Genie Energy Ltd. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2014; filed November 10, 2014. The unaudited results cover Genie Retail Energy, a retail electricity and natural-gas provider, and Genie Oil and Gas, which is developing oil-shale and exploration projects. Results are seasonal and are not necessarily indicative of full-year performance.
Financial performance and liquidity
| Metric | Three months ended Sept. 30 | Nine months ended Sept. 30 |
|---|---|---|
| Total revenue | $46.2 million, down 35.5% | $225.3 million, up 6.2% |
| Gross profit | $17.8 million, down 10.6% | $39.2 million, down 19.9% |
| Gross margin | 38.6%, versus 27.8% | 17.4%, versus 23.1% |
| Operating income (loss) | $(4.1) million, versus $3.9 million | $(14.9) million, versus $1.0 million |
| Net income (loss) | $(4.8) million, versus $2.0 million | $(17.0) million, versus $(4.2) million |
| Loss attributable to common stockholders | $(4.8) million; $(0.22) per share | $(17.1) million; $(0.81) per share |
| Net cash from operating activities | Not separately provided | $(8.1) million, versus $(0.7) million |
- Cash and cash equivalents were $86.2 million at September 30, 2014, compared with $73.9 million at December 31, 2013. Cash, restricted cash and certificates of deposit totaled $101.9 million.
- Working capital was $118.1 million. Total assets were $158.8 million and total liabilities were $28.9 million.
- The company had no borrowings under its $25.0 million revolving credit facility. The facility matures April 30, 2015 and required $10.0 million of restricted cash collateral.
- Cash flow from financing activities was $22.9 million, primarily reflecting $24.6 million received from Howard S. Jonas for 3.6 million Class B shares. The company also paid $1.0 million of preferred dividends and repurchased $1.0 million of Class B shares, including employee tax-withholding shares.
Material changes versus the prior comparable periods
- Third-quarter revenue declined primarily because electricity and natural-gas consumption and meters served decreased. Electricity revenue fell 35.2% and natural-gas revenue fell 40.0%.
- Nine-month revenue increased because higher customer rates, driven by elevated commodity costs during the winter polar vortex, more than offset lower consumption. Electricity consumption fell 24.9%, while electricity rates rose 43.2%; natural-gas consumption fell 6.4% and rates rose 8.0%.
- Gross profit and margins deteriorated for the nine-month period because commodity costs increased faster than customer rates. Genie Retail Energy issued $4.7 million of voluntary customer rebates.
- Customer meters declined to 362,000 at September 30, 2014 from 456,000 a year earlier. Nine-month average monthly churn increased to 7.2% from 6.3%.
- Consolidated selling, general and administrative expense rose to $46.6 million for nine months from $37.6 million, including $8.5 million of stock-based compensation versus $3.2 million. The increase primarily reflected the modification of Mr. Jonas’s equity arrangement and costs associated with acquired businesses.
- Genie Oil and Gas generated no revenue and reported an operating loss of $8.5 million for nine months, an improvement from an $11.5 million loss, largely because no AMSO, LLC equity loss was recognized in 2014.
- AMSO did not fund its 2014 capital calls. Total funded $3.0 million on AMSO’s behalf, reducing AMSO’s interest in AMSO, LLC to 44.3% and increasing Total’s interest to 55.7%. Further non-funding could cause additional dilution.
Outlook, risks, contingencies and unusual items
- Management stated that existing operations and $101.9 million of cash, restricted cash and certificates of deposit were expected to satisfy anticipated cash requirements for at least the twelve months ending September 30, 2015. No formal revenue or earnings guidance was provided.
- Management expects approximately $0.4 million of capital expenditures for the twelve months ending September 30, 2015. The company had $7.4 million of purchase commitments and $20.3 million of renewable-energy-credit purchase commitments.
- IDT Energy faces a Pennsylvania regulatory complaint and putative class actions in Pennsylvania, New York and New Jersey concerning sales practices, variable-rate pricing and winter 2014 price increases. The company disputes the allegations and cannot estimate potential damages.
- IEI’s Israeli pilot-drilling permit application was declined in September 2014. Afek’s ten-well exploratory drilling permit was subject to an Israeli High Court interim injunction issued October 20, 2014; drilling planned for the first half of 2015 depends on resolution of the proceedings.
- The company had $7.6 million of outstanding letters of credit and $12.6 million of performance bonds. BP held collateral consisting of $0.9 million of restricted cash and $24.4 million of receivables against $8.8 million owed by IDT Energy.
- The BP preferred-supplier agreement terminates June 30, 2015. IDT Energy was in compliance with its covenants at September 30, 2014.
- Commodity-price volatility remains a principal market risk. Outstanding energy derivatives had $1.4 million of asset fair value and $0.8 million of liability fair value at September 30, 2014; changes in fair value are recorded in direct cost of revenues because hedge accounting is not used.
- Disclosure controls were deemed ineffective because of material weaknesses involving journal-entry review and quarterly financial-statement variance analysis. Management began remediation, including additional accounting staffing and enhanced review procedures.
- The company adopted neither the new revenue-recognition standard during the period nor completed its assessment of the impact; adoption was planned for January 1, 2017.
Important facts for investors to verify
- Whether customer meters, churn and gross margins stabilize after the winter 2014 pricing disruption and voluntary rebates.
- The potential financial impact and timing of the Pennsylvania regulatory proceeding and the three consumer class actions.
- The status of Afek’s injunction, IEI’s permit alternatives and the expected funding and dilution consequences at AMSO, LLC.
- Whether the company remediates the reported material weaknesses and maintains effective financial reporting controls.
- The renewal or replacement terms for the BP supplier arrangement and the April 2015 revolving-credit maturity.
- The availability of unrestricted liquidity after considering restricted cash, letters of credit, performance bonds, contractual commitments and preferred dividends.