
collective carbon
footprint.
Health & Wellness
Providing our
employees with the
tools and resources to
promote a culture of
safety and wellness.
Community
Supporting our
employees and the
communities in which
they live and work.
12
SHIFT TO SCALABLE
FIELD FOCUSED
MODEL
Building a scalable
network of local branch
operations in all
markets we serve across
North America to:
• Emphasize operational
excellence
• Prioritize health and safety
• Guide capital allocation &
strategy planning
13
OUR NORTH AMERICAN
FOOTPRINT
OUR NORTH
AMERICAN
FOOTPRINT
14
)s
n
oilli
m
ni( e
u
n
e
v
e
R
Employees
-10
40
90
190
140
240
250
2000
1800
1600
1400
1200
1000
800
600
400
200
00
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2022
2021
Revenue (M)
*As described earlier, the Bullfrog Sale was completed in November 2022. The 2022 revenue figure includes Bullfrog -related revenue up to November 30, 2022,
and the employee headcount excludes Bullfrog employees
People
A HISTORY
OF GROWTH
15
Revenue (Millions)
32%
Compound Annual
Growth Rate
2015-2021
28%
Compound Annual
Growth Rate
2015-2022
Adjusted EBITDA (Millions)
19%
Compound Annual
Growth Rate
2015-2021
24%
Compound Annual
Growth Rate
2015-2022
Gross Margin % - 3 Year Average
2020
2021
2022
3-Year
Revenue
228.2
255.8
272.3
756.3
Gross Margin
76.7
68.8
54.8
200.3
GM %
33.6%
26.9%
20.1%
26.5%
Revenue - CAD
2020
2021
2022
Spark Power Group Inc. Cons
Technical Services
153,579
156,500
181,653
Renewables
64,538
86,335
89,333
Corporate Services
1,618
1,788
1,291
Total
219,735
244,623
272,277
Sustainability - Disc. Operations
8,418
11,191
10,109
TOTAL
228,153
255,814
282,386
Adjusted EBITDA Margin % - 3 Year Average
2020
2021
2022
3-Year
Revenue
228.2
255.8
272.3
756.3
Adjusted EBITDA
32.4
21.7
33.1
87.2
EBITDA %
14.2%
8.5%
12.2%
11.5%
STRONG FINANCIAL
PERFORMANCE
2015
2016
2017
2018
2019
2020
2021
2022
$47.6
$63.8
$80.0
$119.8
$188.6
$228.2
$255.8
$272.3
2015
2016
2017
2018
2019
2020
2021
2022
$7.5
$10.3
$15.5
$20.5
$25.1
$32.4
21.7
33.1
16
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.
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.
Helen Yuan
Vice President, Finance
Helen Yuan is Spark Power’s Vice President,
Finance with almost 18 years of experience across
various industries. She is responsible for building
and overseeing the finance team over financial
accounting and reporting, developing and improving
internal control systems, cash flow management,
financial planning and analysis, and supporting
decisions to help drive business performance.
SENIOR
LEADERSHIP TEAM
17
April Currey
Vice President, Sales & Marketing
April is Spark Power’s Vice President of Sales
& Marketing with over 16 years of experience
overseeing sales, marketing, and market intelligence
initiatives, including significant experience with
sector innovation projects focused on providing
customers with more choices to manage electricity.
She is responsible for leading the commercial
strategy for the organization.
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.
Phil Lefko
Vice President, 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.
SENIOR (continued)
LEADERSHIP TEAM
18
1. Member of the Audit and Risk Committee
2. Member of the Compensation and Human
Capital Committee
Jason Sparaga
Co-founder and Director
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.
Eric Waxman
Co-Founder and Board Director
Eric is Spark Power’s Co-
Founder 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.
Lucio Di Clemente
Board Chair (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.
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.
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.
BOARD
CHAIR
19
Overview
The Corporation is a leading
provider of end-to-end electrical
services and operations and
maintenance services, to the
industrial, utility, and renewable
asset markets in Canada and
the United States. Spark Power
is focused on becoming its
customers’ Trusted Partner in
Power™, taking advantage of
the opportunities presented by
significant public and private
investment in electrification and
renewables development.
We have focused our business
on serving specific segments
including: industrial customers;
regulated utilities; original
equipment manufacturers
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, packaging, logistics,
automation 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.
Currently, the Corporation’s
business is most mature in
Eastern Canada, accounting
for the largest part of our
revenue. The Corporation’s
‘branch network’ model has
been proven over many years,
adopted through our wholly
owned subsidiary, New Electric.
The Branch Network model
now spans across all our North
American branch locations.
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 targeted go to
market plan and an intentional
selection of expansion regions
and service segments as well as
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 customers that
also have U.S. operations by
expanding existing relationships
with these customers into new
regions and leveraging business
start-up costs.
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 Power has
made twelve acquisitions over
the past ten years, and coupled
with post-acquisition organic
growth, this has led to substantial
scale in our operations.
In November 2022, Spark Power
divested its Bullfrog Power
Inc. business unit, including its
United States business carried
on through Bullfrog Solutions
USA Inc., and its subsidiary
companies, for total all-cash
proceeds of up to $35.0
million, subject to customary
adjustments and including an
earnout of up to $3.5 million,
payable over a maximum of
five years. Proceeds from
the transaction were used to
facilitate near-term deleveraging
and strengthening of Spark
Power’s balance sheet, while also
providing the Corporation with
additional liquidity to support
growth in the next stage of
its maturity. The transaction
will also further streamline the
business, allowing it to focus on
its core Technical Services and
Renewables businesses.
DESCRIPTION OF
THE BUSINESS
20
Renewables
Spark Power is an independent renewables operations and maintenance provider in North America. Operating in many
centres and remote locations in the U.S. and Canada, the Renewables business is primarily focused on Wind, Solar, Storage
and Electric Vehicle Charging assets. Spark’s Renewables services include:
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
Canada
Renewables
Canada
Technical Services
USA
Renewables
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 industrial electrical contracting services.
With highly responsive and local technical teams, Spark offers a wide variety of services and solutions to a
wide range of customers to meet their low to medium/high voltage needs including:
• Emergency response
and shift coverage
• Preventative
Maintenance
• Substation
Construction
• Installation and
commissioning of
equipment
• Power Systems
Engineering
• Customer control
panel design/
assembly
• Industrial automation
services
• Power Equipment
Sales & Rentals
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
• Asset monitoring
• Operations and
maintenance
• Commissioning
Battery Energy Storage
Systems (BESS)
• Engineering,
procurement, and
construction
• Operations and
maintenance
• Commissioning
Electric Vehicle (EV)
Infrastructure
• Construction
• Operations and
maintenance
21
CONSOLIDATED
FINANCIAL
STATEMENTS
FOR THE YEARS ENDED DECEMBER 31
2022 & 2021
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
opinion of management, the consolidated financial statements have been prepared within acceptable limits
using accounting policies consistent with IFRS 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.
rs 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
Richard Perri
President & Chief Executive Officer
Executive Vice President & Chief Financial Officer
March 28, 2023
Oakville, Ontario
23
24
25
26
27
SPARK POWER GROUP INC.
Consolidated Statements of Financial Position
Presented in thousands of Canadian dollars
As at December 31
Notes
2022
2021
Assets
Current assets
Accounts receivable
4
67,995
$
63,510
$
Other receivable
5
4,816
-
HST receivable
1,229
1,951
Inventory
7
8,365
8,167
Contract asset
4
26,805
25,826
Current portion of lease receivable
8
94
-
Current derivative assets
30
-
1,769
Prepaid expenses and deposits
4,969
7,161
114,273
108,384
Non-current assets
Lease receivable
8
80
-
Long-term derivative assets
30
-
2,150
Long-term receivables
29
3,318
-
Property and equipment and right-of-use assets
9
48,424
33,272
Intangible assets
10
19,964
29,116
Goodwill
11
29,830
37,963
Deferred tax asset
16
2,887
-
218,776
$
210,885
$
Liabilities and Shareholders' equity
Current liabilities
Bank indebtedness
12
24,921
$
28,142
$
Accounts payable and accrued liabilities
44,174
54,730
Current portion of long-term debt
13
4,500
61,962
Current portion of promissory notes
14
2,500
10,738
Current portion of lease liability
15
8,057
6,643
Current derivative liabilities
30
-
1,203
Income taxes payable
942
1,656
Contract liability
4
7,187
7,182
92,281
172,256
Non-current liabilities
Long-term debt
13
28,602
-
Lease liability
15
27,475
13,984
Deferred tax liability
16
-
1,096
148,358
187,336
Shareholders' equity
Share capital
17
179,303
139,472
Contributed surplus
2,041
1,606
Accumulated other comprehensive loss
(1,236)
(34)
Deficit
(109,690)
(117,495)
70,418
23,549
218,776
$
210,885
$
See accompanying notes to the consolidated financial statements.
28
SPARK POWER GROUP INC.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
Presented in thousands of Canadian dollars, except share and per share amounts
Notes
2022
2021
Revenue
4,20
272,277
$
244,624
$
Cost of sales
6,20
217,430
199,446
Gross profit
54,847
45,178
Expenses
Selling, general and administrative
6,20
55,984
55,799
Provison for expected credit loss
4,20
1,769
518
Reorganization costs
20,28
2,048
3,391
Other expenses (income)
57
(49)
Foreign exchange (gain) loss
20
(624)
955
Loss from continuing operations
(4,387)
(15,436)
Other income (expenses)
Finance expense
(8,423)
(7,126)
Transaction costs
27
(1,329)
(2,141)
Impairment loss
11
(1,500)
(4,000)
(11,252)
(13,267)
Loss before income taxes from continuing operations
(15,639)
(28,703)
Current income tax recovery
16
1,346
1,175
Deferred income tax recovery
16
3,294
1,005
Income taxes recovery
4,640
2,180
Net loss from continuing operations
(10,999)
(26,523)
Net income from discontinued operations
29
18,804
5,230
Net income (loss)
7,805
(21,293)
Cumulative translation adjustment
(1,202)
373
Comprehensive income (loss)
6,603
$
(20,920)
$
Basic
23
(0.12)
$
(0.47)
$
Diluted
23
(0.12)
$
(0.47)
$
Basic
23,29
0.21
$
0.09
$
Diluted
23,29
0.21
$
0.09
$
See accompanying notes to the consolidated financial statements.
Earnings (loss) per share attributable to equity holders for
continuing operations
Earnings per share attributable to equity holders for discontinued
operations
As at December 31,
29
SPARK POWER GROUP INC.
Consolidated Statements of Changes in Equity
Presented in thousands of Canadian dollars, except share and per share amounts
Warrants
Contributed
Accumulated other
comprehensive
Number
Amount
Amount
surplus
loss
Deficit
Balance at December 31, 2020
Notes
53,649,648
130,284
$
2,662
$
1,017
$
(407)
$
(96,202)
$
37,354
$
Net loss
-
-
-
-
-
(21,293)
(21,293)
Exercise of options
17
411,282
782
-
(206)
-
-
576
Forfeiture of options
17
-
-
-
(87)
-
-
(87)
Conversion of restricted share units
17
219,277
144
-
(129)
-
-
15
Forfeiture of restricted share units
17
-
-
-
(61)
-
-
(61)
Stock-based compensation
17
-
-
-
1,072
-
-
1,072
Issuance of common shares
17
2,654,028
5,600
-
-
-
-
5,600
Cumulative translation adjustment
-
-
-
-
373
-
373
Balance at December 31, 2021
56,934,235
136,810
$
2,662
$
1,606
$
(34)
$
(117,495)
$
23,549
$
Net income
-
-
-
-
-
7,805
7,805
Conversion of restricted share units
17
551,434
306
-
(306)
-
-
-
Forfeiture of restricted share units
17
-
-
-
(53)
-
-
(53)
Stock-based compensation
17
-
-
-
794
-
-
794
Issuance of common shares
17
33,007,466
39,525
-
-
-
-
39,525
Cumulative translation adjustment
-
-
-
-
(1,202)
-
(1,202)
Balance at December 31, 2022
90,493,135
176,641
$
2,662
$
2,041
$
(1,236)
$
(109,690)
$
70,418
$
See accompanying notes to the consolidated financial statements.
Common shares
Shareholders'
equity
30
SPARK POWER GROUP INC.
Consolidated Statements of Cash Flows
Presented in thousands of Canadian dollars
Notes
2022
2021
Cash flows from operating activities
Net income (loss)
7,805
$
(21,293)
$
Adjustments for non-cash items
Amortization and depreciation
9,10
19,250
18,769
Amortization of deferred financing fees
13
309
184
Provision for expected credit losses
4
1,769
(518)
Unrealized foreign exchange loss
654
1,559
Earn-out
29
(3,318)
-
Stock-based compensation
17
794
1,072
Forfeited options and restricted share units
17
(53)
(148)
Deferred income taxes
16
(3,294)
(316)
Gain on disposal of discontinued operations, net of taxes
29
(8,674)
-
Impairment loss
11
1,500
4,000
Changes in non-cash working capital balances
Accounts receivable
(7,051)
(11,955)
Other receivable
(4,816)
-
HST receivable
722
(365)
Inventory
(1,021)
(671)
Contract asset
(1,947)
3,114
Lease receivable
(174)
379
Prepaid expenses and deposits
(34)
(1,075)
Government grant receivable
-
379
Accounts payable and accrued liabilities
(9,906)
14,657
Income taxes payables
(204)
(584)
Contract liabilities
37
3,427
Cash flows from (used in) discontinued operations
29
(4,354)
(1,541)
(12,006)
9,074
Cash flows from investing activities
Purchase of property and equipment
9
(4,548)
(5,599)
Investment in intangible assets
10
(4,080)
-
Disposal of discontinued operations, net of cash disposed of
29
30,017
-
21,389
(5,599)
Cash flows from financing activities
Bank indebtedness
12
(3,221)
2,698
Issuance of share capital
17
39,525
5,600
Conversion of restricted share units
17
-
15
Exercise of warrants and stock options
17
-
576
Proceeds from long-term debt
13
2,833
5,260
Repayment of long-term debt
13
(30,120)
(9,508)
Repayment of promissory notes
14
(8,238)
-
Repayment of lease liability
15
(8,280)
(7,569)
Increase in deferred financing fees
13
(1,882)
(547)
(9,383)
(3,475)
Net change in cash and cash equivalents during the period
-
-
Cash and cash equivalents, beginning of period
-
-
Cash and cash equivalents, end of period
-
$
-
$
Supplementary cash flow information
Interest paid
8,423
7,471
Cash taxes paid
2,304
267
See accompanying notes to the consolidated financial statements.
For years ended December 31
31
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
1.
BUSINESS DESCRIPTION
Spark Power Group Inc
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.
head office, principal address, and registered office is located at 1337 North Service Road E,
Suite 200, Oakville, Ontario L6H 1A7.
2.
BASIS OF PREPARATION
Statement of Compliance
These consolidated financial statements
of the Company and its subsidiaries have been
Accounting Standards Board
22.
The Board of Directors approved these consolidated financial statements on March 27, 2023.
Going Concern
In the preparation of Financial Statements, management is required to identify events or conditions that could
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.
