Genie Energy Ltd. 2020 Form 10-K Summary
Business context and reporting period
Genie Energy is a global energy-services company supplying electricity and natural gas to residential and small-business customers in the United States, United Kingdom, Finland, Sweden and Japan. It also provides commercial energy brokerage and solar-related services. The filing covers the fiscal year ended December 31, 2020, with comparison to 2019.
- GRE: U.S. retail energy providers; 370,000 meters at year-end.
- GRE International: Orbit Energy in the U.K., Lumo Finland and Sweden, and Genie Japan; 195,000 meters at year-end.
- GES: Diversegy brokerage, Genie Solar and 60%-owned Prism Solar.
- Afek Oil & Gas completed final exploratory testing in December 2020, found no commercially suitable light oil and began winding down operations.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $379.3 million | $315.3 million | +20.3% |
| Gross profit | $97.7 million | $82.9 million | +17.9% |
| Gross margin | 25.8% | 26.3% | Down approximately 0.5 points |
| Income from operations | $19.3 million | $9.8 million | +96.8% |
| Operating margin | 5.1% | 3.1% | Improved |
| Net income | $15.6 million | $1.4 million | +1,027.9% |
| Net income attributable to Genie | $13.2 million | $4.2 million | +215.1% |
| EPS attributable to common stockholders | $0.45 basic; $0.44 diluted | $0.10 basic and diluted | Improved |
| Operating cash flow | $23.1 million | $15.8 million | Improved |
Electricity revenue was $311.6 million, natural gas revenue was $41.9 million and other revenue was $25.9 million. The filing reports total cost of revenues of $281.6 million and selling, general and administrative expense of $77.0 million.
- GRE: Revenue increased 6.5% to $305.3 million; operating income increased 34.0% to $36.4 million. Gross margin improved to 28.9% from 28.1%.
- GRE International: Revenue increased 199.2% to $49.6 million, but the segment remained loss-making, with an operating loss of $7.6 million.
- GES: Revenue increased 101.9% to $24.4 million, but the segment recorded a $2.5 million operating loss, including $1.4 million of asset impairments.
- Consolidated results included a $5.5 million gain from acquiring the remaining interest in Shoreditch/Orbit Energy and consolidating the subsidiary.
- Income tax expense increased to $8.3 million from $4.6 million. The company reported an effective tax rate of approximately 34.8%.
Liquidity, cash flow and debt
- Cash and cash equivalents were $36.9 million at December 31, 2020, compared with $31.2 million at year-end 2019. Total cash, cash equivalents and restricted cash were $43.2 million.
- Working capital was $36.3 million. Management stated that operating cash flows and unrestricted cash were expected to satisfy anticipated requirements through at least March 16, 2022, based on information available at the filing date.
- Investing cash outflow was $3.0 million, including a $5.0 million investment in Rafael Holdings, partly offset by proceeds from the sale of Prism assets and cash acquired with Shoreditch.
- Financing cash outflow was $15.2 million, including $10.1 million of dividends and $1.7 million of Class B stock repurchases.
- Debt was limited relative to total assets: $1.5 million of loans payable remained at year-end and no long-term notes payable were outstanding. The Vantage revolving facility expired in April 2020 after repayment of $3.5 million.
- A $5.0 million JPMorgan credit line remained available through December 31, 2021, supported by approximately $5.2 million of restricted cash; $2.3 million of letters of credit had been issued and none had been drawn.
- GRE had $47.0 million of receivables and $0.5 million of restricted cash pledged to BP against $16.7 million of trade payables. The BP supplier agreement runs through November 30, 2023.
- Total contractual obligations were $138.1 million, including $85.3 million of electricity purchase obligations and $46.0 million of renewable energy credit commitments.
Material changes versus 2019
- Revenue growth was driven by higher electricity consumption, expansion of international operations, consolidation of Shoreditch beginning October 8, 2020, and increased solar deliveries. Electricity consumption within GRE increased 18.7%, while the average electricity rate declined 7.5%.
- GRE’s U.S. meters were flat at 370,000, but RCEs increased 9.1% to 337,000, reflecting higher-consumption customers, warmer summer weather and increased residential usage during COVID-19 restrictions.
- GRE gross meter acquisitions declined to 212,000 from 308,000 because face-to-face marketing was suspended. Average monthly churn improved to 4.4% from 5.3%.
- International meters increased to 195,000 from 127,000, and international RCEs increased to 103,000 from 65,000.
- Shoreditch became wholly owned, adding $22.4 million of revenue after acquisition and $13.4 million of goodwill. The transaction also produced the $5.5 million consolidation gain.
- Prism discontinued its principal customer relationship, sold its Highland, New York assets, recorded a $0.8 million customer-relationship impairment, a $0.4 million goodwill impairment and a $0.3 million disposal loss.
- The allowance for doubtful accounts increased to $8.8 million from $2.6 million, reflecting higher exposure in non-POR markets and other credit considerations.
- Common-stock dividends were increased to $0.33 per share from $0.30 per share during 2020, but were suspended in March 2021 following Winter Storm Uri losses. Preferred-stock dividends continued.
Outlook, risks, contingencies and unusual items
- Winter Storm Uri and Japan price volatility: Management estimated an adverse first-quarter 2021 impact of approximately $2.5 million from Japan and $12.8 million to $14.0 million from Texas. The company maintained Texas customer rates despite extreme wholesale prices.
- COVID-19: Residential electricity demand benefited from work-from-home activity, while customer acquisition was constrained. Management expected a modest rebound in meter acquisitions as restrictions eased, but noted continuing uncertainty.
- Regulatory matters: New York’s 2020 retail-energy orders may restrict products, customer acquisition and renewals. Connecticut PURA proceedings involving Town Square and Residents Energy remain unresolved; PURA sought $1.5 million in penalties and an 18-month license suspension against Residents Energy in March 2021. The company stated that potential losses were not probable or estimable at December 31, 2020.
- Commodity and weather risk: Fixed-rate products, weather-driven demand and volatile electricity and natural gas prices can compress margins. The company uses options, swaps and forward physical contracts but does not apply hedge accounting.
- Internal controls: Management and BDO issued adverse conclusions regarding internal control over financial reporting because controls over the income-tax provision were not sufficiently precise. Shoreditch was also excluded from management’s control assessment because of the timing of the acquisition.
- Tax uncertainty: Unrecognized tax benefits were $2.5 million, and the company had $15.2 million of valuation allowance against deferred tax assets at year-end.
- Other unusual items: The company invested $5.0 million in related-party Rafael Holdings securities, recognized a $0.3 million unrealized gain, and continues to face regulatory, litigation, licensing, cyber-security and supplier-liquidity risks.
Important facts for investors to verify
- Confirm the final financial impact of Winter Storm Uri and Japanese price volatility in the first-quarter 2021 Form 10-Q.
- Monitor whether common-stock dividends remain suspended and whether preferred dividends continue to be paid.
- Review remediation of the income-tax internal-control material weakness and the scope of controls over Shoreditch.
- Track Connecticut PURA proceedings, New York retail-energy regulation and other licensing or enforcement matters.
- Assess the sustainability of 2020 earnings excluding the $5.5 million Shoreditch consolidation gain and other impairment, disposal and tax-related items.
- Reconcile cash availability with restricted cash, pledged receivables, performance bonds, letters of credit and the $138.1 million of contractual obligations.
- Evaluate customer growth, churn, RCE trends and the impact of reduced acquisition activity on future GRE revenue.