Genie Energy Ltd. — 2021 Q2 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Genie operates three segments: Genie Retail Energy (GRE), GRE International, and Genie Renewables. The company sells electricity and natural gas primarily to residential and small-business customers and also operates renewable-energy, solar, and energy-brokerage businesses.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $97.7 million | $76.1 million | $233.0 million | $180.1 million |
| Gross profit | $23.8 million | $19.5 million | $41.3 million | $48.4 million |
| Gross margin | 24.3% | 25.6% | 17.7% | 26.9% |
| Income (loss) from operations | $1.4 million | $2.7 million | $(5.2) million | $11.9 million |
| Net income | $5.3 million | $0.9 million | $2.6 million | $7.3 million |
| Net income attributable to common stockholders | $5.0 million | $1.6 million | $2.6 million | $7.1 million |
| Diluted EPS | $0.19 | $0.06 | $0.10 | $0.26 |
| Operating cash flow | Not separately provided | Not separately provided | $(5.9) million | $13.6 million |
Q2 operating margin was approximately 1.4% versus 3.6% in the prior-year quarter; six-month operating margin was approximately negative 2.2% versus 6.6%. Net income benefited from a $2.9 million Q2 unrealized gain, $7.0 million for the six months, on marketable equity securities and investments, primarily Rafael Holdings securities, and a $4.2 million pretax gain on the sale of Genie Japan.
At June 30, 2021, cash and cash equivalents were $31.4 million, restricted cash was $6.1 million, and total cash, cash equivalents, and restricted cash were $37.6 million, down from $43.2 million at December 31, 2020. Working capital was $41.3 million. The balance sheet reported no loan payable, and no amounts were drawn under the $5.0 million JPMorgan letter-of-credit facility. Total assets were $185.1 million and total equity was $86.5 million.
Material changes versus the prior comparable period
- Revenue increased 28.4% in Q2 and 29.4% for the six months, largely because Orbit Energy was consolidated following the October 2020 acquisition of the remaining Shoreditch interest and because of growth in GRE International.
- GRE revenue increased 0.8% in Q2 and 8.3% for the six months, but six-month operating income fell 64.6% to $6.7 million. Six-month gross margin declined to 21.1% from 30.7%, primarily because of higher electricity costs and Winter Storm Uri.
- GRE International revenue increased 463.5% in Q2 and 488.6% for the six months, but the segment remained loss-making, with operating losses of $3.0 million and $9.7 million, respectively.
- Genie Renewables revenue declined 48.7% in Q2 and 78.5% for the six months following the discontinuance of a major Prism customer relationship. The segment returned to Q2 operating income of $0.3 million from a $1.1 million loss.
- Winter Storm Uri generated approximately $13.0 million of incremental six-month costs, including $1.0 million in Q2. Texas legislation resulted in a $1.5 million reduction of cost of revenues recorded in Q2 and the six-month period; management estimated potential recovery of $1.5 million to $2.6 million.
- The company completed the sale of Genie Japan on May 11, 2021 for approximately $5.2 million, assumed by the buyer including the outstanding Japan loan, and recognized a $4.2 million pretax gain.
- Common dividends were suspended in March 2021. Preferred dividends continued, with $0.7 million paid during the first half and a further quarterly dividend declared for August 2021. The company repurchased 392,932 Class B shares for $2.4 million during Q2.
Outlook, commentary, risks, and unusual items
- Management stated that unrestricted cash of $31.4 million and expected operating cash flow should meet anticipated cash requirements through at least August 9, 2022. Planned 2021 capital expenditures were estimated at $0.5 million to $1.0 million.
- Management is conducting a strategic review and is considering separating GRE International through a potential spin-off. No transaction has been completed or assured.
- COVID-19 continued to suppress face-to-face customer acquisition. GRE ended Q2 with approximately 361,000 meters, down from 374,000 a year earlier; management expects a modest rebound as restrictions ease, subject to renewed restrictions.
- Energy-price volatility remains a principal market risk. The company uses electricity and natural-gas options and swaps, but does not apply hedge accounting; changes in fair value flow through cost of revenues.
- Purchase commitments totaled $145.0 million, including $90.1 million for electricity and $54.9 million for renewable-energy credits. Performance bonds totaled $13.8 million.
- New York market rules may adversely affect customer acquisition, renewals, revenue, and profitability. Connecticut regulatory settlements required Town Square to pay $0.4 million and suspend in-person marketing for 15 months, and Residents Energy to pay $0.3 million and withdraw from Connecticut for 36 months.
- The company disclosed that its disclosure controls and procedures were not effective at June 30, 2021 because of a previously reported material weakness in internal control over financial reporting. Management expected remediation during 2021.
Important facts for investors to verify
- Whether Texas Winter Storm Uri recovery proceeds ultimately fall within the estimated $1.5 million to $2.6 million range and when they will be received.
- Whether GRE International can improve profitability after the Orbit Energy consolidation and the Genie Japan divestiture.
- The sustainability of reported earnings excluding the $7.0 million six-month unrealized investment gain and $4.2 million Japan sale gain.
- Progress and independent validation of remediation of the material weakness in internal controls.
- Liquidity impact from negative operating cash flow, $145.0 million of purchase commitments, collateral requirements, and continued energy-price volatility.
- Whether the potential GRE International spin-off advances beyond strategic consideration and what liabilities, assets, and capital requirements would remain with the domestic businesses.