Genie Energy Ltd. 2020 Q3 Form 10-Q Summary
Business context and reporting period
Genie Energy operates retail electricity and natural-gas providers in the United States and internationally through Genie Retail Energy (GRE) and GRE International. Other businesses include energy brokerage, solar operations and oil-and-gas exploration. This unaudited Form 10-Q covers the three and nine months ended September 30, 2020, compared with the corresponding 2019 periods.
Results are seasonal, with electricity demand generally higher in the third quarter. COVID-19 had mixed effects: residential electricity consumption increased as customers worked from home, while face-to-face customer acquisition was curtailed.
Financial performance and key metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $96.3 million | $85.7 million | $276.5 million | $233.3 million |
| Gross profit | $27.3 million | $26.4 million | $75.7 million | $60.9 million |
| Gross margin | 28.4% | 30.7% | 27.4% | 26.1% |
| Income from operations | $8.5 million | $6.9 million | $20.4 million | $7.5 million |
| Operating margin | 8.8% | 8.1% | 7.4% | 3.2% |
| Net income | $6.2 million | $4.7 million | $13.5 million | $2.4 million |
| Net income attributable to Genie | $6.7 million | $5.2 million | $14.5 million | $3.9 million |
| EPS attributable to common stockholders, diluted | $0.24 | $0.18 | $0.50 | $0.10 |
Electricity revenue increased 12.7% in Q3 and 16.1% for the nine-month period. Natural-gas revenue declined 14.0% in Q3 and 10.6% year to date. Other revenue increased to $1.8 million in Q3 and $24.6 million year to date, largely reflecting solar and related activities.
Consolidated operating cash flow was $24.0 million for the nine months ended September 30, 2020, compared with $15.9 million in 2019. Investing cash flow was negative $1.9 million, including $1.5 million invested in an equity-method investee. Financing cash flow was negative $11.5 million, principally from dividends, debt repayments and share repurchases. Cash, cash equivalents and restricted cash totaled $49.2 million at September 30, 2020, including $19.6 million of unrestricted cash and cash equivalents.
Total assets were $148.9 million and total liabilities were $62.4 million at September 30, 2020. Working capital was $54.9 million. Reported debt included a $1.4 million Tokyo Star Bank loan; the Vantage revolving facility was repaid and expired in April 2020. A $5.0 million JPMorgan credit line remained available primarily for letters of credit, with $2.3 million issued and $5.2 million of related cash collateral restricted.
Material changes versus the prior comparable period
- Revenue increased 12.4% in Q3 and 18.5% for the first nine months.
- Net income attributable to Genie increased 28.2% in Q3 and $10.7 million for the nine-month period.
- GRE operating income increased 13.6% in Q3 and 65.3% year to date, aided by lower customer-acquisition expense and improved year-to-date gross margins.
- Q3 GRE gross margin declined to 29.0% from 31.5%, primarily because customer electricity and natural-gas rates declined more than related commodity costs. Nine-month GRE gross margin improved to 30.0% from 27.6%.
- GRE International revenue increased 91.8% in Q3 and 65.8% year to date, driven by growth at Lumo and Genie Japan and the start of Swedish operations. The segment remained loss-making.
- GES nine-month revenue increased 135.5% due primarily to large solar-panel deliveries, but the segment recorded a $0.8 million customer-relationship impairment and other asset-disposition losses.
- GRE domestic meters served were 376,000 at September 30, 2020, down 3.1% from the prior year, while RCEs increased 7.0% to 350,000. Monthly churn declined to 3.7% in Q3 from 5.3%.
Guidance, outlook, risks and unusual items
- Management stated that operating cash flow and unrestricted cash were expected to satisfy anticipated cash requirements through at least November 6, 2021. Planned 2020 capital expenditures were approximately $0.2 million.
- Management expected a modest rebound in customer acquisitions as COVID-19 restrictions eased, but cautioned that renewed restrictions could delay the recovery.
- COVID-19 remains a material uncertainty, with potential effects on customer payments, bad-debt expense, purchase-of-receivables fees, employee productivity, counterparties, asset values and credit conditions.
- At September 30, 2020, purchase commitments totaled $155.6 million, including $99.5 million for electricity and $56.1 million for renewable energy credits. The company also had $13.3 million of performance bonds and $2.3 million of unused letters of credit.
- The New York Public Service Commission’s market changes become effective February 14, 2021 and may adversely affect customer acquisition, renewals and profitability. New York represented $43.2 million of nine-month gross revenue.
- Connecticut regulatory proceedings involving Town Square and other regulatory inquiries remain unresolved; the filing states that potential losses were not probable or estimable at September 30, 2020.
- Pending TCPA class actions against IDT Energy and Residents Energy also had no probable or estimable loss at quarter-end. A previously accrued $0.2 million settlement related to the Aspirity matter was paid in June 2020.
- Subsequent to quarter-end, Genie acquired the remaining 23% of Shoreditch for approximately $1.7 million, making it wholly owned, and Prism sold assets held for sale for $2.6 million of net proceeds and settled approximately $0.9 million of related debt.
- The company declared a $0.1594 quarterly preferred dividend and a $0.0850 quarterly common dividend after quarter-end.
Important facts for investors to verify
- Whether elevated electricity consumption and lower churn persist after pandemic-related behavioral changes and seasonal effects normalize.
- The impact of the February 2021 New York market rules and ongoing Connecticut, Illinois and other regulatory matters.
- The liquidity effect of restricted cash, BP collateral requirements, purchase commitments and the November 2020 maturity of the Tokyo Star Bank loan.
- The financial performance and funding requirements of GRE International, including the newly wholly owned Shoreditch operation and loss-making Lumo-related activities.
- Whether Prism’s asset sale and restructuring eliminate further losses or impairments.
- The effect of commodity-price volatility and derivative mark-to-market losses; the filing reports derivative losses of $23.4 million in cost of revenues for the first nine months of 2020.