Genie Energy Ltd. 2015 Form 10-K Summary
Business context and reporting period
The filing reports fiscal-year results for the year ended December 31, 2015, with quarterly information included for the fourth quarter. Genie operates primarily through Genie Retail Energy (GRE), which resells electricity and natural gas and provides energy brokerage services, and Genie Oil and Gas (GOGAS), which conducts early-stage oil and gas exploration. GRE generated all consolidated revenue.
Financial performance and key metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $210.1 million | $275.0 million |
| Gross profit | $69.1 million | $51.9 million |
| Gross margin | 32.9% | 18.9% |
| Loss from operations | $5.9 million | $25.6 million |
| Net loss | $8.6 million | $27.4 million |
| Net loss attributable to Genie | $7.5 million | $26.5 million |
| Loss per common share | $0.40 | $1.31 |
| Cash flow from operating activities | $(3.1) million | $(19.1) million |
- Electricity revenue was $167.3 million, down 22.0%; natural gas revenue was $40.8 million, down 29.8%.
- GRE income from operations improved to $13.5 million from $3.5 million, while Afek reported a $7.5 million operating loss and GOGAS reported a $3.1 million operating loss.
- GRE’s gross margin increased substantially as wholesale electricity and natural gas costs declined following the 2014 polar-vortex price spike. Electricity gross margin rose to 35.5% from 22.8%, and natural gas gross margin rose to 24.3% from 4.9%.
- Consolidated selling, general and administrative expense increased to $66.0 million from $61.4 million, including $2.7 million accrued for regulatory and legal matters. Stock-based compensation declined to $5.2 million from $10.8 million.
- Cash and cash equivalents were $38.8 million, restricted cash was $12.7 million, and certificates of deposit were $8.9 million at December 31, 2015. The filing separately cites $58.5 million of cash, restricted cash and certificates of deposit.
- Working capital was $77.1 million. Total assets were $155.8 million and total liabilities were $41.1 million.
- Debt consisted principally of a $2.0 million revolving loan borrowed from Maple Bank. The facility became unavailable for future borrowings after Maple Bank was closed by German regulators in February 2016. A separate $25.0 million JPMorgan revolving facility had no borrowings but supported $7.7 million of letters of credit and required $10.0 million of cash collateral.
- GRE served 392,000 meters at year-end, compared with 363,000 at year-end 2014. Average monthly churn improved to 6.3% from 6.8%.
Material changes versus the prior comparable period
- Revenue declined 23.6%, principally because of lower commodity prices, lower consumption and reduced average meters served during the year.
- Gross profit increased 33.0% despite lower revenue because direct costs declined 36.8%, producing a 14.0-percentage-point improvement in gross margin.
- The consolidated operating loss narrowed by $19.7 million, and net loss attributable to Genie narrowed by $19.0 million.
- 2014 included a $3.6 million goodwill impairment charge related to Diversegy and IDT Energy Network; no comparable impairment was recorded in 2015.
- Customer acquisitions increased to 275,000 from 213,000, and net meters served increased by 29,000 after a 64,000 decline in 2014.
- Afek became a separate reportable segment in 2015. It completed five exploratory wells and began flow testing. Capitalized unproved oil and gas exploration costs reached $26.9 million, compared with none at year-end 2014.
- Cash used in investing activities increased to $31.6 million, primarily because of $27.0 million invested in Afek’s unproved property.
Outlook, commentary, risks and unusual items
- Management expected existing operations and approximately $47.6 million of cash, cash equivalents and certificates of deposit at year-end to fund anticipated 2016 requirements, including Afek expenditures. It also considered selling equity interests in Afek or GOGAS to fund exploration.
- Afek’s drilling results indicated significant hydrocarbons, but the filing states that commercial viability, recoverable volumes and production methods remain uncertain. The resources are not proved, probable or possible reserves.
- Afek received a two-year drilling-permit extension in February 2016, but its underlying exploration license was scheduled to expire in April 2016 and required a further extension.
- Total notified AMSO in February 2016 that it would no longer fund AMSO, LLC. Genie was evaluating alternatives, and estimated potential remediation and reclamation exposure was between nil and $2.0 million.
- The New York Public Service Commission issued an order in February 2016 that would impose significant restrictions on retail energy providers, including savings guarantees or renewable-content requirements. A temporary restraining order stayed the most restrictive provisions pending further proceedings. New York represented 53% of GRE’s meters and 44% of its residential customer equivalents at year-end.
- Genie had accrued $2.5 million for customer complaints and lawsuits, including a proposed Pennsylvania settlement requiring additional customer refunds if approved. Putative class actions remained pending in Pennsylvania, New York and New Jersey.
- Contractual obligations totaled $68.1 million, including $22.4 million of purchase obligations, $41.8 million of renewable energy credit commitments and $2.0 million of revolving-loan obligations. GRE also had $11.9 million of performance bonds outstanding.
- Common-stock dividends totaled $3.0 million in 2015, but the common dividend was suspended in August 2015 and resumed at $0.06 per share quarterly in February 2016. Preferred-stock dividends totaled $1.5 million.
- Key continuing risks include commodity-price volatility, weather-driven demand, customer churn, regulatory restrictions, dependence on utility purchase-of-receivables programs and BP supply financing, litigation, liquidity needs, exploration and permitting uncertainty, political risk in the Golan Heights, and the absence of oil and gas production.
Important facts for investors to verify
- Final scope and enforceability of the New York PSC restrictions and their effect on GRE’s New York customer base.
- Status and financial impact of the Pennsylvania regulatory settlement and the pending class-action lawsuits.
- Whether Afek’s exploration license was extended beyond April 2016 and whether flow tests support commercial development.
- Funding, ownership and remediation consequences following Total’s withdrawal from AMSO, LLC.
- Availability of replacement liquidity after the Maple Bank facility became unavailable, including repayment timing for the $2.0 million loan.
- Recoverability of the $26.9 million of capitalized unproved exploration costs, which would be expensed if proved reserves are not established.
- Ability to satisfy the $68.1 million of contractual obligations, renewable-energy-credit commitments, letters of credit and performance bonds while operating cash flow remains negative.