The Company is required to comply with certain covenants, terms and conditions under the amended credit
facilities including minimum cumulative monthly EBITDA commitments through March 31, 2023 and other
covenants subsequent to March 31, 2023 as outlined in Note 13. EBITDA is defined as net income (loss) before
finance expense, income taxes, depreciation and amortization, unrealized gains or losses on foreign exchange
and derivative instruments and other approved addbacks. 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.
Basis of Measurement
These Financial Statements have been prepared on a historical cost basis, except for certain financial instruments
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
the Company and its subsidiaries except for
US subsidiaries: Spark Power LLC, Northwind
Solutions Group (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
32
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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
are initially recognized at their fair values as at the acquisition date. On November 30, 2022, the Company sold
all the shares of its 100% owned subsidiaries Bullfrog Power Inc., Canadian REC Wholesale Inc., and Less
Emissions Inc.
During fiscal 2021, the Company sold all of the shares of its 100% owned
subsidiary Orbis SPA.
Subsequent to the year end, the Company merged Northwind Solutions Group (USA) Inc. and One Wind Services
(USA) Inc. to become Spark Power Renewables USA Inc., and Northwind Solutions Group Inc., One Wind
Services Inc., and Spark Power Solutions Ltd., to become Spark Power Renewables Canada Inc., respectively.
Further, New Electric Enterprises Inc. changed its legal name to Spark Power Low Voltage Services Inc.
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,
Subsidiary
Ownership %
1625704 Alberta Inc.
100%
2552095 Ontario Inc.
100%
3-Phase Electrical Ltd.
100%
Lizco Sales & Rentals Inc.
100%
New Electric Enterprises Inc.
100%
Northwind Solutions Corp.
100%
Northwind Solutions Group Inc.
100%
Northwind Solutions Group (USA) Inc.
100%
One Wind Services Inc.
100%
One Wind Services (USA) Inc.
100%
Orbis Engineering Field Services Ltd.
100%
Sibro Technologies Ltd.
100%
Spark Power Corp.
100%
Spark Power Group Inc.
100%
Spark Power High Voltage Services Inc.
100%
Spark Power LLC
100%
Spark Power Services Corp.
100%
Spark Power Solutions Inc.
100%
Spark Power Solutions Ltd.
100%
Spark Solar Management Inc.
100%
Spark Solar Services Corp.
100%
Spark Power (USA) Corp.
100%
Spark Power (Midwest USA) Corp.
100%
Spark Power (Northeast USA) Corp.
100%
Spark Power (West USA) Corp.
100%
Spark Power (Southeast USA) Corp.
100%
Spark Power (Southwest USA) Corp.
100%
33
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
2.
BASIS OF PREPARATION (Continued)
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.
(Note 4)
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 9 and 10)
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
remental 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 15)
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 is determined using valuation
models which require assumptions concerning the amount and timing of future cash flows, and discount rates.
et 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. (Note 30)
34
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
2.
BASIS OF PREPARATION (Continued)
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-
that generate
cash inflows that are largely independent of cash inflows from other assets. Impairment is assessed by comparing
the
management to make estimates and assumptions with respect to expected revenues and expenses, which are
subject to change.
Impairment of goodwill The ann
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 11)
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 is determined based on value-in-use calculations 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 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 in
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.
Discontinued operations A discontinued operation is a component of the entity that has been disposed of or is
classified as held for sale and that represents a separate major line of business or geographical area of operations,
is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary
acquired exclusively with a view to resale. Judgement is required in determining the timing of classification to
discontinued operations, and resulting assets held for sale.
35
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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
four revenue streams:
Service contracts for the inspection, testing, repair and maintenance of electrical generating equipment.
Contracts are typically short-term in nature (i.e. 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.
The Company offers limited time warranties on the quality of its work being free from material defects. In
accordance with IFRS 15, Revenue from Contracts with Customers, 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 the
-
warranties in accordance with IAS 37, Provisions, Contingent Liabilities
and Contingent Assets.
36
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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:
Step in Model
Service
Construction
Management
Equipment Sales
Identify the
contract
The contractual arrangement executed
with the client, specifying the timing,
scope and compensation.
The contractual arrangement executed
with the client, specifying the timing,
scope and compensation.
The contractual arrangement executed
with the client, specifying the timing,
scope and compensation.
The contractual arrangement
executed with the client,
specifying the timing, scope and
compensation.
Identify distinct
performance
obligations
Single performance obligation to
provide services with combined inputs
from applicable labour and materials.
Single performance obligation to
provide construction services with
combined inputs from applicable labour
and materials.
Single performance obligation to
provide management services for
customer-owned photovoltaic systems.
Contract may include multiple
performance obligations.
Estimate
transaction price
Fixed fee established in contract.
Change orders due to changes in
scope or unexpected costs are
accounted for as contract modifications
prospectively.
Fixed fee established in contract.
Change orders due to changes in
scope or unexpected costs are
accounted for as contract modifications
prospectively.
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.
Contract price is the transaction
price.
37
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
3.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Step in
Model
Service
Construction
Management
Equipment Sales
Allocate
transaction
price to
performance
obligations
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.
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.
Recognize
revenue as
performance
obligations
are satisfied
Revenue is recognized over
time, as the work performed
enhances assets controlled by
the customer (e.g. electrical
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.
Revenue is recognized over
time, as the work performed
enhances assets controlled by
the customer (e.g. electrical
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.
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.
Revenue is recognized at a point in time once control passes to
the customer (i.e. when products are delivered).
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.
38
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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 Income (Loss) and Comprehensive Income
(Loss). 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 Income (Loss) and Comprehensive Income (Loss) 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
-
1.5 years
Customer relationships
-
10 years
Non-competition agreements
-
5 years
ERP system
Tradename
-
-
10 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
-
30% - 100%
Computer software
-
55%
Equipment
-
20% - 30%
Furniture and fixtures
-
20%
Right of use assets and leaseholds
-
over the lease term
Vehicles
-
20% - 30%
Impairment of Non-Financial Assets
Impairment tests on goodwill and indefinite life intangible assets are undertaken annually at the financial year end,
or when events/circumstances warrant a test to be conducted. 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.
39
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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
xpected 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 Income (Loss). 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
tional 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 Income (Loss) and Comprehensive Income (Loss).
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. Contingent consideration for the earn-out related to the disposal of discontinued operations are classified
as amortized cost. (Note 29)
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 Income (Loss) and Comprehensive Income (Loss). 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.
of accounts receivable, other 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 Income (Loss) and Comprehensive Income (Loss).
Transaction costs associated with financial instruments measured at fair value through profit or loss are expensed
as incurred.
40
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
3.
SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. The Company also entered into a Hedge arrangement
. 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 the reporting date. See Note
30 for further details.
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 derivative liabilities related to the Power Purchase Agreement. See Note 30 for further
details.
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
-
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 ful
-
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 17)
41
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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
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 income (loss) or directly in equity. Under these circumstances, the taxes are recognized in other
comprehensive income (loss) or directly in equity.
42
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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.
43
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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 weighted average cost 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.
New and Amended International Financial Reporting Standards Adopted in 2022
acquisition. IFRIC takes different fact patterns into consideration and discusses the underlying accounting
treatment under IFRS 2, Share-based payment and IAS 32, Financial instruments: presentation. This is not an
warrants originally issued in 2018 as part of the reverse takeover transaction between Canaccord Genuity
Acquisition Corp IV (SPAC) and Spark Power Corp, and concluded that the adoption of the standards will not
have an material impact on the Financial Statements.
New and Amended International Financial Reporting Standards to be Adopted in 2023 or Later
The following new standards and amendments to existing standards were issued by the IASB and are expected
to be adopted by the Company in 2023 or later.
Amendments to IAS 1, Presentation of Financial Statements,
requiring entities to disclose material, instead of significant, accounting policy information, and
. (January 1, 2023).
Amendments to IAS 12, Income Taxes Deferred Tax related to Assets and Liabilities arising from a Single
Transaction, narrowing the scope for exemption when recognizing deferred taxes. (January 1, 2023).
Amendments to IAS 1, Presentation of Financial Statements, clarifying the classification requirements in the
standard for liabilities as current or non-current. (January 1, 2024).
Amendments to IFRS 16, Leases
Lease Liability in a Sale and Leaseback, clarifying subsequent
measurement requirements for sale and leaseback transactions for sellers-lessees. (January 1, 2024).
Amendments to IAS 1, Presentation of Financial Statements
Non-current Liabilities with Covenants,
modifying the 2020 amendments to IAS 1 to further clarify the classification, presentation, and disclosure
requirements in the standard for non-current liabilities with covenants. (January 1, 2024).
We do not expect the adoption of these amendments, if any, will have
Financial Statements.
44
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
4.
ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE
Summary of aging:
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.
The Company determines there to be an 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.
The balance of contract asset as at December 31, 2022 is current and has no provision recorded.
2022
2021
Trade
70,570
$
65,661
$
Less: Provision for doubtful accounts
(2,575)
(2,151)
67,995
$
63,510
$
2022
2021
Contract asset
25,826
$
28,809
$
Additions during the period
59,875
43,833
Amount recognized during the period
(58,896)
(46,816)
26,805
$
25,826
$
2022
2021
Contract liability
7,182
$
3,723
$
Additions during the period
130,228
129,419
Amount recognized during the period
(130,223)
(125,960)
7,187
$
7,182
$
As at December 31, 2022
31-90 days
Current
Past Due
>90 days
Total
Balance
52,492
6,482
11,596
70,570
Provision for doubtful accounts
62
121
2,392
2,575
52,430
6,361
9,204
67,995
As at December 31, 2021
31-90 days
Current
Past Due
>90 days
Total
Balance
49,735
12,527
3,399
65,661
Provision for doubtful accounts
238
855
1,058
2,151
49,497
11,672
2,341
63,510
45
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
4.
ACCOUNTS RECEIVABLE, CONTRACT ASSET AND REVENUE (Continued)
Summary of movements in provision:
Revenue Disaggregation by Stream:
The Technical Services, Renewables and Corporate columns represent the segments that can be found in Note
20. The Company generates higher revenues in the second and third quarters as weather can impact available
outdoor work in the first and fourth quarters.
The Sustainability segment was sold on November 30, 2022 as disclosed further in Note 29.
5.
Other Receivables
(i) Since the second quarter of 2022, the Company incurred costs relating to the interior buildout of its new head
office in Oakville, Ontario. The costs incurred to date are reimbursable by the landlord and therefore have
been recorded as a receivable at December 31, 2022.
2022
2021
Opening balance
(2,151)
$
(1,719)
$
Increase during the period
(1,769)
(630)
Write-off during the period
1,345
198
Ending balance
(2,575)
$
(2,151)
2022
Technical
Services
Renewables
Corporate
Total
Service
177,378
$
89,333
$
-
$
266,711
$
Management
-
-
1,291
1,291
Equipment
4,275
-
-
4,275
Total
181,653
$
89,333
$
1,291
$
272,277
$
2021
Technical
Services
Renewables
Corporate
Total
Service
157,922
$
79,055
$
-
$
236,977
$
Management
-
-
1,788
1,788
Equipment
5,859
-
-
5,859
Total
163,781
$
79,055
$
1,788
$
244,624
$
Notes
December 31
2022
December 31
2021
Leasehold improvement receivables (i)
2,285
$
-
Disposal of discontinued operations
29
2,263
-
Other
268
-
4,816
$
-
$
46
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
6.
COVID-19 PANDEMIC & GOVERNMENT GRANTS
The COVID-19 pandemic and its variants continued to disrupt global health and impact economic conditions. The
Company maintained its business continuity plans to ensure appropriate measures, procedures and protocols
were in place to safeguard service to our customers while prioritizing employee, customer and vendor safety.
While governments have eased some COVID-
continued to be impacted by COVID-
le changes or due to a
broader government directive which resulted in the need to modify work practices to meet appropriate health and
safety standards, or by other COVID-19 related impacts on the availability of labour or to the supply chain. The
extent to which COVID-
performance will depend on further developments, including the resurgence and spread of any new variants, its
s and employees and actions taken by governments.
The ongoing conflict in Ukraine has also resulted in significant uncertainty in the global economy, such as higher
volatile commodity prices, currency exchange rates and interest rates, and increasing rates of inflation.
The Company continues to monitor ongoing developments and attempts to mitigate the business and financial
risks related to the events described above, including but 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 changes in the timing of cash flows.
Canada Emergency Wage Subsidy
to help employers keep and/or return Canadian-based employees to payrolls in response to challenges posed by
the COVID-19 pandemic.
During 2021, management determined that it met the employer eligibility criteria and applied for CEWS. The
Company recognized $2,539 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.
There were no CEWS received in 2022.
Skills Development Funding
During the second quarter of 2021 the Company received approval for a $5,300 grant from the Government of
Ontario Skills Development Fund to support employee training and advancement initiatives within the Company.
With this funding the Company implemented a one-year program between April 2021 and March 2022 whereby
the funds were utilized through this period on programs and initiatives previously approved by the Government of
Ontario. The Company would be required to return any funds not utilized in accordance with the program criteria
and timelines. At the end of 2022, the Company had received funding towards this grant of $4,846 which has fully
been utilized to fund expenditures approved under the program and $3 has been earned in interest on the funds
received. The Company has received all funding related to this grant as at December 31, 2022.
During the second quarter of 2022 the Company received approval for a $3,440 grant from the Government of
Ontario Skills Development Fund to support employee training and advancement initiatives within the Company.
With this funding the Company implemented a one-year program between April 2022 and March 2023 whereby
the funds need to be utilized through this period on programs and initiatives previously approved by the
Government of Ontario. At the end of the year the Company had received funding towards this grant of $1,866 of
which $1,463 has been utilized to fund expenditures approved under the program. The balance of $403 has been
included in bank indebtedness.
47
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
7.
INVENTORY
During the year, $52,309 (2021 - $54,446) 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.
8.
LEASE RECEIVABLE
On June 1, 2022, the Company relocated its US Head Office in Dallas, Texas and entered into a 3-year sublease
agreement for their previous premises, resulting in a lease receivable. The leased property bears an interest at
an approximate rate of 6% expiring in 2024.
9.
PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
As at December 31, 2022, property and equipment and right-of-use assets was $48,424 (December 31, 2021 -
$33,272). This balance consists of both purchased assets and assets obtained through lease agreements.
Purchased assets consist of the following:
December 31
2022
December 31
2021
Equipment and supplies
8,365
$
8,167
$
8,365
$
8,167
$
Computer
Hardware
Computer
Software
Furniture
and Fixtures
Leaseholds
Equipment
Vehicles
Total
Cost
Balance at December 31, 2020
1,884
5,541
1,800
3,734
9,407
1,842
24,208
Additions
454
463
152
2,480
1,386
663
5,598
Disposals
-
-
-
-
-
-
-
Balance at December 31, 2021
2,338
6,004
1,952
6,214
10,793
2,505
29,806
Additions
540
897
50
1,622
1,346
93
4,548
Disposals
-
-
-
-
-
-
-
Disposal of discontinued operations
(473)
(70)
(208)
(302)
(144)
-
(1,197)
Balance at December 31, 2022
2,405
6,831
1,794
7,534
11,995
2,598
33,157
Accumulated depreciation
Balance at December 31, 2020
932
3,402
1,206
1,153
4,334
575
11,602
Additions
354
1,059
131
552
1,609
568
4,273
Disposals
-
-
-
-
-
-
-
Balance at December 31, 2021
1,286
4,461
1,337
1,705
5,943
1,143
15,875
Additions
424
649
41
995
1,391
283
3,783
Disposals
-
-
-
-
-
-
-
Disposal of discontinued operations
(461)
(69)
(205)
(274)
(144)
-
(1,153)
Balance at December 31, 2022
1,249
5,041
1,173
2,426
7,190
1,426
18,505
Net carrying amounts
December 31, 2021
1,052
1,543
615
4,509
4,850
1,362
13,931
December 31, 2022
1,156
1,790
621
5,108
4,805
1,172
14,652
48
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
9.
