Genie Energy Ltd. 10-Q Summary
Business Context and Reporting Period
Genie Energy filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2015. The company operates retail energy providers through Genie Retail Energy and oil and gas exploration projects through Genie Oil and Gas, including Afek in Israel, Genie Mongolia, AMSO in Colorado, and IEI in Israel. Afek became a separate reportable segment in 2015.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total revenue | $39.5 million, down 19.0% | $114.0 million, down 36.4% |
| Gross profit | $14.0 million | $31.2 million |
| Gross margin | 35.4%, versus 23.5% | 27.4%, versus 11.9% |
| Loss from operations | $(4.3) million | $(6.0) million |
| Net loss | $(4.7) million | $(7.2) million |
| Net loss attributable to Genie | $(4.5) million | $(6.5) million |
| Loss attributable to common stockholders | $(4.9) million; $(0.22) per share | $(7.2) million; $(0.33) per share |
| Operating cash flow | Not separately provided for the quarter | $(3.5) million |
Electricity revenue was $33.8 million in the quarter and $81.1 million year to date. Natural gas revenue was $5.0 million and $31.2 million, respectively. Selling, general and administrative expense increased to $16.5 million in the quarter and $33.1 million year to date, including stock-based compensation of $1.6 million and $2.8 million.
Cash and cash equivalents were $56.0 million at June 30, 2015, compared with $71.9 million at December 31, 2014. Cash, cash equivalents, and certificates of deposit totaled $60.7 million. Working capital was $91.8 million. Total assets were $147.6 million and total liabilities were $34.5 million.
The company had no borrowings under its $25.0 million revolving credit facility. The facility was extended to April 30, 2016 and was supported by $10.0 million of restricted cash collateral. Letters of credit totaled $7.2 million, and GRE had $12.9 million of performance bonds outstanding.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because lower electricity and natural gas commodity prices reduced customer rates, while consumption and meters served also decreased.
- Gross margin improved substantially as commodity costs fell faster than customer rates. Electricity gross margin increased to 33.8% from 25.2% in the quarter, and natural gas gross margin increased to 43.6% from 14.1%.
- GRE operating income declined to approximately $0.1 million from $0.9 million in the quarter because higher SG&A, including $1.5 million of regulatory and legal accruals, offset the gross-margin improvement. Year-to-date GRE operating income improved to $3.6 million from approximately $0.0 million.
- Customer meters served increased to 377,000 at June 30, 2015 from 364,000 a year earlier. Average monthly churn declined to 6.3% in the quarter and 6.1% year to date, versus 8.1% and 7.6%, respectively.
- Cash used in investing activities was $11.2 million, including $10.9 million invested in Afek's unproved oil and gas property; no comparable Afek investment occurred in the first six months of 2014.
- Common dividends of $0.06 per share were paid for each of the first two quarters of 2015. On August 6, 2015, the company announced that common-stock dividends were suspended.
Outlook, Commentary, Risks, and Unusual Items
- Management expects existing cash, cash equivalents, and certificates of deposit to fund anticipated requirements for at least the twelve months ending June 30, 2016, including substantial Afek expenditures.
- Afek expects additional analysis, flow testing, seismic work, and exploratory drilling. Preliminary results indicated hydrocarbons, but the resources are not proved, probable, or possible reserves and their recoverability cannot yet be determined.
- Afek exploration and other capital expenditures for the twelve months ending June 30, 2016 are expected to be $12 million to $15 million.
- AMSO has not funded capital calls since the fourth quarter of 2013. Its interest in AMSO, LLC fell to 42.4% and could be diluted further. The company's estimated maximum additional exposure was $0.2 million at July 31, 2015.
- IEI's Israeli oil shale license expired in July 2015, and its operations remained on hold after a permit application was declined. Genie Mongolia operations were being scaled back.
- IDT Energy faced putative class actions in Pennsylvania, New York, and New Jersey and a Pennsylvania regulatory proceeding. The company had accrued $2.5 million for specified complaints and lawsuits. A proposed Pennsylvania settlement required regulatory approval and additional customer refunds.
- The BP Preferred Supplier Agreement was extended to September 30, 2015. The company was negotiating a replacement or extension and was in compliance with related covenants at June 30, 2015.
- Contractual obligations totaled $50.9 million, including $39.4 million of renewable energy credit commitments and $10.4 million of purchase commitments. Tax audits and uncertain tax positions could create additional payments.
- Commodity prices remain the principal market risk. The company uses electricity and natural gas swaps and options, but does not apply hedge accounting; changes in fair value flow through earnings.
Important Facts for Investors to Verify
- Whether the improved gross margins and lower churn are sustainable despite substantially lower revenue and higher SG&A.
- The timing, cost, and technical results of Afek's drilling program, and whether any resources ultimately qualify as reserves.
- The outcome and final cost of Pennsylvania regulatory matters and the pending class-action litigation.
- The status of the BP supply agreement, related collateral requirements, and the availability of the revolving credit facility.
- The effect of suspended common dividends on capital allocation and liquidity.
- Potential further dilution or funding obligations related to AMSO, LLC and other subsidiary equity arrangements.