Genie Energy Ltd. — 2022 First-Quarter Form 10-Q Summary
Business context and reporting period
Genie Energy operates retail energy providers in the United States, Finland and Sweden, plus solar, energy brokerage and related renewable-energy businesses. The report covers the three months ended March 31, 2022, with comparative results for the three months ended March 31, 2021. United Kingdom operations were classified as discontinued operations following Orbit Energy’s insolvency and exit from the U.K. market in late 2021.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $98.5 million | $107.5 million | (8.3%) |
| Gross profit | $45.5 million | $12.7 million | +$32.9 million |
| Gross margin | 46.2% | 11.8% | +34.4 pts |
| Income from operations | $24.4 million | $(5.5) million | +$29.9 million |
| Operating margin | 24.8% | (5.1%) | +29.9 pts |
| Net income attributable to Genie | $17.9 million | $(2.0) million | +$19.9 million |
| Common-stockholder net income | $17.5 million | $(2.4) million | +$19.9 million |
| Diluted EPS | $0.67 | $(0.09) | +$0.76 |
| Operating cash flow from continuing operations | $18.3 million | $(5.7) million | +$24.1 million |
Electricity revenue decreased 18.1% to $71.8 million, while natural-gas revenue increased 41.8% to $24.5 million. Electricity consumption at GRE declined 36.7%, driven by lower residential usage after the easing of COVID-19 stay-at-home measures and a 33.3% decrease in average meters served. Natural-gas consumption increased 20.0%.
GRE generated $83.9 million of revenue and $30.2 million of operating income, compared with $90.7 million and $1.2 million, respectively, in the prior-year period. GRE’s gross margin increased to 55.5% from 16.5%, benefiting from favorable hedging results, lower electricity costs and the absence of the prior-year Texas winter-storm impact. GRE International generated $12.6 million of revenue and reported a $2.8 million operating loss. Genie Renewables generated $2.0 million of revenue and reported a $0.5 million operating loss.
Cash, cash equivalents and restricted cash totaled $94.7 million at March 31, 2022, including $88.2 million of unrestricted cash and cash equivalents. Working capital was $96.0 million. Cash decreased by $7.5 million during the quarter, primarily because $21.8 million was used in investing activities of discontinued operations, including funding related to Orbit. Continuing-operations investing cash use was $1.6 million, and financing cash use was $2.4 million, mainly dividends.
The company reported no outstanding borrowings under its $5.0 million JPMorgan credit line at March 31, 2022; the line is collateralized by approximately $5.2 million of restricted cash and expires December 31, 2022. Total liabilities were $93.9 million, and total equity was $126.3 million.
Material changes versus the prior comparable period
- Profitability improved substantially, primarily because Q1 2021 included approximately $13.0 million of Texas Winter Storm Uri costs and approximately $2.5 million of Japan energy-price costs, while Q1 2022 benefited from favorable hedging results.
- GRE paused or reduced certain customer-acquisition channels to protect margins. GRE meters served fell to 286,000 from 373,000 a year earlier, while gross meter acquisitions declined to 44,000 from 62,000.
- Average monthly churn improved to 4.5% from 4.9% in the prior-year quarter.
- Genie Japan, sold in May 2021, was no longer included in Q1 2022 results; its Q1 2021 revenue was $3.2 million and cost of revenue was $5.4 million.
- Common dividends were reinstated at $0.075 per share after having been suspended in 2021. The company also authorized preferred-stock redemptions of up to $1.0 million per quarter beginning in Q2 2022 and later authorized $2.0 million of Q2 redemptions.
Outlook, risks, contingencies and unusual items
Management expects 2022 capital expenditures of approximately $0.5 million to $1.0 million. Management stated that operating cash flow and unrestricted cash were expected to meet anticipated requirements for at least the period from April 1 through May 9, 2022; the filing does not provide a longer quantified liquidity forecast.
Orbit-related funds were a significant unusual item. The company transferred $21.5 million to Orbit’s administrators in January 2022 and placed $28.3 million in an attorney trust account in February. On April 4, 2022, after quarter-end, the $28.3 million was transferred to the U.S. court registry. Management expected the funds to be returned to the U.K. administrators and believed they were more than sufficient to satisfy remaining Orbit creditors, with a significant surplus potentially returned to Genie. The ultimate recovery and timing remain subject to the insolvency process.
At March 31, 2022, the company had $132.5 million of future purchase commitments, including $94.9 million for electricity and $37.7 million of renewable-energy-credit commitments. It also had $15.5 million of performance bonds outstanding. Energy-price volatility remains a principal market risk; derivatives are not designated as accounting hedges, so fair-value changes flow through earnings.
Other risks include seasonal and weather-sensitive demand, commodity-price volatility, utility-counterparty concentration, regulatory investigations involving retail-energy marketing practices, and possible effects from COVID-19 and climate-related events. The company disclosed that its disclosure controls and procedures were not effective because of a previously reported material weakness in internal control over financial reporting. Management expected remediation to be completed in 2022.
Important facts investors should verify
- Whether GRE’s reduced customer base and acquisition pause support sustainable margins or constrain future revenue growth.
- Whether Q1’s unusually favorable hedging results and the absence of Winter Storm Uri costs are repeatable.
- The final amount and timing of any surplus returned from the $28.3 million Orbit-related court deposit.
- Liquidity after dividends, preferred-stock redemptions, purchase commitments and collateral requirements.
- Progress and testing results for remediation of the material internal-control weakness.
- Exposure to energy-price movements, derivative valuation changes, regulatory proceedings and required performance bonds.