PROERTY AND EQUIPMENT, AND RIGHT-OF-USE ASSETS (Continued)
Right-of-use assets consist of the following:
10.
INTANGIBLE ASSETS
and has capitalized certain internal and third-party costs related to the development, testing and implementation
of the ERP System. The new ERP System implementation is expected to be completed in 2023 and will be
amortized over 10 years. During 2022, immaterial amortization was recorded as it relates to US operations.
Leased
Property
Leased
Equipment
Leased
Vehicles
Total
Cost
Balance at December 31, 2020
18,981
1,232
15,657
35,870
Additions
4,549
54
6,789
11,392
Disposals
(668)
-
(895)
(1,563)
Balance at December 31, 2021
22,862
1,286
21,551
45,699
Additions
11,281
-
12,942
24,223
Disposals
(1,141)
-
(1,720)
(2,861)
Disposal of discontinued operations
(445)
(6)
-
(451)
Balance at December 31, 2022
32,557
1,280
32,773
66,610
Accumulated depreciation
Balance at December 31, 2020
9,173
1,036
10,014
20,223
Additions
3,645
165
3,723
7,533
Disposals
(570)
-
(828)
(1,398)
Balance at December 31, 2021
12,248
1,201
12,909
26,358
Additions
3,697
40
4,869
8,606
Disposals
(626)
-
(1,274)
(1,900)
Disposal of discontinued operations
(223)
(3)
-
(226)
Balance at Dec 31, 2022
15,096
1,238
16,504
32,838
Net carrying amounts
December 31, 2021
10,614
85
8,642
19,341
December 31, 2022
17,461
42
16,269
33,772
Customer
contracts
Customer
relationships
Non-
competition
agreement
Tradename
ERP System
Total
Cost:
Balance at December 31, 2020
1,846
$
37,448
$
213
$
14,193
$
-
$
53,700
$
Removal of fully amortized asset
(1,846)
-
(213)
-
-
(2,059)
Balance at December 31, 2021
-
$
37,448
$
-
$
14,193
$
-
$
51,641
$
Additions
-
-
-
-
4,080
4,080
Disposal of discontinued operations
-
(5,028)
-
(2,897)
-
(7,925)
Balance at December 31, 2022
-
$
32,420
$
-
$
11,296
$
4,080
$
47,796
$
Accumulated Amortization:
Balance at December 31, 2020
1,744
$
11,261
$
199
$
3,765
$
-
$
16,969
$
Amortization for the period
102
3,725
14
3,774
-
7,615
Removal of fully amortized asset
(1,846)
-
(213)
-
-
(2,059)
Balance at December 31, 2021
-
$
14,986
$
-
$
7,539
$
-
$
22,525
$
Amortization for the period
-
3,616
-
3,752
29
7,397
Disposal of discontinued operations
-
(2,090)
-
-
-
(2,090)
Balance at December 31, 2022
-
$
16,512
$
-
$
11,291
$
29
$
27,832
$
Net carrying amounts:
December 31, 2021
-
$
22,462
$
-
$
6,654
$
-
$
29,116
$
December 31, 2022
-
$
15,908
$
-
$
5
$
4,051
$
19,964
$
49
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
11.
GOODWILL
During the year, the Company disposed of the goodwill related to Bullfrog Power Inc. See Note 29 for detailed
discussion.
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.
taking into account factors such as market interest rate volatilities, inflationary pricing impact, labour shortages,
and the possible impact of COVID-19 due to new variants, management determined that the 3-Phase Electrical
Ltd. CGU required an impairment adjustment of $1,500 (2021 - $4,000). Management will continue to monitor the
impact of COVID-19 on a quarterly basis.
The recoverable value of each CGU was based on value-in-use calculation using a discounted cash flow
methodology. The value-in-use was calculated using unobservable (Level 3) inputs such as the budgeted and
projected revenues and EBITDA margin for a five-year period plus a terminal year. The EBITDA is defined as net
income (loss) 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 13% and 18% (2021 10%
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 market interest rate, and in operational strength each CGU has seen in operations
since acquisition.
Growth rates ranging between 0% and 18% (2021 0% and 18%) and terminal rate of 2% (2021 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.
12.
BANK INDEBTEDNESS
Original carrying
amount
Disposal
Impairment
2022
2021
Spark Power Solutions Ltd.
1,554
-
-
1,554
1,554
Spark Power High Voltage Services Inc.
3,633
-
-
3,633
3,633
New Electric Enterprises Inc.
13,847
-
-
13,847
13,847
Orbis Engineering Services Ltd.
2,456
-
-
2,456
2,456
Bullfrog Power Inc.
6,633
(6,633)
-
-
6,633
Spark Power LLC
284
-
-
284
284
3-Phase Electrical Ltd.
4,449
-
(1,500)
2,949
4,449
One Wind Services Inc. and One Wind Services (US) Inc.
5,107
-
-
5,107
5,107
37,963
$
(6,633)
$
(1,500)
$
29,830
$
37,963
$
Net carrying amount as at December 31
2022
2021
$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, 2024. The lender has general security over the
Company.
26,062
29,344
$
Cash on hand
(1,141)
(1,202)
24,921
$
28,142
$
50
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
12.
BANK INDEBTEDNESS (Continued)
On November 30, 2022, the Company amended its credit agreement with its lender (herein referred to as the
, with a $35,000 revolving credit facility that matures on September
30, 2024, subject to certain borrowing base conditions. Bank indebtedness bears interest at prime plus 2.0% -
3.0%, with an incremental interest rate margin of 1.0% applied through March 31, 2023. During the year, the
Company paid $2,061 (2021 - $1,451) of interest related to bank indebtedness which has been included in
Finance expense.
Further details of the Amended and Restated Credit Agreement are included in Note 13 Long-term debt.
13.
LONG TERM DEBT
(i) During the year ended December 31, 2022, the Company paid $7,371 in principal payments against the term
loan (2021 - $9,508).
(ii) On November 30, 2022, the Company repaid $22,000 against the term loan, including the $2,000 advance on
the term loan received in the third quarter of 2022, using the proceeds from the disposal of discontinued
operations. (Note 29)
During the year, the Company paid $4,359 (2021 - $3,014) of interest related to the long-term debt which has
been included in Finance expense.
On November 30, 2022, the Company entered into a new Amended and Restated Credit Agreement with its
Lender. Key terms of these Agreements are as follows:
a.
The maturity date of this new facility was extended to September 30, 2024 and will be amortized over an
8-year period with quarterly repayments of $1,125, reduced from previously $2,082 per quarter;
b.
Achieve a minimum cumulative monthly EBITDA at the end of each calendar month through March 31,
2023;
c.
Maintain incremental interest rate margin of 1.00% on facility advances in place from April 29, 2022
through March 31, 2023;
d.
Subsequent to the 2022 fiscal year, maintain certain covenants on a 12-month rolling quarterly basis,
including:
Minimum fixed charge coverage ratio of 1.00 for the quarter ended March 31, 2023, as revised
subsequent to the year end, increasing to 1.25 for each fiscal quarter thereafter;
Maximum total senior debt to EBITDA ratio based on the most recently completed four fiscal quarters
of 3.25:1.00;
2022
2021
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 and reduced to $1,125 commencing December 2022. The
loan matures on September 30, 2024. The lender has general security over the
Company. (i) and (ii)
35,922
$
62,459
$
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 was secured by a General Security Agreement and repaid in full on
April 30, 2022.
-
750
35,922
63,209
Less: current portion
4,500
61,962
Less: financing fees, net of amortization
2,820
1,247
Long-term debt
28,602
$
-
$
51
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
13.
LONG TERM DEBT (Continued)
Maximum total debt to EBITDA ratio based on the most recently completed four fiscal quarters of
3.75:1.00.
As at December 31, 2022, the Company was in compliance with the financial covenants in effect in its credit
facility, being the minimum cumulative monthly EBITDA covenant.
14.
PROMISSORY NOTES
During the year, the Company incurred $100 (2021 - $868) of interest related to the promissory notes which has
been recorded to Finance expense.
15.
LEASE LIABILITY
Included in Finance expense is $1,412 (2021 - $1,159) of interest expense on lease liabilities. Total cash outflows
relating to leases consist of principal payments in the amount of $8,280 (2021 - $7,569). Short term and low value
leases are not significant.
2022
2021
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
was repaid on January 1, 2022.
-
$
988
$
Issued July 1, 2018 and bears interest at 6% per annum paid quarterly. Principal
payments of $2,000 to be made on each anniversary commenced in 2021. The loan
was repaid in July 2022.
-
4,000
Issued August 1, 2019 and bears interest at 4%. Accrued interest is due and payable
on each anniversary.
2,500
2,500
Issued November 1, 2019 and bears interest at 5%. Principal payments to be made on
each anniversary as follows: 2021 - $500; 2022 - $2,750. Accrued interest is due and
payable on each anniversary. The loan was repaid in 2022.
-
3,250
2,500
10,738
Less: current portion
2,500
10,738
Promissory notes
-
$
-
$
2022
2021
Property and office space leases bearing interest at an approximate rate of
6%. The leases extend through fiscal 2037.
18,798
$
11,477
$
Motor vehicle leases bearing interest at an approximate rate of 6%. The leases
extend through fiscal 2027.
16,689
9,059
Equipment and hardware leases bearing interest at an approximate rate of
6%. The leases extend through 2025.
45
91
35,532
20,627
Less: current portion
8,057
6,643
Lease liability
27,475
$
13,984
$
52
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
15.
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:
16.
INCOME TAXES
Major components of income tax expense:
Tax expenses on continuing operations excludes the tax expenses on the discontinued operations of $2,850
(2021 - $1,358) and tax expenses on the gain on sale of discontinued operations of $1,860 (2021: nil). Both of
these have been included in net income from discontinued operations, net of taxes. See Note 29.
The income tax provision recorded differs from the income tax obtained by applying the statutory income tax rate
of 26.5% (2021 - 26.5%) to the income for the year and is reconciled as follows:
2023
9,132
2024
8,208
2025
6,790
2026
5,197
2027 and thereafter
15,301
44,628
Less: imputed interest
9,096
35,532
2022
2021
Current tax expenses (recovery)
Current year
(868)
$
(677)
$
True-up of prior year
(478)
(498)
(1,346)
(1,175)
Deferred tax expenses (recovery)
Origination and reversal of temporary differences
(3,294)
(1,005)
(3,294)
(1,005)
Tax expenses (recovery) on continuing operations
(4,640)
$
(2,180)
$
2022
2021
Loss before income taxes from continuing operations
(15,639)
$
(28,902)
$
Statutory rate
26.5%
26.5%
Expected income tax recovery
(4,144)
(7,659)
Increase (decrease) in income taxes due to:
Permanent differences
2,397
1,543
Change in valuation allowance
(1,470)
3,793
True-up of prior year
(935)
82
Other
(488)
61
Income tax expense (recovery)
(4,640)
$
(2,180)
$
53
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
16.
INCOME TAXES (Continued)
The tax effects of significant components of temporary differences that give rise to deferred tax assets and
liabilities are as follows:
The Company has non-capital losses available that can be utilized to reduce taxable income of future years.
These losses expire as follows:
Operating losses incurred by the Company
subsidiaries for which a deferred tax asset has not been
recognized were $10,995 (2021 - $17,132).
17.
SHARE CAPITAL
Authorized:
Unlimited
Common shares
Issued:
2022
2021
Deferred tax assets
Loss carryforwards
6,516
$
4,296
$
Provision for expected credit losses
-
-
Property and equipment and right of use asset
467
338
Financing costs
69
129
Other
-
567
7,052
5,330
Deferred tax liabilities
Intangible assets
316
(2,746)
Property and equipment
(915)
(1,262)
Other
(3,566)
(2,418)
(4,165)
(6,426)
Net deferred tax asset/(liability)
2,887
$
(1,096)
$
2040
11,982
$
2041
15,798
2042
7,581
35,361
Valuation allowance
(10,995)
24,366
$
Number
Amount
Balance, December 31, 2020
53,649,648
130,284
$
Exercise of stock options (i), (ii) and (iii)
411,282
782
Conversion of restricted share units (iv), (vi) and (vii)
219,277
144
Issuance of common shares through private placement (v)
2,654,028
5,600
Balance, December 31, 2021
56,934,235
136,810
Issuance of common shares through rights offering (viii)
24,674,133
29,525
Issuance of common shares through private placement (ix)
8,333,333
10,000
Conversion of restricted share units (x)
551,434
306
Balance, December 31, 2022
90,493,135
176,641
$
54
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
17.
SHARE CAPITAL (Continued)
(i)
In January 2021, 75,075 common shares were issued upon the exercise of options granted under the
proceeds of $125. An additional value allocated to these shares in the amount of $37 was reallocated
from contributed surplus to share capital.
(ii)
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.
(iii)
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.
(iv)
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.
(v)
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.
(vi)
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.
(viii)
In January 2022, 24,674,133 common shares were issued upon the closing of a rights offering at a price
of $1.20 per share for net cash proceeds of $29,525, excluding issuance costs of $84.
(ix)
In January 2022, 8,333,333 common shares were issued upon the closing of a non-brokered private
placement at a price of $1.20 per share for cash proceeds of $10,000. There were no issuance costs
associated with this financing.
(x)
During 2022, 551,434 common shares were issued upon the conversion of Restricted Share Units. A
fair value of $306 was applied to these shares and reallocated from Contributed surplus.
Omnibus Equity Incentive Plan
and
employees and consultants, subject to certain conditions, so that they may participate in its growth and
development.
As at December 31, 2022, there were 5,832,426 stock options, RSU, DSU or PSU that are available to be granted
under the Omnibus Equity Incentive Plan (December 31, 2021 5,693,424). Options generally expire after ten
years, with vesting provisions stated in the Omnibus Plan.
In addition, 1,735,980 stock options were part of a rollover when the Company completed the acquisition of
Genuity Acquisition Corp., of which 1,039,542 remain outstanding, and accordingly are not included against the
total options available under the Omnibus Equity Incentive Plan.
55
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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, 2022 and 2021 are
summarized as follows:
(xi)
During the second and third quarter of 2022, the Company granted 68,844 and 1,110,000 stock options
with an exercise price of $1.38 and $1.20, vesting equally over a three-year period with a ten-year term
and a four-year period with a five-year term, respectively.
