Genie Energy Ltd. 2016 Q1 SEC Filing Summary
Business context and reporting period
Genie Energy filed an unaudited Form 10-Q for the quarter ended March 31, 2016, signed May 10, 2016. The company operates primarily through Genie Retail Energy, which resells electricity and natural gas to residential and small-business customers, and Genie Oil and Gas, which conducts early-stage exploration and development activities.
- GRE generated all consolidated revenue and served approximately 393,000 meters at March 31, 2016.
- Afek conducted oil and gas exploration in Northern Israel; GOGAS also includes inactive or decommissioning projects in Mongolia, Colorado and Israel.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total revenue | $58.1 million | $74.4 million | Down 21.9% |
| Gross profit | $24.9 million | $16.5 million | Up 51.0% |
| Gross margin | 42.8% | 22.1% | Up 20.7 percentage points |
| Income from operations | $6.8 million | $(2.4) million | Improved by $9.2 million |
| Net income | $5.7 million | $(2.4) million | Improved by $8.1 million |
| Net income attributable to Genie | $6.5 million | $(2.0) million | Improved by $8.5 million |
| Net income attributable to common stockholders | $6.1 million | $(2.4) million | Improved by $8.5 million |
| Diluted EPS | $0.26 | $(0.11) | Improved |
| Operating cash flow | $9.1 million | $(9.3) million | Improved by $18.4 million |
- Electricity revenue was $44.4 million, down 6.2%; natural gas revenue was $13.4 million, down 48.9%, primarily because of milder winter weather and lower commodity prices.
- GRE gross margin increased to 42.8% from 22.1%, including electricity margin of 48.7% versus 21.5% and natural gas margin of 22.8% versus 21.9%.
- Operating expenses included $1.2 million of stock-based compensation. Consolidated income tax expense was $1.1 million.
- Cash and cash equivalents were $37.9 million at March 31, 2016, compared with $38.8 million at December 31, 2015. Cash, cash equivalents and certificates of deposit totaled $46.8 million.
- Working capital was $73.1 million. Total assets were $159.3 million and total liabilities were $38.4 million.
- Debt consisted primarily of a $2.0 million revolving loan payable. The Maple Bank facility was no longer available for future borrowings after the bank was closed by German regulators.
- Cash used in investing activities was $8.2 million, including $8.0 million for Afek capitalized exploration costs. Financing cash use was $2.0 million, including $1.8 million of dividends.
Material changes versus the prior comparable period
- Revenue declined despite a 9.8% increase in net meters served, as lower energy prices and reduced natural gas consumption more than offset customer growth.
- Gross profit and operating income improved substantially because energy costs fell faster than customer rates, and prior-year regulatory and legal costs were higher.
- Average monthly churn increased to 6.4% from 5.9%, while electricity meters rose to 267,000 from 232,000 and natural gas meters remained approximately 126,000.
- Afek capitalized exploration costs increased to $36.0 million from $26.9 million at year-end 2015. No revenue was generated by Afek or the GOGAS segment.
- Total notified AMSO of its withdrawal from AMSO, LLC, effective April 30, 2016. The project is being decommissioned; estimated costs are up to $5.0 million, with Total agreeing to pay $3.0 million.
Guidance, outlook, commentary and risks
- Management expected available liquidity and operating cash flow to fund anticipated requirements for at least the twelve months ending March 31, 2017, including Afek expenditures.
- Afek exploration and other capital expenditures were expected to total approximately $10 million to $15 million over the following twelve months. Management was considering sales of equity interests in Afek or GOGAS and Afek was seeking additional financing.
- Management expected to enter an additional state during the second quarter of 2016, subject to regulatory and operational conditions.
- The New York Public Service Commission sought restrictions requiring qualifying savings guarantees or renewable-energy content for certain REP offerings. A temporary restraining order stayed the most restrictive provisions. New York represented 50% of GRE-owned REP meters and 42% of residential customer equivalents, creating potentially material regulatory exposure.
- Afek’s exploration results had not demonstrated a commercially viable resource. Capitalized exploration costs could require material impairment if proved reserves are not established or project assumptions change.
- Legal proceedings and regulatory matters included customer class actions and a Pennsylvania regulatory complaint. The company had accrued $2.5 million for the described complaints and lawsuits.
- Commitments included $14.2 million of purchase obligations, $42.7 million of renewable-energy-credit purchase commitments, $8.1 million of letters of credit and $11.9 million of performance bonds.
- Commodity prices remain volatile. The company uses options and swaps to manage electricity and natural gas exposure, with changes in fair value recognized in earnings rather than hedge accounting.
- The company disclosed concentrated utility exposure, tax-audit uncertainty, potential AMSO decommissioning costs and cybersecurity risks, including denial-of-service attacks during the quarter that management said had no material impact.
Important facts for investors to verify
- Whether the New York PSC restrictions ultimately take effect and their impact on customer retention, pricing, revenue and profitability.
- Afek’s subsequent well-testing results, financing plans, exploration spending and recoverability of the $36.0 million capitalized exploration balance.
- The final cost and funding allocation for AMSO decommissioning, including receipt of Total’s $3.0 million contribution.
- Liquidity after considering restricted cash, letters of credit, performance bonds, purchase commitments and the unavailable Maple Bank borrowing facility.
- Outcomes and potential additional costs from the Pennsylvania, New York and New Jersey legal and regulatory proceedings.
- Seasonality and weather effects when extrapolating first-quarter results to the full year; management stated that interim results are not necessarily indicative of annual results.