Genie Energy Ltd. 2019 Q2 SEC Filing Summary
Business context and reporting period
Genie Energy operates retail energy providers in the United States and internationally, energy brokerage and solar businesses, and inactive oil and gas exploration operations. The Form 10-Q covers the three and six months ended June 30, 2019; financial statements are unaudited.
Key 2019 changes included the acquisition of an 80% controlling interest in Finnish retailer Lumo Energia in January and the continued integration of the 60% controlling interest in Prism Solar acquired in October 2018. GRE International became a separate reportable segment and includes Lumo, Genie Japan, and the company’s investment in U.K. joint venture Shoreditch.
Financial performance and key metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $61.0 million | $56.4 million | $147.6 million | $145.7 million |
| Gross profit | $9.0 million | $16.1 million | $34.6 million | $40.5 million |
| Gross margin | 14.7% | 28.5% | 23.4% | 27.8% |
| Operating income (loss) | $(9.3) million | $(1.6) million | $0.6 million | $5.5 million |
| Net income (loss) | $(8.5) million | $(2.5) million | $(2.3) million | $3.4 million |
| Net income (loss) attributable to Genie | $(7.5) million | $(1.9) million | $(1.4) million | $4.2 million |
| Loss per common share | $(0.29) | $(0.09) | $(0.08) | $0.14 |
| Cash flow from operations | Not separately provided | Not separately provided | $3.9 million | $12.1 million |
Q2 revenue increased 8.1%, driven by higher electricity revenue and contributions from Lumo and Prism. However, cost of revenues increased 28.9%, primarily reflecting unfavorable electricity and natural gas hedging results and higher commodity costs. Consolidated operating expenses also increased, including customer acquisition costs.
At June 30, 2019, cash and cash equivalents were $32.9 million, restricted cash was $6.9 million, working capital was $42.7 million, and total assets were $147.6 million. Debt included $2.5 million outstanding under the revolving credit facility and $0.9 million of notes payable. Total liabilities were $58.9 million and total equity was $88.7 million.
Cash, cash equivalents, and restricted cash declined by $4.3 million during the first six months. Operating cash flow of $3.9 million was offset by $2.1 million of investing outflows and $6.1 million of financing outflows, including $4.8 million of dividends and $2.3 million related to repayment of Lumo debt.
Material changes versus the prior comparable period
- Q2 gross profit fell $7.1 million and gross margin declined approximately 13 percentage points, despite revenue growth.
- GRE operating income changed from $4.1 million of income to a $5.4 million loss in Q2. Six-month GRE operating income declined 46.7% to $8.1 million.
- Electricity gross margin declined to 16.1% in Q2 from 26.8%; natural gas gross margin declined to 6.1% from 37.8%.
- Derivative losses recorded in cost of revenues were $7.9 million in Q2 and $10.8 million for the first six months, compared with gains of $0.5 million and $0.4 million, respectively, in the prior-year periods.
- GRE meters served increased to 378,000 at June 30, 2019 from 363,000 a year earlier, while average monthly churn improved to 4.4% in Q2 from 5.7%.
- GRE International generated $2.9 million of Q2 revenue and incurred a $1.6 million operating loss; Shoreditch contributed $0.9 million to the company’s equity-method loss.
- GES revenue increased to $3.7 million in Q2 from $0.6 million, primarily because of Prism, but the segment’s operating loss widened to $0.7 million.
- The prior-year six-month results included a $2.3 million impairment charge related to the drilling business; no comparable impairment was recorded in 2019.
Guidance, outlook, commentary, risks, and unusual items
- Management stated that operating cash flow and $32.9 million of unrestricted cash at June 30, 2019 were expected to fund anticipated requirements through at least August 8, 2020. The company expected 2019 capital expenditures of approximately $0.5 million to $1.0 million.
- Results are seasonal and weather-sensitive. Electricity demand typically rises in summer, while natural gas demand is generally higher in winter; interim results are not necessarily indicative of full-year performance.
- Commodity price volatility remains a central risk. The company uses electricity and natural gas options and swaps, but does not apply hedge accounting; fair-value changes therefore affect current-period cost of revenues.
- New York represented 27.3% of GRE meters and 19.0% of residential customer equivalents. A May 2019 New York Court of Appeals decision permits the Public Service Commission to impose price caps through its authority over utility infrastructure, potentially affecting GRE’s New York operations.
- Outstanding purchase commitments were $121.4 million, including $99.3 million for electricity, and renewable energy credit commitments were $22.0 million. GRE also had $13.1 million of performance bonds outstanding.
- The company had a $20 million revolving facility, of which $2.5 million was drawn, maturing April 3, 2020. A separate $5 million letter-of-credit facility was undrawn and secured by approximately $5.2 million of restricted cash.
- Pending matters included a TCPA class action, an Aspirity bankruptcy-related complaint seeking approximately $16.0 million plus interest, and regulatory investigations involving marketing practices in Connecticut. Management stated that losses were not probable or estimable for the disclosed pending matters as of June 30, 2019.
- The company settled the remaining $0.4 million balance related to earlier customer class actions during Q2 2019. An Illinois consent decree required $3.0 million of restitution and compliance measures; an Ohio settlement required a $0.2 million forfeiture.
- Disclosure controls were not effective at June 30, 2019 because of a material weakness in internal control over financial reporting. Management expected remediation to be completed in the fourth quarter of 2019.
Important facts for investors to verify
- Whether electricity and natural gas gross margins recover after the substantial Q2 hedging losses and commodity-cost pressure.
- The sustainability of GRE’s meter growth and improved churn relative to customer acquisition costs and operating expenses.
- The financial contribution and integration progress of Lumo and Prism, including their losses, debt, and noncontrolling interests.
- The outcome and potential economic impact of New York price-cap regulation and other state regulatory proceedings.
- Liquidity after considering restricted cash, BP collateral requirements, purchase commitments, performance bonds, dividends, and the April 2020 revolving facility maturity.
- Whether management completes remediation of the material weakness by the stated fourth-quarter 2019 target.