(xii)
In 2021, 108,000 options and 66,000 with an exercise price of $1.66 and $1.34 per unit, respectively,
were forfeited upon the departure of an employee. A value of $54 and $33, respectively, were applied to
these options and removed from Contributed surplus.
(xiii)
In 2022, 100,000 and 225,000 options with an exercise price of $1.38 and $1.20 per unit, respectively,
were forfeited
No adjustment made to the Contributed Surplus.
The Company used the Black-Scholes option pricing model to estimate the fair value of options granted in the
year based on the following inputs:
There were no options granted during the year ended December 31, 2021.
Of the total number of options outstanding at December 31, 2022, 1,985,376 (December 31, 2021 1,379,031)
had vested and were exercisable. The weighted average remaining life of the options was 8.1 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
shares.
Number of
Options
Weighted
Average Option
Exercise Price
$
Number of
Options
Weighted
Average Option
Exercise Price $
Outstanding, beginning of period
2,083,198
1.29
2,688,480
1.32
Granted during the period (xi)
1,178,844
1.21
-
-
Forfeiture during the period (xii) and (xiii)
(325,000)
1.20
(174,000)
1.54
Cancelled during the period
-
-
(20,000)
1.32
Exercised during the period (i), (ii) and (iii)
-
-
(411,282)
1.40
Outstanding, end of year
2,937,042
1.27
2,083,198
1.29
Year ended December 31, 2022
Year ended December 31, 2021
2022
Estimated life
5 years
Volatility
50%
Dividend growth rate
0%
Risk-free interest rate
3.64%
56
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
17.
SHARE CAPITAL (Continued)
RSU plan for the years ended December 31, 2022 and 2021 are summarized as follows:
(xiv)
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.
(xv)
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.
(xvi)
In 2021, 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
during the year.
(xvii)
On June 29, 2022, the Company issued 1,755,000 RSUs with an exercise price of $0.71 per unit,
600,000 of which cliff vest on June 29, 2025 and the remaining vest in three installments on each
anniversary date of grant.
(xviii)
On September 16, 2022, the Company issued 135,000 RSUs with an exercise price of $0.75 per unit
which vest in three installments on each anniversary date of grant.
(xix)
In 2022, the 551,434 vested
were converted into common shares, and a value of $306 was
applied to these RSUs and transferred from contributed surplus to common shares during the year.
(xx)
In 2022, 301,305 RSUs with a value of $0.57 per unit were forfeited upon the departure of various
employees. A value of $53 was applied to these RSUs and removed from contributed surplus during the
period.
The weighted average fair value of RSUs granted during 2022 is $0.31 (2021 - $0.63). 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:
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
shares.
Number
Amount
Balance, December 31, 2020
608,441
307
$
Granted during the period (xiv) and (xv)
1,163,529
801
Exercised during the period (xv)
(219,277)
(144)
Forfeited during the period (xvi)
(146,733)
(77)
Balance, December 31, 2021
1,405,960
887
$
Granted during the period (xvii) and (xviii)
1,890,000
586
Excercised during the period (xix)
(551,434)
(306)
Forfeited during the period (xx)
(301,305)
(53)
Balance, December 31, 2022
2,443,221
1,114
$
2022
2021
Estimated life
3 years
3 years
Volatility
69%
70%
Dividend growth rate
0%
0%
Risk-free interest rate
3.72%
0.70%
57
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
17.
SHARE CAPITAL (Continued)
2 and 2021 are summarized as follows:
(xxi)
In 2022, the Company issued 160,519 DSUs (2021 24,532 DSUs) with a weighted average exercise
price of $0.61 (2021 $2.04) per unit. These units vest upon date of the grant.
The weighted average fair value of deferred share units granted during 2022 is $0.61 (2021 - $0.98). 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:
Performance Share Units
On September 20, 2022, the Company granted 1,550,000 equity settled PSUs, with an exercise price of $1.20,
with an expiry date on January 1, 2027.
For each of the financial years ended December 31, 2022, December 31, 2023, December 31, 2024 and
December 31, 2025, 12.5% of the PSUs are eligible to vest with a multiplier of 50% to 150% based on the
achievement of the Gross Margin Percentage and Operational EBITDA performance goals (the Performance
Goals ). Notwithstanding the maximum for 150% vesting set out for each Performance Goal, in each year, a
maximum of 25% of the PSUs are eligible to vest.
The fair value of PSUs granted is estimated at the date of grant using the Black-Scholes option pricing model,
taking into account the terms and conditions, on which the PSUs were granted, with estimates regarding
probability of performance condition being met and forfeiture rates. During the year, $76 expenses were recorded
in contributed surplus. During the year, 300,000 PSUs were forfeited.
The following inputs were used to estimate the fair value of the PSUs:
Estimated Life 4.25 years
Volatility 70%
Dividend growth rate 0%
Risk-free interest rate 3.70%
Share Appreciation Rights Plan
On September 16, 2022, the Company adopted a stock appreciation rights plan (the
further aligns the Company s strategic objective of value creation to the compensation of the senior management
team of the Company.
On September 20, 2022, the Company s senior management team were granted 2,325,000 share appreciation
rights ( SARs ), to be settled in cash, with an expiry date on January 1, 2027.
The SARs vest on the occurrence of a change in control that achieves certain financial thresholds, or
upon satisfaction of the alternative vesting condition, provided that such vesting condition is satisfied
prior to the expiry date.
The liability for the share appreciation rights is measured, initially and at the end of each reporting period
until settled, at the fair value of the share appreciation rights, by applying bi-nominal pricing model, taking
Number
Amount
Balance, December 31, 2020
56,654
35
$
Granted during the period (xxi)
24,532
44
Balance, December 31, 2021
81,186
79
$
Granted during the period (xxi)
160,519
98
Balance, December 31, 2022
241,705
177
$
2022
2021
Estimated life
3 years
3 years
Volatility
70%
70%
Dividend growth rate
0%
0%
Risk-free interest rate
3.35%
0.56%
58
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
17.
SHARE CAPITAL (Continued)
into account the terms and conditions on which the share appreciation rights were granted, and the extent
to which the employees have rendered services to date.
The following inputs were used to estimate the fair value of the SARs:
Estimated Life 4.01 years
Volatility 71%
Dividend growth rate 0%
Risk-free interest rate 3.99%
There were nil financial liabilities recorded as at December 31, 2022. 450,000 SARs were forfeited at year end.
Share-based compensation
During the year ended December 31, 2022, share-based compensation of $794 (2021 - $1,072) was recorded as
an expense and added to contributed surplus.
Warrants
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, 2022 and December 31, 2021 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.
On January 31, 2022, 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 1.028 Common share to 1.10 Common shares at an exercise price of $3.14 per
share for a remaining term of 1.7 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
either directly or indirectly.
Level 3:
inputs for the asset or liability that are no based on observable market data. There were no financial
59
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
18.
FINANCIAL INSTRUMENTS (Continued)
instruments carried at fair value categorized in Level 3 as at December 31, 2022 and 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 has been recorded to
finance expense using Mark-to-
The
Interest Rate Swap arrangement ended on September 30, 2021 and was not renewed.
The Company does not have any financial instruments carried at fair value categorized in Level 3 as at period
end.
The carrying values of accounts receivable, other receivable, HST receivable, government grant receivable,
contract assets, bank indebtedness, accounts payable and accrued liabilities, income taxes payable 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
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 COVID-19
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 may 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), 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. Notwithstanding the phased reduction in restrictions in most jurisdictions
following the peak of the COVID-19 variant in 2022, unexpected developments in financial markets, regulatory
environments, supply chains, or supplier, employee, or customer behaviour and confidence may have adverse
impacts on our financial results and condition, and business operations and reputation if another epidemic or
pandemic-scale infectious disease arises, or if a mutation of the COVID-19 virus results in renewed government
and private sector restrictions. The Company cannot accurately predict what future effects such conditions may
have on its operations or financial results. 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.
60
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
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.
ustomers and performs
frequent reviews of outstanding balances. The Company determines there to be an increase in credit risk when
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
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.
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
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 12) bear interest at a variable rate; however, the balance of the lines is continually
terest 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, 2022, if interest rates had been higher by 2% with all other variables held
constant, net loss would have been $1,500 higher. A decline in interest rates of 1% would have decreased the
750.
Liquidity risk
repayments on its debt instruments. It is the risk that the Company will encounter difficulty in meeting its financial
obligations as they fall due
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 13.
The following table sets out the contractual maturities as at December 31, 2022 (representing undiscounted
contractual cash flows) of financial liabilities:
61
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
18.
FINANCIAL INSTRUMENTS (Continued)
19.
CAPITAL MANAGEMENT
The Company defines its managed capital as the total of interest-bearing long-
including share capital, contributed surplus, accumulated other comprehensive (loss) income and retained
earnings (deficit). As at December 31, 2022, total managed capital was $106,340 (2021 - $86,758).
The
objectives when managing capital are:
i.
an appropriate amount of leverage; and
ii.
To provide an appropriate return to shareholders
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
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.
31, 2022 or 2021.
20.
SEGMENTED INFORMATION
The Company has three primary segments: Technical Services, Renewables and Corporate. Two 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 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 the One Wind, Northwind, and Spark Power Solutions CGUs.
The Company evaluates segment performance on the basis of profit and loss from operations but excluding any
non-recurring losses and share-based payments.
The Sustainability segment was sold in 2022, and therefore excluded in the segmented information. Details of the
Sustainability segment are presented in Note 29.
2022
Notes
Carrying
amount
Contractual
cash flow
2023
2024
2025
2026
2027 and
thereafter
Bank indebtedness
12
24,921
24,669
24,669
-
-
-
-
Accounts payable and
accrued liabilities
44,174
44,174
44,174
-
-
-
-
Long-term debt
13
33,102
33,102
4,500
28,602
-
-
-
Promissory notes
14
2,500
2,500
2,500
-
-
-
-
Lease liability
15
35,532
44,628
9,132
8,208
6,790
5,197
15,301
140,229
149,073
84,975
36,810
6,790
5,197
15,301
2021
Notes
Carrying
amount
Contractual
cash flow
2022
2023
2024
2025
2026 and
thereafter
Bank indebtedness
12
28,142
$
28,142
$
28,142
$
-
$
-
$
-
$
-
$
Accounts payable and
accrued liabilities
53,748
53,748
53,748
-
-
-
-
Long-term debt
13
61,962
64,051
64,051
-
-
-
-
Promissory notes
14
10,738
11,673
11,673
-
-
-
-
Lease liability
15
20,627
22,856
7,558
5,443
4,190
2,783
2,882
Derivative liabilities
29
1,203
1,203
1,203
-
-
-
-
Future lease commitment
30
-
15,020
-
904
904
904
12,308
176,420
$
196,693
$
166,375
$
6,347
$
5,094
$
3,687
$
15,190
$
62
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
20.
SEGMENTED INFORMATION (Continued)
2022
Technical
Services
Renewables
Corporate
Total
Segment revenues
181,653
$
89,333
$
1,291
$
272,277
$
Segment cost of sales
145,141
72,289
-
217,430
Segment selling, general and
administration expenses
25,272
9,671
21,041
55,984
Segment provision for expected credit loss
1,769
-
-
1,769
Segment reorganization costs
266
512
1,270
2,048
Segment change in foreign exchange (gain) loss
(270)
(95)
(259)
(624)
Other expenses (income)
-
-
57
57
Segment amortization and depreciation
16,012
2,196
1,351
19,559
Segment profit (loss)
9,475
6,956
(20,818)
(4,387)
Finance expense
-
-
-
(8,423)
Transaction Costs
-
-
-
(1,329)
Impairment Loss
(1,500)
-
-
(1,500)
Total Company income (loss) before taxes from continuing operations
(15,639)
$
Segment assets
113,343
$
68,620
$
33,926
$
215,889
$
Deferred tax asset
-
$
-
$
2,887
2,887
Total Company assets
218,776
$
Segment liabilities
44,836
$
53,976
$
49,546
$
148,358
$
Long-term debt
-
Total Company liabilities
148,358
$
2021
Technical
Services
Renewables
Corporate
Total
Segment revenues
163,781
$
79,055
$
1,788
$
244,624
$
Segment cost of sales
136,645
62,801
-
199,446
Segment selling, general and
administration expenses
25,271
8,007
22,521
55,799
Segment provision for expected credit loss
518
-
-
518
Segment change in fair value of
derivative instruments
-
-
-
-
Segment change in realized gain on settlement
of derivative instruments
-
-
-
-
Segment reorganization costs
569
453
2,369
3,391
Segment change in foreign exchange (gain) loss
239
519
197
955
Other expenses (income)
-
-
(49)
(49)
Segment amortization and depreciation
15,261
1,519
2,173
18,953
Segment profit (loss)
539
7,275
(23,250)
(15,436)
Finance expense
-
-
-
(7,126)
Transaction Costs
-
-
-
(2,141)
Impairment Loss
(4,000)
-
-
(4,000)
Total Company income (loss) before taxes from continuing operations
(28,703)
$
Segment assets
130,421
$
35,806
$
22,573
$
188,800
$
Segment liabilities
74,688
$
19,630
$
87,377
$
181,695
$
Deferred tax liability
407
Long-term debt
-
Total Company liabilities
182,102
$
63
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
20.
SEGMENTED INFORMATION (Continued)
The Company has locations in Canada and the US. Details of the
operations by geographical area
are as follow:
21.
RELATED PARTY TRANSACTIONS
In the year ended December 31, 2022, $6,255 (2021 - $1,455) of revenue was earned from and there was $662
owing from Red Jar Capital,
, in accounts receivable (2021 - $256). Further,
there were no other balances due to/from related parties and/or shareholders as at December 31, 2022 and 2021.
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Company, comprised of the C
and other benefits paid to the key management personnel in the year were $2,292 (2021 - $1,871).
2022
Canada
USA
Total
Regional revenues
178,861
$
93,416
$
272,277
$
Regional cost of sales
144,127
73,303
217,430
Regional selling, general and administation expenses
46,325
9,659
55,984
Regional provision for expected credit loss
1,769
-
1,769
Other expenses (income)
57
-
57
Regional reorganization costs
2,048
-
2,048
Regional change in foreign exchange (gain) loss
(624)
-
(624)
Regional profit (loss)
(14,841)
$
10,454
$
(4,387)
$
Property and equipment
40,959
$
7,465
$
48,424
$
Intangible assets
19,201
$
763
$
19,964
$
Goodwill
29,545
$
285
$
29,830
$
2021
Canada
USA
Total
Regional revenues
171,946
$
72,678
$
244,624
$
Regional cost of sales
133,771
65,675
199,446
Regional selling, general and administation expenses
47,200
8,599
55,799
Regional provision for expected credit loss
85
433
518
Other expenses (income)
(49)
-
(49)
Regional reorganization costs
3,340
51
3,391
Regional change in foreign exchange (gain) loss
955
-
955
Regional profit (loss)
(13,356)
$
(2,080)
$
(15,436)
$
Property and equipment
27,841
$
5,431
$
33,272
$
Intangible assets
27,978
$
1,138
$
29,116
$
Goodwill
37,679
$
284
$
37,963
$
64
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
22.
RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
23.
