Genie Energy Ltd. — 2020 Second-Quarter Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020; filed August 7, 2020. Genie operates retail energy businesses in the United States and internationally, energy advisory and solar businesses, and oil and gas exploration activities.
Financial Performance and Liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $76.1 million | $61.0 million | $180.1 million | $147.6 million |
| Gross profit | $19.5 million | $9.0 million | $48.4 million | $34.6 million |
| Gross margin | 25.6% | 14.7% | 26.9% | 23.4% |
| Income from operations | $2.7 million | $(9.3) million | $11.9 million | $0.6 million |
| Net income attributable to Genie | $2.0 million | $(7.5) million | $7.8 million | $(1.4) million |
| EPS attributable to common stockholders | $0.06 | $(0.29) | $0.27 | $(0.08) |
| Operating cash flow | Not separately provided | Not separately provided | $13.6 million | $3.9 million |
Revenue increased 24.7% in the quarter and 22.0% year to date. Electricity revenue was the primary driver, increasing 26.6% in the quarter and 18.5% year to date; natural gas revenue increased 3.9% in the quarter but declined 10.2% year to date. Other revenue increased substantially, primarily reflecting solar-panel deliveries.
Cash, cash equivalents and restricted cash totaled $41.8 million at June 30, 2020, including $33.4 million of unrestricted cash. Working capital was $49.1 million. Total liabilities were $59.8 million, compared with $75.3 million at December 31, 2019. Current loan payable was $1.4 million; the revolving credit balance was eliminated during the quarter. A $0.8 million Prism note was classified as held for sale. The company also had $2.3 million of undrawn letters of credit supported by $5.2 million of restricted cash.
Net cash increased by $3.2 million during the first six months. Operating cash inflow of $13.6 million was partly offset by $1.9 million of investing outflows and $8.6 million of financing outflows, including $5.0 million of dividends and $1.5 million of share repurchases.
Material Changes Versus the Prior Comparable Period
- Consolidated operating results improved materially, with quarterly operating income of $2.7 million versus a $9.3 million loss in the prior-year quarter.
- GRE operating income rose to $6.0 million from a $5.4 million loss. GRE gross margin increased to 25.7% from 15.1%, aided by lower electricity and natural gas costs.
- GRE electricity consumption increased 35.0% in the quarter, while the average number of meters served increased 7.4% and average consumption per meter increased 25.7%.
- Gross meter acquisitions declined to 40,000 from 91,000 in the quarter and to 109,000 from 176,000 year to date because COVID-19 restrictions reduced face-to-face sales activity. Average monthly churn improved to 3.9% from 4.4%.
- GRE International revenue increased 75.5% in the quarter, while its operating loss narrowed to $0.6 million from $1.6 million. The company continued expanding Lumo and began commercial operations in Sweden.
- GES revenue increased 23.1% in the quarter and 151.2% year to date, but the segment recorded an $0.8 million customer-relationship impairment in the quarter and a total asset impairment charge of $1.0 million year to date.
- The company repaid the $3.5 million Vantage revolving credit balance and entered into a new $1.4 million short-term Tokyo Star Bank loan maturing November 13, 2020.
Guidance, Outlook, Risks and Unusual Items
- Management expects a modest rebound in meter acquisitions beginning in the third quarter as public-health restrictions ease, particularly at GRE. A reversal of those conditions could delay the recovery.
- Management expects operating cash flow and unrestricted cash at June 30, 2020 to satisfy anticipated cash requirements through at least August 7, 2021. Expected 2020 capital expenditures are $0.5 million to $1.0 million.
- COVID-19 benefited residential electricity demand and reduced churn, but curtailed customer acquisition, created remote-work challenges and could increase bad-debt expense, POR fees, counterparty losses, operating costs and asset impairments.
- New York’s retail-energy-market order becomes effective October 9, 2020 and may adversely affect customer acquisition, renewals and profitability. New York generated $11.4 million of gross revenue in the quarter and $28.8 million year to date.
- Connecticut regulators advanced an investigation of Town Square’s billing, marketing and licensing compliance. No claim or demand had been made and management stated that a loss was not probable or estimable.
- Putative TCPA class actions involving IDT Energy and Residents Energy remained unresolved; management stated that losses were not probable or estimable. A previously accrued $0.2 million Aspirity-related settlement was paid during June 2020.
- The company had $143.9 million of future purchase commitments, including $96.4 million for electricity and $47.5 million of renewable-energy-credit commitments. It also maintained $13.6 million of performance bonds.
- Energy-price volatility remains a principal market risk. Derivative contracts had $0.3 million of assets and $1.3 million of liabilities at June 30, 2020, with an $18.6 million year-to-date loss recognized in cost of revenues.
- The company returned the $2.4 million PPP loan, with minimal interest, in May 2020.
Most Important Facts for Investors to Verify
- Whether the expected third-quarter recovery in customer acquisitions occurred and whether meter counts and churn continued to improve.
- The durability of GRE’s unusually improved gross margins amid changing electricity and natural gas prices.
- The financial impact of New York’s October 2020 regulatory order and the Connecticut PURA investigation.
- COVID-19 effects on customer payment behavior, bad-debt provisions, POR fees, supplier relationships and commodity-counterparty exposure.
- Progress and proceeds from the planned sale of Prism assets, including settlement of the related debt.
- Liquidity after dividends, share repurchases, purchase commitments and the November 2020 maturity of the Tokyo Star Bank loan.
- Future funding requirements and losses at Shoreditch, which reported a $4.1 million first-half net loss and generated a $1.5 million equity-method loss for Genie.