Genie Energy Ltd. 10-Q Summary
Business Context and Reporting Period
Genie Energy Ltd. reported unaudited results for the three and nine months ended September 30, 2021. The company operates retail energy businesses in the United States and internationally through Genie Retail Energy and GRE International, plus solar, energy brokerage, and related businesses through Genie Renewables. In May 2021, Genie completed the sale of Genie Japan. In the third quarter, it suspended the planned spin-off of its U.K. and Scandinavian operations and began an orderly withdrawal from the U.K. market.
Financial Performance and Liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $113.2 million | $96.3 million | $346.2 million | $276.5 million |
| Gross profit | $42.4 million | $27.3 million | $83.7 million | $75.7 million |
| Gross margin | 37.4% | 28.4% | 24.2% | 27.4% |
| Income from operations | $6.9 million | $8.5 million | $1.7 million | $20.4 million |
| Net income attributable to Genie | $(2.3) million | $6.7 million | $1.1 million | $14.5 million |
| Net income attributable to common stockholders | $(2.7) million | $6.4 million | $(0.02) million | $13.4 million |
| EPS attributable to common stockholders | $(0.10) | $0.25 | approximately $(0.00) | $0.51 |
| Cash flow from operations | Not separately provided | Not separately provided | $0.1 million | $24.0 million |
Q3 operating margin was approximately 6.1%, compared with 8.8% in the prior-year quarter. Nine-month operating margin was approximately 0.5%, compared with 7.4% in the prior-year period. The third-quarter net loss included a $6.7 million impairment charge related to the U.K. exit and a $5.3 million unrealized loss on marketable equity securities, primarily the company’s Rafael investment.
At September 30, 2021, cash and cash equivalents were $34.0 million and restricted cash was $6.5 million, for total cash, cash equivalents, and restricted cash of $40.5 million. Working capital was $44.4 million. Current loan payable was zero, no letters of credit were outstanding under the $5.0 million JPMorgan credit line, and the company stated that operating cash flow and unrestricted cash were expected to meet anticipated requirements through at least November 8, 2022. Total liabilities were $111.1 million and total equity was $82.6 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 17.5% in Q3 and 25.2% for the first nine months, driven largely by consolidation of Orbit Energy and higher natural gas revenue.
- GRE revenue decreased 2.9% in Q3 but increased 4.0% for the nine-month period. Q3 GRE operating income increased 61.2% to $19.7 million, while nine-month operating income declined 15.3% to $26.4 million.
- GRE International revenue increased substantially because Orbit Energy was consolidated beginning in October 2020. However, the segment generated operating losses of $10.9 million in Q3 and $20.6 million for nine months, compared with losses of $1.6 million and $4.7 million, respectively.
- Genie Renewables revenue declined 14.9% in Q3 and 74.4% for nine months, primarily following the discontinuation of a major Prism customer relationship. The segment reported nine-month operating income of $0.7 million versus a $1.4 million operating loss in the prior-year period.
- Winter Storm Uri generated approximately $13.0 million of incremental Texas costs for the nine months. Regulatory recovery recognized under Texas House Bill 4492 totaled approximately $3.4 million, including $1.9 million recognized in Q3.
- Operating cash flow fell to $0.1 million from $24.0 million, reflecting weaker operating results, the consolidation of Orbit Energy, and unfavorable working-capital movements.
- The company repurchased approximately 623,000 Class B shares for $3.8 million during the first nine months and suspended common-stock dividends in March 2021. Preferred-stock dividends continued.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- No formal revenue or earnings guidance was provided. Management noted that results are seasonal and weather-sensitive and that interim results may not indicate full-year performance.
- The company is exiting the U.K. market after recording $6.7 million of asset impairments. In October 2021, Orbit and Shell terminated their exclusive supply agreement. Management expects available proceeds, cash, and receivables to cover customer supply costs during the orderly transfer, but could not estimate net exit proceeds.
- Energy price volatility remains a principal market risk. The company uses electricity and natural-gas options and swaps, without hedge accounting; changes in fair value are recorded in cost of revenues.
- At September 30, 2021, purchase commitments totaled $219.9 million, including $170.7 million for electricity and $49.2 million for renewable energy credits. Outstanding performance bonds totaled $13.4 million.
- New York regulatory orders may restrict pricing and product offerings and could adversely affect customer acquisition, renewals, revenue, and profitability. New York represented $12.8 million of Q3 gross revenue and $40.1 million for the first nine months.
- Connecticut proceedings involving Town Square and Residents Energy were settled with payments of $0.4 million and $0.3 million, respectively, together with restrictions on marketing activities. Other regulatory reviews remain possible, including an Illinois Attorney General investigation for which no loss was deemed probable or estimable.
- In October 2021, Rafael reported disappointing clinical-trial results and its stock price declined significantly. The September 30 carrying value of Genie’s Rafael investment was $8.0 million; the filing does not provide the subsequent carrying value.
- Management disclosed that disclosure controls and procedures were not effective as of September 30, 2021 because of a previously reported material weakness in internal control over financial reporting. Remediation was expected to be completed in 2021, but the filing does not confirm completion.
Important Facts for Investors to Verify
- Progress, costs, customer-transfer timing, and final cash proceeds from the U.K. market exit.
- Actual recovery of the approximately $3.4 million Texas Winter Storm Uri claim and any remaining exposure to Texas or other commodity-price events.
- Post-quarter valuation and potential impairment of the Rafael investment.
- Remediation and auditor assessment of the material weakness in internal control over financial reporting.
- Liquidity after considering restricted cash, purchase commitments, performance bonds, supplier collateral requirements, and ongoing preferred dividends.
- Effects of New York, Connecticut, Illinois, and other regulatory actions on customer acquisition, retention, and operating margins.