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 from continuing
operations in the current year, the outstanding option, RSUs, DSUs and warrants are anti-dilutive.
Basic and diluted earnings per share
2021
Cash flows
Deferred
financing fees
New leases
acquired during
the year
2022
Bank indebtedness
28,142
(3,221)
-
-
24,921
Long-term debt
61,962
(29,169)
309
-
33,102
Promissory notes
10,738
(8,238)
-
-
2,500
Lease liability
20,627
(8,280)
-
23,185
35,532
121,469
(48,908)
309
23,185
96,055
2020
Cash flows
Deferred
financing fees
New leases
acquired during
the year
2021
Bank indebtedness
25,444
$
2,698
$
-
$
-
$
28,142
$
Long-term debt
66,572
(4,794)
184
-
61,962
Promissory notes
10,738
-
-
-
10,738
Lease liability
17,285
(8,050)
-
11,392
20,627
120,039
$
(10,146)
$
184
$
11,392
$
121,469
$
Non-cash changes
Non-cash changes
2022
2021
Numerator:
Net (loss) income from continuing operations
(10,999)
$
(26,523)
$
Net income (loss) from discontinued operations
18,804
5,230
Net income (loss)
7,805
(21,293)
Denominator:
Weighted average number of basic shares outstanding
89,560,957
56,564,958
Weighted average number of diluted shares outstanding
89,560,957
56,564,958
(Loss) earnings per share from continuing operations:
Basic
(0.12)
$
(0.47)
$
Diluted
(0.12)
$
(0.47)
$
(Loss) earnings per share from discontinued operations:
Basic
0.21
$
0.09
$
Diluted
0.21
$
0.09
$
65
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
24.
EXPENSE BY NATURE
25.
PROVISION FOR EXPECTED CREDIT LOSSES
As of December 31, 2022, the Company recognized $1,769 in Provision for Expected Credit Losses (2021 - $580).
26.
FINANCE EXPENSE
27.
TRANSACTION COSTS
During the year ended December 31, 2022, the Company recognized $1,329 in transaction costs. These are costs
associated with the rights offering and the strategic review process. In addition, there were $1,985 transaction
costs incurred related to the sale of Bullfrog and included in the calculation of gain on disposal of discontinued
operations as disclosed in Note 29. The transactions costs include legal and advisory costs. 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.
28.
REORGANIZATION AND OTHER NON-RECURRING COSTS
During the year ended December 31, 2021, the Company recognized $2,048 of severance related costs (2021 -
$2,141) of which $1,376 was included in accrued liabilities as at December 30, 2022 (December 31, 2021 -
$1,794).
corporate overheads.
2022
2021
Material, equipment and subcontractors
68,304
$
70,225
$
Other administration costs
44,304
36,556
Office and telephone
5,696
4,816
Salaries and wages
129,085
118,200
Occupancy costs
2,592
1,858
Advertising and promotion
334
634
Depreciation of property and equipment
12,389
11,806
Amortization of intangible assets
7,396
7,615
Professional fees
3,314
3,535
273,414
$
255,245
$
Notes
2022
2021
Interest on bank indebtedness
12
2,061
$
1,451
$
Interest on long-term debt
13
4,358
3,014
Interest on promissory notes
14
100
868
Interest on lease liabilities
15
1,412
1,159
Mark-to-Market interest gain
18
-
(345)
Other
492
979
8,423
$
7,126
$
66
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
29.
DISCONTINUED OPERATIONS
On November 30, 2022, the Company sold its Bullfrog business unit, a wholly owned subsidiary, for approximately
$35.0 million to a third party. Bullfrog was classified as a discontinued operation as at December 31, 2022. The
Bullfrog business
November 30,
2022. With Bullfrog being sold, the Sustainability segment is no longer presented in the Segment note.
Results of discontinue operations for the years ended:
Cash flows from (used in) discontinued operation:
Notes
2022
2021
Revenue
10,109
11,191
Cost of sales
6
2,830
4,118
Gross profit
7,279
7,073
Expenses
Selling, general and administrative
6,24
2,930
3,538
Provison for expected credit loss
4
15
112
Change in fair value of derivative instruments
30
(7,427)
(2,716)
Realized gain on settlement of derivative instruments
30
(1,234)
(1,051)
Foreign exchange loss
15
26
Reorganization costs
-
101
Results from operating activities
12,980
7,063
Current income tax expense
885
669
Deferred income tax expense
1,965
689
Income tax expense
16
2,850
1,358
Results from discontinued operations, net of taxes
10,130
5,705
Gain on sale of discontinued operations
10,534
-
Income tax expenses on sale of discontinued operations
16
1,860
-
8,674
-
Net income from discontinued operations, net of taxes
18,804
5,705
Basic earnings per share
0.21
$
0.09
$
Diluted earnings per share
0.21
$
0.09
$
2022
2021
Net cash provided by (used in) operating activities
(4,354)
$
(1,541)
$
Net cash from investing activities
30,017
-
Net cash flows for the year
25,663
$
(1,541)
$
67
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
29.
DISCONTINUED OPERATIONS (Continued)
Effect of disposal on the financial position of the Company:
Components of considerations:
During the third quarter of 2021, 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 for the
period ended December 31, 2021.
Notes
2022
Trade and other receivables
(1,489)
Contract assets
(1,000)
Inventories
(885)
Prepaid expenses and deposits
(1,552)
Property, plant and equipment
(269)
Goodwill
(6,634)
Intangibles
(5,835)
Current and long-term derivative assets
(10,684)
Trade payables and accrued liabilities
1,055
Contract liabilities
46
Deferred taxes liabilities
2,654
Income tax payables
825
Current and long-term derivative liabilitiies
541
Lease liabilities
241
Net assets and liabilities
(22,986)
Consideration received in cash
30,000
Other
24
Cash and cash equivalents disposed of
(7)
Net cash inflows
30,017
Consideration received upon close
30,000
Consideration in escrow
1,500
Earn-out
3,318
Working capital adjustments
336
Other
450
Net cash inflows
35,604
68
SPARK POWER GROUP INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
Presented in thousands of Canadian dollars, except share and per share amounts
30.
POWER PURCHASE AGREEMENT
As disclosed in Note 29 discontinued operations, the Power Purchase Agreement and the power swap
arrangement were sold on November 30, 2022 as the Company sold Bullfrog.
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 $6,765 (2021 - $3,918). As at December 31, 2021, an amount of $1,769 was
recorded as a current asset and expected to be realized within the next twelve months.
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 unrealized gain in change in the fair value of the other
derivative liability during the year of $662 (2021 $1,202 loss) is based on the projected market values of similar
contracts with similar remaining durations as if the contract has been entered into at end of each period.
On March 9, 2022, the Company signed a second Power Purchase Agreement for the purchase and sale of
renewable energy and environmental attributes, including Certified Renewable Energy Certificates. The
agreement started during the second quarter of 2022.
During the year, the Company recognized realized settlements on the PPA in the amount of $4,478 offset by
realized settlements on the hedge of $3,244 respectively for a net gain of $1,234.
at 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, and
as such, recorded as inventory. At November 30, 2022, the Company had 10,984
equal to $60 (December
31, 2021 - $111) that were included in inventory and held for sale by the Company under its normal course of
business.
Power Group Inc., had issued Letters of Credit to the seller and the hedge broker in the amount of $760 and $100
respectively.
31.
COMMITMENTS AND CONTINGENT LIABILITY
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.
69
MANAGEMENT
DISCUSSION &
ANALYSIS
FOR THE YEARS ENDED DECEMBER 31
2022
Management’s Discussion and Analysis
2
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 twleve months ended
December 31, 2022, dated March 28, 2023, should be read in conjunction with the December 31, 2022 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 refinancing, future financial position, our ability to secure new financing on
reasonable terms, our business strategy, execution of ‘Let’s Grow Better’ strategic plan, 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, 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, 2022, filed on March 28, 2023 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.
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.
71
Management’s Discussion and Analysis
3
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 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”, 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”.
“Adjusted EBITDA” means EBITDA adjusted for any reorganization and transaction costs, discontinued operations, change
in estimate and non-recurring items 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.
“Adjusted EBITDA Margin” means Adjusted EBITDA divided by revenue.
“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.
“EBITDA” means net income (loss) before amortization and depreciation, finance costs, and provision for income taxes.
“EBITDA Margin” means EBITDA divided by revenue.
72
Management’s Discussion and Analysis
4
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
three specific business segments: Technical Services, Renewables, 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
•
Electrical contracting services
•
Industrial automation
•
Systems integration
•
Custom control panel design and assembly
•
Electronic repair
•
24/7 emergency services
Medium & High
Voltage
•
Power ‘On’ services
•
Sub-station construction and
maintenance
•
Power line construction and
maintenance
•
Equipment installation
•
Commissioning
•
Thermography services
•
Transformer maintenance
Engineering
•
Power systems engineering
•
Protection and control
engineering
•
Substation engineering
•
SCADA engineering
•
Arc flash studies
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
73
Management’s Discussion and Analysis
5
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
•
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
•
Asset monitoring
•
Operations and maintenance
•
Commissioning
Battery
Energy
Storage Systems
(BESS)
•
Engineering, procurement,
and construction
•
Operations and maintenance
•
Commissioning
Electric Vehicle (EV)
•
Construction
•
Operations and maintenance
74
Management’s Discussion and Analysis
6
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 and twelve months ended December 31, 2022 and 2021.
(in $000's)
2022
2021
2022
2021
Revenue
64,518
$
63,086
$
272,277
$
244,624
$
Cost of sales
52,033
55,085
217,430
199,446
Gross profit
12,485
8,001
54,847
45,178
Selling, general and administrative expenses
13,690
16,242
55,984
55,799
Provision for expected credit losses
1,500
439
1,769
518
Other expense (income)
57
(49)
57
(49)
Reorganization costs
198
1,862
2,048
3,391
Foreign exchange (gain) loss
2,062
513
(624)
955
Loss from operations
(5,022)
(11,006)
(4,387)
(15,436)
Finance costs
(2,737)
(2,233)
(8,423)
(7,126)
Transaction costs
(336)
(580)
(1,329)
(2,141)
Impairment loss
(1,500)
(4,000)
(1,500)
(4,000)
(4,573)
(6,813)
(11,252)
(13,267)
Income (loss) before income taxes from continuing operations
(9,595)
(17,819)
(15,639)
(28,703)
Income tax recovery (expense):
Current
2,547
1,513
1,346
1,175
Deferred
1,510
(2,214)
3,294
1,005
4,057
(701)
4,640
2,180
Net income (loss) from continuing operations
(5,538)
(18,520)
(10,999)
(26,523)
Net income from discontinued operations
10,673
645
18,804
5,230
Net income (loss)
5,135
(17,875)
7,805
(21,293)
Cumulative translation adjustment
(14)
241
(1,202)
373
Comprehensive loss
5,121
(17,634)
6,603
(20,920)
EBITDA
10,566
$
(10,240)
$
34,442
$
4,617
$
EBITDA margin
16.0%
(15.7%)
12.2%
1.8%
Adjusted EBITDA
6,972
3,136
33,083
23,304
Adjusted EBITDA margin
10.5%
4.8%
11.7%
9.1%
Adjusted EBITDA excl. unrealized gains on derivatives
4,496
3,294
25,656
20,588
Adjusted EBITDA margin excl. unrealized gains on derivatives
6.8%
5.0%
9.1%
8.0%
Three months ended December 31,
Twelve months ended December 31,
75
Management’s Discussion and Analysis
7
EBITDA and Adjusted EBITDA
The following tables provide a reconciliation of our EBITDA measures:
(in $000's)
2022
2021
2022
2021
EBITDA - continuing operations
(760)
$
(10,650)
12,343
$
(2,624)
$
EBITDA - discontinued operations
11,326
410
22,099
7,241
Total EBITDA
10,566
(10,240)
34,442
4,617
Adjusted EBITDA - continuing operations
4,320
2,648
19,643
15,375
Adjusted EBITDA - discontinued operations
2,652
488
13,440
7,929
Total Adjusted EBITDA
6,972
$
3,136
33,083
$
23,304
Total Adjusted EBITDA excl. unrealized gains on derivatives
4,496
$
3,294
25,656
$
20,588
Reconciliation of Total EBITDA and Adjusted EBITDA
Three months ended December 31,
Twelve months ended December 31,
(in $000's)
2022
2021
2022
2021
Net Income (loss) from continuing operations
(5,538)
$
(18,520)
$
(10,999)
$
(26,523)
$
Adjustments:
Finance expense
2,737
2,233
8,423
7,126
Income tax (recovery) expense
(4,057)
701
(4,640)
(2,180)
Amortization and depreciation
6,098
4,936
19,559
18,953
EBITDA - continuing operations
(760)
$
(10,650)
$
12,343
$
(2,624)
$
EBITDA Margin - continuing operations
(1.2%)
(16.9%)
4.5%
(1.1%)
Adjustments:
Provision for expected credit loss
1,500
439
1,769
518
Impairment loss
1,500
4,000
1,500
4,000
Foreign exchange loss (gain)
1,546
619
654
1,559
Reorganization costs
198
1,862
2,048
3,391
Transaction costs
336
580
1,329
2,141
Change in estimate
-
3,740
-
6,390
Year end provisions
-
2,058
-
-
Adjusted EBITDA - continuing operations
4,320
$
2,648
$
19,643
$
15,375
$
Adjusted EBITDA Margin - continuing operations
6.7%
4.2%
7.2%
6.3%
Reconciliation of net income (loss) to EBITDA and Adjusted
EBITDA - Continuing operations
Three months ended December 31,
Twelve months ended December 31,
(in $000's)
2022
2021
2022
2021
Net Income from discontinued operations
10,673
$
645
$
18,804
$
5,230
$
Adjustments:
Income tax expense
597
(435)
2,850
1,358
Amortization and depreciation
56
200
445
653
EBITDA - discontinued operations
11,326
$
410
$
22,099
$
7,241
$
EBITDA Margin - discontinued operations
681.1%
17.5%
218.6%
64.7%
Adjustments:
Provision for expected credit loss
-
78
15
112
Reorganization costs
-
-
-
101
(Gain) loss on sale of discontinued operations
(8,674)
-
(8,674)
475
Adjusted EBITDA - discontinued operations
2,652
$
488
$
13,440
$
7,929
$
Adjusted EBITDA Margin - discontinued operations
159.5%
20.9%
133.0%
70.9%
Adjusted EBITDA excl. unrealized gains on derivatives
176
$
646
$
6,013
$
5,213
$
Adjusted EBITDA margin excl. unrealized gains on derivatives
10.6%
27.6%
59.5%
46.6%
Reconciliation of net income to EBITDA and Adjusted EBITDA -
Discontinued operations
Three months ended December 31,
Twelve months ended December 31,
76
Management’s Discussion and Analysis
8
RECENT DEVELOPMENTS
Launch of New Three Year Strategy
At the start of 2023, the Company launched its new three year ‘Let’s Grow Better’ strategy designed to create value for all
stakeholders in the business. The focus of the strategy is to deliver profitable growth by way of a targeted go-to-market plan,
enhance gross margins and cash flow, and leverage a scalable platform to support the next stage of growth. The Company
plans on sharing details of the strategy in the coming months.
