Genie Energy Ltd. 2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021, with comparisons to 2020. Genie Energy operates three reportable segments: Genie Retail Energy, which resells electricity and natural gas in U.S. deregulated markets; Genie Retail Energy International, which serves customers in Finland and Sweden; and Genie Renewables, which includes solar development, solar manufacturing, community solar and commercial energy brokerage.
Genie exited Japan through a May 2021 sale and exited the U.K. market after Orbit Energy entered insolvency proceedings effective December 1, 2021. U.K. results are presented as discontinued operations.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $363.7 million | $356.9 million | 1.9% increase |
| Gross profit | $104.9 million | $95.1 million | 10.3% increase |
| Gross margin | 28.8% | 26.6% | Improved |
| Income from operations | $33.1 million | $21.9 million | 51.3% increase |
| Operating margin | 9.1% | 6.1% | Improved |
| Net income attributable to Genie Energy | $29.2 million | $13.2 million | 141.2% increase |
| EPS attributable to common stockholders, diluted | $1.05 | $0.44 | Increase |
| Operating cash flow from continuing operations | $21.3 million | $25.0 million | Decrease |
Revenue was composed of $316.3 million of electricity revenue, $38.8 million of natural gas revenue and $8.6 million of other revenue. Gross profit benefited from improved results in GRE International and Genie Renewables, while consolidated selling, general and administrative expense was essentially flat at $71.8 million. Stock-based compensation increased to $2.9 million from $1.1 million.
- Genie Retail Energy: Revenue increased 2.4% to $311.8 million, gross profit increased to $90.9 million and operating income declined 5.0% to $34.7 million. Gross margin was 29.1% versus 29.0% in 2020.
- GRE International: Revenue increased 62.8% to $44.4 million and operating income improved to $4.8 million from a $5.1 million operating loss, primarily reflecting higher electricity consumption and pricing, derivative gains and a full year of Lumo Sweden operations.
- Genie Renewables: Revenue declined 70.2% to $7.5 million, but the segment generated $0.3 million of operating income compared with a $2.6 million loss in 2020, reflecting higher-margin activity, streamlined Prism operations and the absence of 2020 impairments.
Liquidity, cash flow and capital structure
- Cash and cash equivalents were $95.5 million at December 31, 2021, compared with $31.9 million at year-end 2020. Total cash, cash equivalents and restricted cash were $102.1 million.
- Working capital was $84.1 million. Management stated that operating cash flow and unrestricted cash were expected to cover anticipated requirements through at least March 16, 2023.
- Total operating cash flow, including discontinued operations, was $67.0 million. Discontinued operations contributed $45.7 million, primarily from the settlement and unwinding of Orbit’s Shell supply arrangements.
- There were no loans payable at December 31, 2021. The company maintained a $5.0 million JPMorgan letter-of-credit facility, collateralized by approximately $5.6 million of restricted cash, with no letters of credit issued at year-end.
- GRE had $13.5 million of performance bonds outstanding and approximately $144.0 million of purchase commitments, including $40.5 million of renewable energy credit commitments. Certain receivables and restricted cash were pledged to BP under the preferred supplier agreement.
- Capital expenditures were $0.1 million in 2021. Management expected 2022 capital expenditures of approximately $0.5 million to $1.0 million.
Material changes versus the prior comparable period
- GRE’s meters served declined to 285,000 from 370,000, while average monthly churn increased to 5.7% from 4.4%. Management attributed the decline to the termination of a significant aggregation deal, a strategic pause in customer acquisition, customer transfers back to utilities and unfavorable market conditions.
- GRE International improved materially, despite the sale of Genie Japan and lower year-end meters served. Lumo Finland consumption increased 30.9%, and the average price charged increased 57.8%.
- Genie Renewables revenue fell because of the discontinuation of a significant Prism customer relationship in 2020, but the segment returned to profitability and recorded no 2021 impairment charge.
- Consolidated revenue increased despite the U.K. exit and Japan divestiture. The mix shifted toward electricity and natural gas, while other revenue declined from $25.9 million to $8.6 million.
- Net income included a $4.2 million pre-tax gain on the sale of Genie Japan, a $5.0 million unrealized loss on marketable securities and $4.0 million of net income from discontinued operations.
Guidance, outlook, commentary, risks and unusual items
- The company did not provide formal revenue or earnings guidance. Management expected a modest rebound in meter acquisitions as COVID-19 restrictions eased, but noted that the timing and durability of the recovery remained uncertain.
- Winter Storm Uri generated approximately $13.0 million of incremental Texas costs, partially offset by $3.4 million of expected recovery under Texas legislation and regulatory orders. Japan’s January 2021 price volatility caused approximately $2.5 million of additional costs before the Japan divestiture.
- Orbit’s discontinued operations included a $69.1 million gain from the settlement of the Shell contract, offset by operating losses, impairment and administration costs. In January 2022, Genie transferred $21.5 million to Orbit administrators and placed $28.3 million into an attorney trust account. The company reported that the funds may remain restricted while the U.K. administration and Chapter 15 proceedings are resolved.
- Key operating risks include wholesale electricity and natural gas price volatility, fixed-rate customer commitments, weather extremes, customer churn, regulatory restrictions on retail energy marketing, reliance on utilities and suppliers, liquidity and collateral requirements, and competition in solar markets.
- New York’s 2021 retail energy orders may constrain customer acquisition and renewal economics. New York represented 22.4% of GRE meters and generated $52.9 million of gross revenue in 2021.
- Town Square paid a $0.4 million Connecticut regulatory settlement and agreed to suspend in-person marketing there for 15 months. Residents Energy paid $0.3 million and withdrew from Connecticut for 36 months. Other regulatory reviews remain possible.
- The company and its auditors reported a material weakness in internal control over financial reporting related to the precision of management’s income tax provision review. The weakness continued from 2020, and the auditor issued an adverse opinion on internal control effectiveness, although the financial statements received an unqualified opinion.
Most important facts for investors to verify
- Whether the unusually large 2021 cash balance remains available after Orbit-related transfers, restricted funds and administration costs.
- The ultimate recovery, liabilities and timing associated with Orbit’s U.K. insolvency and Chapter 15 proceedings.
- The sustainability of GRE margins and customer volumes after the 2021 strategic acquisition pause, higher churn and regulatory changes.
- The extent to which Texas Winter Storm Uri recoveries, derivative gains and other unusual items affected reported profitability.
- Progress in remediating the material weakness in tax-accounting controls and whether future filings identify additional control deficiencies.
- Future wholesale energy prices, hedging effectiveness, collateral requirements and the renewal or modification of the BP preferred supplier agreement, which runs through November 30, 2023.
- The company’s ability to restore growth and profitability in Genie Renewables despite the 2021 revenue decline and intense solar competition.