Genie Energy Ltd. 2015 Q1 SEC Filing Summary
Business Context and Reporting Period
Genie Energy Ltd. filed an unaudited Form 10-Q for the quarter ended March 31, 2015. Its principal operations comprise Genie Retail Energy, which resells electricity and natural gas primarily in the Eastern United States, and oil and gas exploration activities through Genie Oil and Gas, Afek Oil and Gas, and other early-stage projects.
Afek became a separate reportable segment in the first quarter of 2015. Comparative segment results were reclassified accordingly. Results are seasonal and are not necessarily indicative of full-year performance.
Financial Performance and Key Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenue | $74.4 million | $130.3 million | Down 42.9% |
| Gross profit | $17.2 million | $9.9 million | Up 73.8% |
| Gross margin | 23.1% | 7.6% | Up 15.5 percentage points |
| Loss from operations | $1.7 million | $6.5 million | Improved by $4.8 million |
| Net loss | $2.4 million | $7.1 million | Improved by $4.7 million |
| Net loss attributable to Genie | $2.0 million | $6.8 million | Improved by $4.8 million |
| Loss per common share | $0.11 | $0.33 | Improved by $0.22 |
| Cash flow from operations | $(9.3) million | $(29.7) million | Used $20.4 million less cash |
Electricity revenue was $47.3 million, down 50.6%, and natural gas revenue was $26.2 million, down 23.5%. Other revenue increased to $0.9 million from $0.4 million. Direct cost of revenues declined 52.5% to $57.2 million, primarily because of lower commodity costs and consumption.
Selling, general and administrative expense increased to $16.6 million from $14.3 million. The increase included approximately $1.2 million accrued for regulatory and legal matters, higher payroll and customer acquisition costs, partly offset by lower stock-based compensation. Exploration expense increased to $1.6 million from $0.9 million.
GRE generated $3.5 million of operating income versus a $0.9 million operating loss in the prior-year quarter. GOGAS incurred a $0.9 million operating loss, Afek incurred a $1.8 million operating loss, and Corporate incurred a $2.5 million operating loss.
Balance Sheet, Liquidity, Debt and Cash Flow
- Cash and cash equivalents were $56.0 million at March 31, 2015, compared with $71.9 million at December 31, 2014.
- Cash, cash equivalents and certificates of deposit totaled $60.7 million. Working capital was $102.0 million.
- Total assets were $153.6 million and total liabilities were $37.5 million.
- No amounts were borrowed under the $25.0 million revolving credit facility. The facility was extended in April 2015 to April 30, 2016.
- $10.0 million of cash was restricted as collateral for the revolving facility. Total restricted cash was $13.0 million, including short- and long-term amounts.
- Letters of credit totaled $7.0 million, and GRE had $12.4 million of performance bonds outstanding.
- Operating activities used $9.3 million; investing activities used $4.7 million, including $4.3 million for Afek exploration; financing activities used $1.9 million, primarily for dividends.
- Cash and cash equivalents decreased $15.9 million during the quarter.
Material Changes Versus the Prior Comparable Period
- Revenue declined sharply because Q1 2014 included unusually high retail energy prices associated with the winter 2014 polar vortex. Q1 2015 benefited from substantially lower electricity and natural gas commodity costs.
- GRE’s total meters declined to 358,000 from 391,000 at March 31, 2014, while average monthly churn improved to 5.9% from 7.2%.
- GRE’s total gross margin improved to 23.1% from 7.6%; electricity margin increased to 22.6% from 9.1%, and natural gas margin increased to 22.9% from 3.0%.
- Afek began drilling its first exploratory well in February 2015. Results were non-conclusive but indicated the possible presence of hydrocarbons; additional analysis, core sampling and wells are required.
- Capitalized exploratory well costs totaled $4.3 million at March 31, 2015.
- AMSO had not funded capital calls since the fourth quarter of 2013. Its interest in AMSO, LLC had declined to 42.8%, and its maximum estimated additional loss exposure was approximately $0.5 million.
- The company declared a $0.06 quarterly common dividend and a $0.1594 per-share quarterly preferred dividend.
Outlook, Risks, Contingencies and Unusual Items
Management stated that available cash, certificates of deposit and expected operating cash flows should be sufficient to meet anticipated requirements for at least the twelve months ending March 31, 2016, including anticipated Afek expenditures. Afek exploration and other capital expenditures were expected to total approximately $12 million to $15 million during that period. Management was also considering sales of equity interests in GOGAS projects or GOGAS to finance exploration.
- Revenue and operating income remain exposed to weather, customer churn, commodity-price volatility and seasonality.
- GRE uses electricity and natural gas swaps and options to manage commodity-price risk. Derivative liabilities were $5.0 million and derivative assets were $4.6 million at March 31, 2015; changes in fair value flow through direct cost of revenues.
- IDT Energy’s Preferred Supplier Agreement with BP was scheduled to terminate June 30, 2015. Management was negotiating with BP and other suppliers and expected an agreement by that date. IDT Energy was in compliance with its covenants at quarter-end.
- Trade receivables of $37.2 million and restricted cash of $1.5 million were pledged to BP against $11.6 million of IDT Energy trade payables.
- The company had accrued $1.0 million for specified legal matters and estimated reasonably possible additional liability of $0.3 million. The matters include regulatory proceedings and putative class actions concerning IDT Energy’s sales and marketing practices and 2014 pricing events.
- Contractual obligations included $28.7 million of renewable energy credit commitments, $7.7 million of purchase commitments, and total contractual obligations of $38.3 million. These amounts exclude $12.4 million of performance bonds and certain uncertain tax payments.
- IEI’s application for an Israeli oil shale pilot facility was denied in September 2014, and its license was extended through July 2015 while the company evaluates alternatives.
- The company disclosed no material changes to previously reported risk factors. Its chief executive and chief financial officers concluded that disclosure controls were effective as of March 31, 2015.
Important Facts for Investors to Verify
- Whether GRE can sustain the improved gross margins despite lower customer counts and continued commodity-price volatility.
- The renewal or replacement of IDT Energy’s BP supply arrangement after June 30, 2015.
- Progress, costs, permits and commercial viability of Afek’s exploration wells.
- The potential financial impact of IDT Energy’s regulatory proceedings and class-action litigation.
- Future cash requirements for Afek, renewable energy credits, purchase commitments and dividends.
- Whether AMSO continues funding its share of AMSO, LLC expenditures or experiences further ownership dilution.
- The effect of proposed adoption of the new revenue recognition standard, which the filing stated was being evaluated.