Sale of Bullfrog Power Inc.
On November 30, 2022, the Company sold its Bullfrog Power Inc. (“Bullfrog”) business unit, a wholly owned subsidiary, for
total all-cash proceeds of up to $35.0 million. Proceeds from the transaction were used to reduce debt and fund working
capital needs. At September 30, 2022, Bullfrog was classified as a discontinued operation.
Amendment to Credit Facility
On November 30, 2022, the Company entered into a new Amended and Restated Credit Agreement with its Lender. Key
terms of this Agreement are as follows:
a)
The maturity date of this new facility was extended to September 30, 2024 and will be amortized over an 8-year
period with quarterly repayments of $1.1 million, reduced from previously $2.1 million per quarter;
b)
Achieve a minimum cumulative monthly EBITDA at the end of each calendar month through March 31, 2023;
c)
Maintain incremental interest rate margin of 1.00% on facility advances in place from April 29, 2022 through March
31, 2023;
d)
Subsequent to the 2022 fiscal year, maintain certain covenants on a 12-month rolling quarterly basis, including:
•
Minimum fixed charge coverage ratio of 1.00 for the quarter ended March 31, 2023, as revised subsequent to
the year end, increasing to 1.25 for each fiscal quarter 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 3.75:1.00.
As at December 31, 2022, the Company was in compliance with the financial covenants in effect in its credit facility, being
the minimum cumulative monthly EBITDA covenant.
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.
ERP Migration
In September 2022, the Company migrated its first business unit on to the new Enterprise Technology platform (US Technical
Services). The new platform is expected to streamline processes across the organization, improve operational and financial
reporting, and deliver operational efficiences.
In January 2023, the Company migrated its Renewables US business unit on to the new Enterprise Technology platform.
The Company expects to migrate the Canadian business units later in 2023.
77
Management’s Discussion and Analysis
9
Business Integration
Through the second half of 2022, the Company completed its business-wide integration initiative to consolidate Spark
Power’s operating enterprise across all lines of business to achieve synergies and optimize financial performance.
This action is expected to unify our go-to-market strategy across the enterprise, unlock operational efficiencies in our
management structure, simplify business processes while eliminating complexity, and provide for more enhanced service
delivery across the markets it serves.
During the year, the Company recorded $2.0 million related to reorganization costs as part of the integration program.
Rights Offering and Private Placement
On January 31, 2022, the Company completed a rights offering (“Rights Offering”) and private placement raising $39.6
million in new capital.
Upon closing of the Rights Offering, the Company issued approximately 24,674,133 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 is entitled to subscribe for 0.4393346119 of a Common
Share for every right held by such shareholder.
For the private placement, the Company issued 8,333,333 Common Shares at a price of $1.20 per Common Share for
aggregate gross proceeds of approximately $10.0 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 was owing
by the Company. The balance of the proceeds were used to reduce its line of credit to support working capital purposes.
COVID-19 Pandemic
The COVID-19 pandemic and its variants continued to disrupt global health and impact economic conditions. The Company
maintained its business continuity plans to ensure appropriate measures, procedures and protocols were in place to
safeguard service to our customers while prioritizing employee, customer and vendor safety.
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, continued to impact gross margin realizations through 2021, albeit to a lesser extent.
During the first quarter of 2022, 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
continues to closely monitor price inflation and the impact on key costs inputs and will continue to pursue pricing measures
to the extent possible moving into 2023.
RESULTS OF OPERATIONS
Results of continuing operations for the three and twelve months ended December 31, 2022, reflect the benefits of the gross
margin expansion and integration initiatives executed through the year to counter the rising costs of inflation and streamline
the business operations as the Company scales for growth. Moreover, the Company continues to proactively implement
pricing actions to counter act any ongoing cost increases. The fourth quarter is historically impacted by lower volumes due
to seasonal demand and higher quoted work mix that results in lower gross margin realization.
78
Management’s Discussion and Analysis
10
Revenue
Revenue is broken down by segment as follows ($000’s):
Revenue for the three months ended December 31, 2022, was $64.5 million reflecting more modest growth overall,
compared with $63.1 million in the fourth quarter of 2021, representing an increase of $1.4 million or 2.3%. The primary
reason for the change was due to strong growth in Technical Services of $2.7 million or 6.5% tied to higher volumes in
Canada, offset with lower volumes in our Renewables business of $1.2 million or 5.3% due to large project work in the prior
period in the Wind segment.
Revenue for the twelve months ended December 31, 2022, was $272.3 million, compared with $244.6 million in the same
period in 2021, representing an increase of $27.7 million or 11.3%. The increase was attributable to strong growth in
Technical Services of $17.9 million or 10.9% and ongoing Renewables revenue growth of $10.3 million or 13.0% related to
strong growth in our Solar segment in the US.
Organic revenue growth is broken down as follows:
Government Grants
When the COVID-19 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.
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.
(in $000's)
2022
2021
$ Growth
% Growth
Technical Services
43,575
$
40,917
$
2,658
$
6.5%
Renewables
20,702
21,860
(1,158)
(5.3%)
Corporate
241
309
(68)
(22.0%)
Total
64,518
$
63,086
$
1,432
$
2.3%
2022
2021
$ Growth
% Growth
Technical Services
181,653
$
163,781
$
17,872
$
10.9%
Renewables
89,333
79,055
10,278
13.0%
Corporate
1,291
1,788
(497)
(27.8%)
Total
272,277
$
244,624
$
27,653
$
11.3%
Three months ended December 31
Twelve months ended December 31
79
Management’s Discussion and Analysis
11
During the three and twelve months ended December 31, 2021, the Company recognized $nil and $2.5 million, respectively,
which was recorded against segment cost of sales and SG&A expenses to which they are related. There was no CEWS
funding in 2022.
Skills Development Funding
During the second quarter of 2021 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 implemented a one-year program between April 2021 and March 2022 whereby the funds were utilized through
this period on programs and initiatives previously approved by the Government of Ontario. The Company would be required
to return any funds not utilized in accordance with the program criteria and timelines. At the end of 2022, the Company had
received funding towards this grant of $4.8 million which has fully been utilized to fund expenditures approved under the
program and interest on the funds earned and received was insignificant. The Company has received all funding related to
this grant as at December 31, 2022.
During the second quarter of 2022 the Company received approval for a $3.4 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 implemented a one-year program between April 2022 and March 2023 whereby the funds need to be utilized
through this period on programs and initiatives previously approved by the Government of Ontario. At the end of the year
the Company had received funding towards this grant of $1.9 million of which $1.5 million has been utilized to fund
expenditures approved under the program. The balance of $0.4 million has been included in bank indebtedness.
Cost of Sales and Gross Profit
For the three months ended December 31, 2022, gross profit, inclusive of depreciation and amortization increased $4.5
million to $12.5 million as compared to $8.0 million in the same period in 2021. Gross profit margins were 19.4%, up from
12.7% in the fourth quarter of 2021 resulting in an increase in gross margin realization of 6.7%. Gross profit excluding
depreciation and amortization increased $5.0 million to 24.9% of revenue resulting in a 7.4% increase in gross margin
realizations. The primary reasons for the change were related to improving revenue mix as the Company shifts focus to
higher margin service work combined with the impact of cost inflation increases in the prior year.
For the twelve months ended December 31, 2022, gross profit, inclusive of depreciation and amortization increased $9.7
million to $54.8 million as compared to $45.2 million in the same period in 2021. Gross profit margins were 20.1%, up from
18.5% in the same period in 2021 resulting in an increase in gross margin realization of 1.6%. Gross profit excluding
depreciation and amortization increased to 24.9% of revenue from 23.2% in the same period in 2021 resulting in a 1.7%
increase in gross margin realizations. The increase reflects the benefits of the gross margin expansion initiatives executed
through the year combined with improving revenue mix and the impact of estimate updates in the prior year. Partially
offsetting this are the government grants under the CEWS and Paycheck Protection programs of $2.1 million recognized in
the twelve months ended December 31, 2021 as compared to $nil in the twelve months ended December 31, 2022.
Tweleve months ended December 31, 2021
Technical
Services
Renewables
Corporate
Total
Canadian Emergency Wage Subsidy
Cost of sales
1,786
273
-
2,059
Selling, general and administrative
236
74
139
449
Total
2,022
$
347
$
139
$
2,508
$
(in $000s)
$
%
$
%
$
%
$
%
Revenue
64,518
$
63,086
$
272,277
$
244,624
$
Cost of sales
52,033
80.6%
55,085
87.3%
217,430
79.9%
199,446
81.5%
Gross profit
12,485
$
19.4%
8,001
$
12.7%
54,847
$
20.1%
45,178
$
18.5%
Depreciation and amortization included in cost of sales
3,578
3,057
12,828
11,635
Gross profit, excluding depreciation and amortization
16,063
$
24.9%
11,058
$
17.5%
67,675
$
24.9%
56,813
$
23.2%
Three months ended December 31
Twelve months ended December 31
2022
2021
2022
2021
80
Management’s Discussion and Analysis
12
Components of cost of sales were as follows:
During the three and twelve months ended December 31, 2022, labour costs were $26.4 million and $102.7 million,
respectively, as compared to $24.5 million and $89.5 million in the same period in 2021. These costs in the three and twelve
months ended December 31, 2022 were offset by $nil and $nil, respectively as compared to $nil and $2.1 million, respectively
in the same period in 2021 in government grants under the CEWS and Paycheck Protection programs. The increase in
labour costs is related to revenue growth and the improved mix of service work.
During the three and twelve months ended December 31, 2022, vehicle costs and travel increased to $9.0 million or 14.0%
of revenue and $34.4 million or 12.6% of revenue, respectively from $8.2 million or 13.0% of revenue and $28.4 million or
11.6% of revenue in the same period of 2021. The increase is related to an increase in travel in our Technical Services group
tied to revenue growth and higher vehicle and fuel costs in our Renewables segment tied to cost inflation and increased
servicing of remote sites. Price increases and commodity surcharges have been implemented throughout the year to offset
such cost increases.
During the three and twelve months ended December 31, 2022, materials decreased to $10.3 million or 16.0% of revenue
and increased to $53.2 million or 19.5% of revenue, respectively, from $15.4 million or 24.4% of revenue and $52.8 million
or 21.6% of revenue in the same period of 2021. The decrease in materials mix in the three and twelve months ended
December 31, 2022 is driven by project mix as the Company focuses on higher margin service work and becomes more
selective on larger-scale projects requiring more materials.
During the three and twelve months ended December 31, 2022, subcontractor costs decreased to $3.3 million or 5.1% of
revenue and $14.9 million and 5.5% of revenue, respectively, from $3.9 million or 6.2% of revenue and $17.2 million or 7.0%
of revenue in the same period of 2021. The decrease compared to prior year is due to a change in project mix in our Technical
Services segment with fewer large-scale projects requiring additional third-party labour.
40.9%,
$26,380
38.9%,
$24,509
37.7%,
$102,695
36.6%,
$89,494
16.0%,
$10,308
24.4%,
$15,410
19.5%,
$53,163
21.6%,
$52,770
5.1%,
3,295
6.2%,
3,931
5.5%,
14,940
7.0%,
17,159
14.0%,
$9,018
13.0%,
$8,178
12.6%,
$34,350
11.6%,
$28,388
4.7%,
$3,032
4.8%,
$3,057
4.5%,
$12,282
4.8%,
$11,635
-
50,000
100,000
150,000
200,000
250,000
Q4 2022
Q4 2021
YTD-2022
YTD-2021
Cost of sales for the three months and twelve months ended December 31
(in $000's)
Labor
Materials
Subcontractors
Vehicle costs and travel
Depreciation & Amortization
81
Management’s Discussion and Analysis
13
Selling, General and Administration Expense
For the three and twelve months ended December 31, 2022, SG&A expenses decreased to $13.7 million or 21.2% of revenue
and increased to $56.0 million or 20.6% of revenue, respectively, from $16.2 million or 25.7% of revenue and $55.8 million
or 22.8% of revenue in the same period of 2021. SG&A excluding depreciation and amortization was $11.2 million or 17.3%
of revenue and $48.2 million or 17.7% in the three and twelve months ended December 31, 2022 as compared to $14.3
million or 22.7% of revenue and $48.0 million or 19.6% over the same period in 2021. The decrease in the three months
ended December 31, 2022, reflects the benefits of the cost actions executed earlier in the year combined with one-time
provisions recorded in the prior period.
Components of SG&A costs were as follows:
(in $000s)
%
$
%
$
%
$
%
Revenue
64,518
$
63,086
$
272,277
$
244,624
$
Selling, general and administrative expenses
13,690
21.2%
16,242
25.7%
55,984
20.6%
55,799
22.8%
Depreciation and amortization included in selling,
general and administrative expenses
2,520
1,918
7,813
7,808
SG&A, excluding depreciation and amortization
11,170
17.3%
14,324
22.7%
48,171
17.7%
47,991
19.6%
Three months ended December 31
Twelve months ended December 31
2022
2021
2022
2021
13.3%,
$8,417
8.1%,
$5,238
2.6%,
$1,611
1.6%,
$1,018
0.3%,
$179
0.8%,
$508
0.6%,
$367
1.1%,
$696
5.9%,
$3,750
5.8%,
$3,710
3.0%,
$1,918
3.9%,
$2,520
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
2021
2022
Selling, general and administrative expenses for the three months ended December 31 (in $000's)
Salaries and benefits
Director and professional fees
Rent and property taxes
Travel, meals and entertainment
Office and other general
Depreciation and amortization
11.8%,
$28,903
9.5%,
$25,907
1.4%,
$3,535
1.2%,
$3,314
0.4%,
$969
0.7%,
$1,851
0.9%,
$2,240
0.9%,
$2,547
5.0%,
$12,344
5.3%,
$14,552
3.2%,
$7,808
2.9%,
$7,813
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2021
2022
Selling, general and administrative expenses for the twelve months ended December 31 (in $000's)
Salaries and benefits
Director and professional fees
Rent and property taxes
Travel, meals and entertainment
Office and other general
Depreciation and amortization
82
Management’s Discussion and Analysis
14
During the three and twelve months ended December 31, 2022, salaries and benefits costs decreased to $5.2 million and
$25.9 million from $8.4 million and $28.9 million in the same period in 2021. During the three and twelve months ended
December 31, 2022, salaries and benefits were offset by $nil and $nil million, respectively, by government grants under the
CEWS and Paycheck Protection programs announced in April 2020 as compared to $nil and $0.5 million during the three
and twelve months ended December 31, 2021. Salaries and benefits as a percentage of revenue was down by 5.2% for the
three months ended December 31, 2022 as compared to the same period in 2021 reflecting the benefits of the cost actions
taken through the first half of the year to rationalize S,G&A headcount combined with year end provisions recorded in the
prior period.
Office and other general costs during the three and twelve months ended December 31, 2022, were $3.7 million or 5.8% of
revenue and $14.6 million or 5.3% of revenue, respectively as compared to $3.8 million or 5.9% of revenue and $12.3 million
or 5.0% of revenues in the same period of 2021. The increases were primarily due to higher insurance costs and higher
computer expenses related to the ERP migration.
Rent and property costs during the three and twelve months ended December 31, 2022, were $0.5 million or 0.8% of revenue
and $1.9 million or 0.7% of revenue, respectively as compared to $0.2 million or 0.3% of revenue and $1.0 million or 0.4%
of revenues in the same period of 2021. The increase was primarily due to overlapping rent costs for the fourth quarter
related to our head office move.
Depreciation and amortization costs included in SG&A during the three and twelve months ended December 31, 2022, were
$2.5 million or 3.9% of revenues and $7.8 million or 2.9% of revenue, respectively as compared to $1.9 million or 3.0% of
revenue and $7.8 million or 3.2% of revenue in the same period of 2021.
Reorganization and transaction costs
Reorganization costs for the three and twelve months ended December 31, 2022, was $0.2 million and $2.0 million,
respectively compared to $1.9 million and $3.4 million in the same period in 2021. Reorganization costs in 2022 relate
primarily to severances paid and accrued related to the Company’s business integration program to reduce overhead costs.
Transaction costs for the three and twelve months ended December 31, 2022, was $0.3 million and $1.3 million, respectively,
as compared to $0.6 million and $2.1 million in the comparable period in 2021. Transaction costs in 2022 related primarily
to professional fees associated with the rights offering. Transaction costs related to the Bullfrog sale have been recorded as
part of discontinued operations.
Amortization and Depreciation and Finance Costs
Amortization and depreciation, included in cost of goods sold and SG&A expenses, for the three and twelve months ended
December 31, 2022, was $6.1 million and $20.6 million compared with $5.0 million and $19.4 million over the same period
in 2021.
Finance costs for the three and twelve months ended December 31, 2022, were $2.7 million and $8.4 million as compared
to $2.2 million and $7.1 million during the same period of 2021.
83
Management’s Discussion and Analysis
15
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.
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 and 3-Phase), high-voltage services (Spark Power High Voltage and Orbis) 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, 2022 and
2021 were as follows:
(in $000's)
Three months ended December 31
Twelve months ended December 31
2022
2021
Change
2022
2021
Change
Revenue
43,575
$
40,917
$
2,658
$
181,653
$
163,781
$
17,872
$
Cost of sales
34,417
36,351
$
(1,934)
$
145,141
136,645
$
8,496
$
Gross profit
9,158
4,566
$
4,592
$
36,512
27,136
$
9,376
$
Gross profit margin
21.0%
11.2%
9.9%
20.1%
16.6%
3.5%
Gross profit margin, excluding depreciation
and amortization
30.6%
20.9%
9.7%
28.9%
25.9%
3.0%
Selling, general and administration
6,469
6,527
(58)
25,272
25,271
1
Provision for expected credit loss
1,500
439
1,061
1,769
518
1,251
Reorganization costs
23
98
(75)
266
569
(303)
Foreign exchange (gain) loss
(277)
7
(284)
(270)
239
(509)
Segment profit
1,443
(2,505)
3,948
9,475
539
8,936
Segment EBITDA
5,607
$
1,473
$
4,134
$
25,487
$
15,800
$
9,687
$
Segment EBITDA %
12.9%
3.6%
9.3%
14.0%
9.6%
4.4%
INTEGRATED POWER SOLUTIONS
CANADA
EAST
CANADA
WEST
USA
RENEWABLES
TECHNICAL
SERVICES
CORPORATE
84
Management’s Discussion and Analysis
16
Results for the three and twelve months ended December 31, 2022
Revenue during the three and twelve months ended December 31, 2022, increased by 6.5% and 10.9%, respectively, over
the same period in 2021. The increase in the three months ended December 31, 2022 was related to volume growth in the
Low Voltage segment while the increase in the twelve months ended was related to growth in the High Voltage segment
combined with larger projects carried forward from 2021.
Gross profit during the three and twelve months ended December 31, 2022, increased by 100.6% and 34.6%, respectively,
as compared to the same period in 2021. The increase during the three and twelve months ended December 31, 2022, was
due to improving revenue mix related to higher margin service work combined with the impact of estimate updates in the
prior year.
SG&A expenses during the three and twelve months ended December 31, 2022, decreased by $0.1 million and $nil,
respectively, over the same period in 2021. The decrease during the three months ended December 31, 2022 reflects the
cost actions taken to rationalize S,G&A expenses.
For the three and twelve months ended December 31, 2022, Segment EBITDA increased by 4.1 million or 280.7% and $9.7
million or 61.3%, respectively, over the same period in 2021. The increase related to the factors mentioned above.
$91,757
$92,011
$6,892
$9,269
$66,165
$85,367
$32,286
$32,942
$5,859
$4,275
$1,739
$1,364
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
YTD 2021
YTD 2022
Q4- 2021
Q4- 2022
Technical Services Revenue (in $000's)
Equipment
High Voltage
Low Voltage
85
Management’s Discussion and Analysis
17
Renewables Segment
The Renewables segment includes all operations and maintenance services under the One Wind and Northwind brands.
Results for the three and twelve months ended December 31, 2022
Revenue during the three and twelve months ended December 31, 2022, decreased by 5.3% and increased by 13.0%,
respectively, over the same period in 2021. The decrease for the three months ended December 31, 2022 is primarily related
to significant large Wind projects in prior year offset by growth in the Solar segment, in particular the US market. The increase
for the twelve months ended is reflective of the ongoing growth opportunities in the Renewables segment, in particular in the
US market.
Gross profit for the three and twelve months ended December 31, 2022, decreased by 1.3% and increased by 4.9% as
compared to the same period in 2021. The increase for the twelve months ended December 31, 2022 was due to higher
volumes in our Solar segment partially offset by lower margin realization in our Wind segment.
(in $000's)
Three months ended December 31
Twelve months ended December 31
2022
2021
Change
2022
2021
Change
Revenue
20,702
$
21,860
$
(1,158)
$
89,333
$
79,055
$
10,278
$
Cost of sales
17,616
18,734
(1,118)
72,289
62,801
9,488
Gross profit
3,086
3,126
(40)
17,044
16,254
790
Gross profit margin
14.9%
14.3%
0.6%
19.1%
20.6%
(1.5%)
Gross profit margin, excluding depreciation and
amortization
17.9%
16.2%
1.8%
21.5%
22.5%
(0.9%)
Selling, general and administration
2,506
2,167
339
9,671
8,007
1,664
Reorganization costs
43
-
43
512
453
59
Foreign exchange (gain) loss
1,303
133
1,170
(95)
519
(614)
Segment gain on sale of asset
-
-
-
-
-
-
Segment profit
(766)
826
(1,592)
6,956
7,275
(319)
Segment EBITDA
(140)
$
1,234
$
(1,374)
$
9,152
$
8,794
$
358
$
Segment EBITDA %
(0.7%)
5.6%
(6.3%)
10.2%
11.1%
(0.9%)
$8,014
$6,621
$1,450
$1,024
$37,829
$27,246
$9,014
$5,913
$16,159
$18,970
$4,936
$5,248
$10,378
$29,276
$4,974
$8,290
$6,675
$7,220
$1,486
$227
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
YTD-2021
YTD-2022
Q4 2021
Q4 2022
Renewables Segment Revenue ($000's)
BESS
Solar - US
Solar - Canada
Wind - US
Wind - Canada
86
Management’s Discussion and Analysis
18
SG&A expenses during the three and twelve months ended December 31, 2022, decreased by $0.3 million or 15.6% and
increased by $1.7 million or 20.8%, respectively, over the same period in 2021. The increase in the twelve months ended
December 31, 2022 is tied to revenue growth and to a lesser extent the government grant funding from the CEWS program
in the twelve month period ended December 31, 2021 which was offset against related labour costs.
Segment EBITDA for the three and twelve months ended December 31, 2022, decreased by $1.4 million and increased by
$0.4 million, respectively, as compared to the same period in 2021. The change is related to the factors mentioned above.
Corporate Segment
Results for the three and twelve months ended December 31, 2022
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, 2022, both revenue and gross profit decreased due to lower fees over the same period
in 2021.
SG&A expenses in three and twelve months ended December 31, 2022, decreased by $2.8 million or 37.5% and $1.5 million
or 6.6%, respectively, over the same period in 2021. The decrease for the three and twelve months ended December 31,
2022, is primarily due to lower salaries and benefits related to the cost actions taken through the year and year end provisions
recorded in the prior year somewhat offset by higher computer related costs tied to the ERP migration and government grant
funding from the CEWS program in the twelve month period ended December 31, 2021, which was offset against related
labour costs.
Corporate expenses are comprised of the following:
(in $000’s)
(in $000's)
Three months ended December 31
Twelve months ended December 31
2022
2021
Change
2022
2021
Change
Revenue
241
$
309
$
(68)
$
1,291
$
1,788
$
(497)
$
Gross profit
241
309
(68)
1,291
1,788
(497)
Gross profit margin
100.0%
100.0%
-
100.0%
100.0%
-
Selling, general and administration
4,715
7,548
(2,833)
21,041
22,521
(1,480)
Reorganization costs
132
1,764
(1,632)
1,270
2,369
(1,099)
Foreign exchange (gain) loss
1,036
373
663
(259)
197
(456)
Other expenses (income)
57
(49)
106
57
(49)
106
Segment loss
(5,699)
(9,376)
3,677
(20,818)
(23,250)
2,432
Segment EBITDA
(5,562)
$
(8,824)
$
3,262
$
(19,467)
$
(21,077)
$
1,610
$
$830
$947
$209
$2,056
$673
Three months ended
December 31, 2022
Salaries and benefits
Director and professional fees
Travel, meals and entertainment
Office and administration
Depreciation and amortization
$3,694
$1,357
$285
$1,647
$565
Three months ended
December 31, 2021
$8,579
$2,895
$827
$6,853
$1,887
Twelve months ended
December 31, 2022
$11,548
$2,872
$584
$5,344
$2,173
Twelve months ended
December 31, 2021
87
Management’s Discussion and Analysis
19
Discontinued Operations - Sustainability Solutions Segment
On November 30, 2022, the Company sold its Bullfrog Power Inc. (“Bullfrog”) business unit, a wholly owned subsidiary for
approximately $35.0 million to a third-party. Bullfrog was classified and presented as a discontinued operation as at
December 31, 2022. The Bullfrog business represented the entirety of the Company’s Sustainability operating segment until
November 30, 2022.
The Sustainability Solutions segment consists of the operations of Bullfrog Power, a green energy provider, offering a 100%
clean, renewable energy choice to Canadians.
Results for the three and twelve months ended December 31, 2022
Revenue during the three and twelve months ended December 31, 2022, decreased by $0.7 million and increased by $1.1
million, respectively, over the same period in 2021. The decrease in the three and twelve months ended December 31, 2022
is related to the sale of the business on November 30, 2022.
Gross profit for the three and twelve months ended December 31, 2022, decreased 29.0% and increased 2.9%, respectively,
over the same period in 2021. The decrease in the three months ended December 31, 2022 is related to the sale of the
business on November 30, 2022 while the increase over the twelve month period is due to higher realized gross margins
based on strong procurement channels to source environmental attributes at economical prices.
SG&A expenses during the three and twelve months ended December 31, 2022, decreased 66.7% and 17.2%, respectively,
over the same period in 2021. The decrease in the three months ended December 31, 2022 is related to the sale of the
business on November 30, 2022.
Change in fair value of financial instruments for the three and twelve months ended December 31, 2022 is related to the
power purchase arrangement offset by the change in a related hedge.
Change in realized gain on settlement is related to settlement of energy contracts and hedge contracts under the terms of
the power purchase arrangement.
For the three and twelve months ended December 31, 2022, Segment EBITDA increased $1.6 million and $5.1 million over
the same period in 2021 as a result of the factors noted above.
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, 2022, the Company has recognized an unrealized gain (loss) in
the change in fair value of the derivative asset with an estimated fair value of $1,989 and $6,765 respectively (three and
twelve months ended December 31, 2021 – $488 and $3,918, respectively). At December 31, 2021, an amount of $1,769
was expected to be realized within the next twelve months and was recorded as a current asset.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 unrealized gain (loss) in change in the fair value of the other derivative liability during the three and twelve months ended
(in $000's)
Three months ended December 31
Twelve months ended December 31
2022
2021
Change
2022
2021
Change
Revenue
1,663
$
2,338
$
(675)
$
10,109
$
11,191
$
(1,082)
$
Cost of sales
587
822
(235)
2,830
4,118
(1,288)
Gross profit
1,076
1,516
(440)
7,279
7,073
206
Gross profit margin
64.7%
64.8%
(0.1%)
72.0%
63.2%
8.8%
Selling, general and administration
472
1,419
(947)
2,930
3,538
(608)
Provision for expected credit loss
-
16
(16)
15
112
(97)
Change in fair value of financial instruments
(2,476)
158
(2,634)
(7,427)
(2,716)
(4,711)
Change in realized loss (gain) on settlement
818
113
705
(1,234)
(1,051)
(183)
Reorganization costs
-
-
-
-
101
(101)
Foreign exchange (gain) loss
15
(11)
-
15
26
(11)
Segment profit
2,247
(179)
2,426
12,980
7,063
5,917
Segment EBITDA
2,303
$
21
$
2,282
$
13,425
$
7,716
$
5,709
$
Segment EBITDA %
138.5%
0.9%
137.6%
132.8%
68.9%
64.0%
88
Management’s Discussion and Analysis
20
December 31, 2022 of $487 and $662, respectively (three and twelve months ended December 31, 2021 – ($646) and
($1,202), respectively) is based on the projected market values of similar contracts with similar remaining durations as if the
contract has been entered into at end of each period.
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 agreement started
during the second quarter of 2022.
During the three and twelve months ended December 31, 2022, the Company recognized realized settlements on the PPA
in the amount of $499 and $4,478, respectively offset by realized settlements on the hedge of $1,317 and $3,244 respectively
for a net gain (loss) of ($818) and $1,234, respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and Borrowing Capacity
Bank indebtedness was $24.9 million at December 31, 2022, and was comprised of $26.1 million on the operating line and
cash on hand of $1.1 million. This compares to bank indebtedness of $28.1 million net of cash on hand of $1.2 million at
December 31, 2021. At December 31, 2022, the Company had additional borrowing capacity under the revolving line of
credit of $6.9 million, as compared to $5.0 million as of December 31, 2021.
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.
Debt and Capital Structure
The Company’s lending facility is comprised of two main components with details and terms as follows:
On November 30, 2022, the Company entered into a new Amended and Restated Credit Agreement with its Lender. Key
terms of this Agreement are as follows:
a)
The maturity date of this new facility was extended to September 30, 2024 and will be amortized over an 8-year
period with quarterly repayments of $1.1 million, reduced from previously $2.1 million per quarter;
b)
Achieve a minimum cumulative monthly EBITDA at the end of each calendar month through March 31, 2023;
c)
Maintain incremental interest rate margin of 1.00% on facility advances in place from April 29, 2022 through March
31, 2023;
d)
Subsequent to the 2022 fiscal year, maintain certain covenants on a 12-month rolling quarterly basis, including:
•
Minimum fixed charge coverage ratio of 1.00 for the quarter ended March 31, 2023, as revised subsequent to
the year end, increasing to 1.25 for each fiscal quarter 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 3.75:1.00.
(in $000's)
Operating
Line
Term
Loan
Total
Amount
$35,000
$35,922
$70,922
Term
Committed
Committed
Interest rate (i)
Prime +
2.00% - 3.00%
Prime +
2.00% - 3.00%
Maturity date
September 30, 2024
September 30, 2024
Repayment terms
Revolving
Quarterly payments with
remaining payable on maturity
Amount Drawn
$26,062
$35,922
$61,984
Letter of Credit
2,000
-
2,000
Amount Available to be Drawn (ii) - December 31, 2022
$6,938
-
$6,938
(i) - based on Debt:EBITDA ratio ranges with an incremental interest rate margin of 1.00% from April 29, 2022 through March 31, 2023.
(ii) - assumes maximum borrowing base available
89
Management’s Discussion and Analysis
21
As at December 31, 2022, the Company was in compliance with the financial covenants in effect in its credit facility, being
the minimum cumulative monthly EBITDA covenant.
Debt, including long-term debt, lease liabilities and promissory notes, decreased to $74.0 million at December 31, 2022
from $94.6 million at December 31, 2021. Long-term debt is comprised of the following components:
(in $000’s)
The decrease in long-term debt for the period ended December 31, 2022, was attributable to a reduction in term debt funded
by the proceeds from the sale of the Bullfrog business unit and the paydown of promissory notes with funds from the Rights
Offering partially offset by an increase in the lease liability tied to our new head office lease.
The Company monitors its capital structure in accordance with the covenants required under its 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.
Summary of Cash Flows
The following table summarizes Spark Power’s cash flows for the three and twelve months ended December 31, 2022:
Cash flows from operating activities
For the three and twelve months ended December 31, 2022, cash generated in operating activities from continuing
operations increased by $1.0 million to $2.9 million and decreased by $18.3 million to ($7.7) million, respectively, as
compared to cash generated of $1.9 million and $10.6 million in the same period in 2021. The main driver for the changes
to cash flow from operations was attributable to the net change in working capital, deferred income taxes and net income.
$35,922
$2,500
$35,532
December 31, 2022
Term debt, excluding financing fees
Other long-term debt
Promissory notes
Lease liability, including current portion
$62,459
$750
$10,738
$20,627
December 31, 2021
(in $000's)
2022
2021
2022
2021
Operating activities
2,876
$
1,921
$
(7,652)
$
10,615
$
Investing activities
(2,669)
(691)
(8,628)
(5,599)
Financing activities
(30,647)
(2,563)
(9,383)
(3,475)
Discontinued operations
30,440
1,333
25,663
(1,541)
Decrease (increase) in cash
-
-
-
-
Cash, beginning of period
-
-
-
-
Cash, end of period
-
$
-
$
-
$
-
$
Three months ended December 31
Twelve months ended December 31
90
Management’s Discussion and Analysis
22
Cash flows from investing activities
For the three and twelve months ended December 31, 2022, cash used in investing activities was $2.7 million and $8.6
million as compared to $0.7 million and $5.6 million in the same period in 2021. The purchase of property, plant and
equipment increased by $1.3 million and decreased by $1.1 million, respectively, for the three and twelve months ended
December 31, 2022 as compared to the same period in 2021.The Company also had investments of $4.1 million relating to
the ERP migration, Spark’s technology and business process transformation initiative.
Cash flows from financing activities
For the three and twelve months ended December 31, 2022, cash used in financing activities was $30.6 million and $9.4
million, respectively, as compared to cash used of $2.6 million and $3.5 million in the same period in 2021. The repayment
of the term loan of $29.6 million is the primary reason for the increase in cash used for the three and twelve months ended
December 31, 2022 as compared to the same period in 2021.
Cash flows from discontinued operations
For the three and twelve months ended December 31, 2022, cash flow from discontinued operations activities increased by
$29.1 million to $30.4 million and increased by $27.2 million to $25.7 million, respectively, as compared to cash flow of $1.3
million and cash used of $1.5 million in the same period in 2021.
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, other 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 portions 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, 2022, Working Capital (deficiency) and Adjusted Working Capital were 22.0 million and $37.0
million, respectively, compared with ($63.9) million and $13.2 million, respectively at December 31, 2021. The change in
adjusted working capital of $23.9 million was due primarily to an increase in contract assets and accounts receivable related
to higher revenue growth and a decrease in accounts payable in part funded by the proceeds from the Rights Offering.
The following table outlines how our working capital measures are determined:
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.
(in $000's)
December 31
2022
December 31
2021
Working capital (deficiency)
21,992
$
(63,872)
$
Current portion of long-term debt
4,500
61,962
Current portion of promissory notes
2,500
10,738
Current portion of lease liability
8,057
6,643
Working capital from discontinued operations
-
2,297
Adjusted working capital
37,049
$
13,174
$
91
Management’s Discussion and Analysis
23
Adjusted working capital consists of the following:
Outstanding Share Data
The total number of fully diluted outstanding and issuable Common Shares is as follows:
Warrants
At December 31, 2022, the Company had 11,776,666 warrants outstanding. Each whole warrant gives the right to purchase
1.10 Common shares at an exercise price of $3.14 per Common share over the term. These warrants have been measured
using the Black-Scholes method.
Stock options, Restricted share units, Deferred share units and Performance 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 (“PSU”) 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
terms of the plan. Options generally expire after five or ten years, with vesting provisions stated in the plan and per grant
(in $000's)
December 31
2022
December 31
2021
Non-cash working capital balances
63,111
$
43,613
$
Operating line
(26,062)
(28,142)
Working capital from discontinued operations
-
2,297
Adjusted working capital
37,049
$
13,174
$
90,493,135
11,776,666
2,443,221
241,705
1,875,000
1,250,000
2,937,042
December 31, 2022
Common shares
Warrants
Restricted share units
Deferred share units
Stock appreciation rights
Performance share units
Stock options
56,934,235
11,776,666
1,405,960
81,186
2,083,198
December 31, 2021
92
Management’s Discussion and Analysis
24
agreements. RSU’s generally vest over 3 to 4 years or cliff vest after 3 years and are granted in accordance with the plan.
The PSU’s granted to date vest over a 4 year period as performance conditions are achieved. The DSU’s vest immediately.
The Plan provides for equity compensation awards to be issued to eligible participants 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 and PSU’s and the number of equity awards granted are to be determined by the Board of Directors at the time of
the grant. The Plan allows the Board of Directors to issue equity settled RSU’s, PSU’s and DSU’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.
Share Appreciation Rights
On September 16, 2020, the Company adopted a stock appreciation rights plan (the “SAR Plan”). The SAR Plan further
aligns the Company’s strategic objective of value creation to the compensation of the senior management team of the
Company.
On September 20, 2022, the Company’s senior management team were granted 2,325,000 share appreciation rights, to be
settled in cash, with an expiry date on January 1, 2027. The SARs vest on the occurrence of a change in control that achieves
certain financial threshold, or upon satisfaction of the alternative vesting condition, provided both events occur prior to the
expiry date. As at December 31, 2022, 1,875,000 share appreciation rights were outstanding.
OUTLOOK
Business & Operations Outlook
As part of the recent Let’s Grow Better 2025 Strategy launch, management has been focused on rolling out the deeper
tactical plans aligned with the strategic plan. These plans are tied directly to strategic workstreams laid out in the new
strategy. A heavy focus in the early part of the launch has been focused around the commercial aspects of the strategy and
more specifically, the new go-to-market plan. In the first quarter of 2023, management expects to have the new strategy fully
launched Company-wide and expects to measure Company performance against the strategic plan starting with internal first
quarter 2023 reporting.
In addition to the extensive focus on its new strategic plan, the Company continues to prioritize on executing the balance of
its turnaround plan actions announced throughout 2022. These actions include the ongoing focus and improvement of gross
margin performance, cash conversion and working capital management. While the Company progressed well in 2022,
management is committed to getting the organization performing with better predictability.
Demand on Spark’s Renewables business segment continues to be strong. In the fourth quarter of 2022, Spark continued
to experience positive gains in the booking of new customers. Its U.S. operations will see significant growth in its solar
segment with the onboarding of several new long-term O&M customer under master service agreements, covering sites
throughout the Southwest and West U.S. The pipeline of new opportunities for Spark’s operations and maintenance service
offering expanded significantly for solar and battery storage systems in 2022. Spark expects to capture significant market
opportunities with its expanded operations in the U.S., both in the field and with its enhanced Renewables Operating Centre
(ROC) in Dallas, Texas. The new operating centre supports customers who require monitoring of their assets, mainly in solar
and battery storage systems. Spark’s ROC is NERC certified and supports O&M agreements signed on larger, utility scale,
power producing sites.
Further, the U.S. Technical Services operations also experienced an improvement in its work mix with the onboarding of
new customers aligned well with the targeted go-to-market plan. Towards the end of 2022, the Eastern Canadian Technical
Services operations gained momentum with improved margins and an enhanced mix of backlog expected to continue to
drive better margin performance. In Western Canada, the Company is ramping up activity with its largest Regulated Utility
customer in Alberta as part of the three year contract renewal signed in the second quarter of 2022. Outside of the utility
segment, the Western Canadian business underperformed on its ongoing market expansion in the industrial segment.
Management has launched get well plans for each of the affected business units. Management anticipates improvements to
backlog, overall revenue mix and margins in the latter part of first half of 2023 throughout Western Canada.
In the first quarter of 2023, the Company executed it second go-live on it previously announced Project Darwin – integrated
technology and business process platform. The U.S. Renewables operations came onto the new technology and business
process platform in January. Spark’s entire U.S. operation is now live and operating in the integrated technology platform.
The Canadian business operations will launch the new platform later in 2023.
93
Management’s Discussion and Analysis
25
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 2023.
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, albeit to a lesser extent than prior years;
•
Pricing trends in key commodities such as copper, steel, aluminum and plastics that have seen significant price
increases since late 2021 due to supply constraints and increasing price inflation, coupled with ongoing overall market
inflation including labour, continue to impact full margin realization;
•
Demand for our services is expected to be reasonably strong barring any further infectious disease related mandates
and/or economic slowdown 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
2023:
•
Moderate Revenue growth across key segments and markets;
•
Continued growth in our Renewables segment through 2023 is expected given expanding market demands in the
Solar sector;
•
Operational gross margin realizations to continue to improve across most segments;
•
Selling, general and administration costs are expected to be in the range of $46.0 million to $47.0 million, excluding
amortization and depreciation; and
•
Liquidity is expected to improve through the 2023 with improvements in net working capital
Other financial metrics the Company also expects include:
•
Capital expenditures, excluding lease additions, between $6.5 and $7.5 million;
•
Lease payments in the range of $8.5 and $9.0 million; and
•
Interest expense (excluding the impact of IFRS 16 – leases) in the range of $6.0 to $7.0 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.
94
Management’s Discussion and Analysis
26
SUMMARY QUARTERLY FINANCIAL INFORMATION
Note: (1) “Adjusted EBITDA” and Adjusted EBITDA marginare non-IFRS measures. Refer to Non-IFRS Measures” for definitions of these
terms. (2) Q4 2022 net income excludes results of discontinued operations.
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 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 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.
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 rates.
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
(in $000's)
Q4 2022
Q3 2022
Q2 2022
Q1 2022
Adjusted
Q4 2021
Q4 2021
Adjusted
Q3 2021
Q3 2021
Q2 2021
Q1 2021
Q4 2020
Revenue
64,518
$
73,353
$
72,938
$
70,043
$
68,464
$
65,424
$
72,497
$
68,982
$
65,372
$
56,037
$
66,865
$
Gross Profit
12,485
18,326
16,878
13,564
13,257
9,517
18,690
12,710
15,851
14,173
18,523
19.4%
25.0%
23.1%
19.4%
19.4%
14.5%
25.8%
18.4%
24.2%
25.3%
27.7%
Income (Loss) from Operations
(5,022)
9,940
3,182
(2,139)
(7,057)
(10,797)
5,012
(1,479)
2,764
1,138
306
Net income (loss)
5,135
5,425
467
(3,257)
(14,136)
(17,876)
3,985
(2,862)
156
(712)
(3,306)
Adjusted EBITDA
6,972
14,864
10,398
2,775
2,516
2,516
10,264
10,264
7,350
7,295
8,873
Adjusted EBITDA Margin
10.8%
20.3%
14.3%
4.0%
3.7%
3.8%
14.2%
14.9%
11.2%
13.0%
13.3%
Adjusted LTM EBITDA
35,009
30,553
25,952
22,905
27,425
27,425
33,782
33,782
32,502
34,264
32,349
Adjusted LTM EBITDA Margin
12.5%
10.8%
9.1%
8.3%
10.6%
10.7%
13.0%
13.1%
13.0%
14.9%
14.2%
LTM Revenue
279,273
281,758
283,942
276,376
259,330
255,816
260,772
257,257
249,711
230,678
228,153
For the three months ended
95
Management’s Discussion and Analysis
27
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.
Valuation of derivative financial – 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 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.
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.
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 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.
Discontinued operations – A discontinued operation is a component of the entity that has been disposed of or is classified
as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single
coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a
view to resale. Judgement is required in determining the timing of classification to discontinued operations, and resulting
assets held for sale.
96
Management’s Discussion and Analysis
28
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, 2022 and 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 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 financial instruments carried at fair value categorized in Level 3 as at period end.
The carrying values of accounts receivable, other receivable, HST receivable, government grant receivable, contract assets,
bank indebtedness, accounts payable and accrued liabilities, income taxes payable 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.
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, 2022, 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, 2022, 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. 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.
97
Management’s Discussion and Analysis
29
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, 2022, that have materially affected or are reasonably likely to materially affect our internal controls
over financial reporting. Management has identified actions that have been implemented in the year and 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, liquidity risk and foreign currency risk. Except
for risks highlighted by COVID-19 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 may 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), 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. Notwithstanding
the phased reduction in restrictions in most jurisdictions following the peak of the COVID-19 variant in 2022, unexpected
developments in financial markets, regulatory environments, supply chains, or supplier, employee, or customer behaviour
and confidence may have adverse impacts on our financial results and condition, and business operations and reputation if
another epidemic or pandemic-scale infectious disease arises, or if a mutation of the COVID-19 virus results in renewed
government and private sector restrictions. The Company cannot accurately predict what future effects such conditions may
have on its operations or financial results. 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.
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 an 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 of the financial statements.
The Company’s balances of bank indebtedness are subject the Company to credit risk. Bank indebtedness is held with a
98
Management’s Discussion and Analysis
30
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 12 of the financial statements) 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 twelve months ended December 31, 2022, if interest rates had been higher by 2% with all
other variables held constant, net income would have been $0.4 million and $1.5 million lower, respectively. A decline in
interest rates of 1.0% would have increased the Company’s net income by $0.2 million and $0.8 million, respectively.
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
13 of the financial statements.
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.
99
SPARK POWER HEAD OFFICE
1337 North Service Road East, Suite 200
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 MEETING
OF SHAREHOLDERS
Thursday May 25, 2023 at 9am ET
The meeting will be held virtually. For attendance details,
please review the Notice of Annual and 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
CORPORATE
INFORMATION