Genie Energy(GNE) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company reported a significant financial turnaround in Q2 2020 with increased revenues and net income, alongside improved operating cash flow for the first half of the year Consolidated Balance Sheets The balance sheet reflects a decrease in total assets and liabilities, primarily driven by changes in receivables and contract liabilities, while total equity and cash balances increased Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $33,390 | $31,242 | | Total current assets | $106,813 | $112,939 | | Total assets | $142,421 | $156,244 | | Liabilities and Equity | | | | Total current liabilities | $57,718 | $72,156 | | Total liabilities | $59,819 | $75,314 | | Total equity | $82,602 | $80,930 | | Total liabilities and equity | $142,421 | $156,244 | Consolidated Statements of Operations The company achieved a significant turnaround in Q2 2020, reporting increased revenues and income from operations, leading to net income compared to a loss in the prior-year quarter Q2 2020 vs Q2 2019 Performance (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Total revenues | $76,075 | $61,009 | | Gross profit | $19,487 | $8,978 | | Income (loss) from operations | $2,730 | ($9,276) | | Net income (loss) attributable to Genie Energy Ltd. | $1,963 | ($7,466) | | Diluted EPS | $0.06 | ($0.29) | Six Months 2020 vs 2019 Performance (in thousands, except per share data) | Metric | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | | Total revenues | $180,126 | $147,626 | | Gross profit | $48,392 | $34,569 | | Income from operations | $11,943 | $558 | | Net income (loss) attributable to Genie Energy Ltd. | $7,795 | ($1,397) | | Diluted EPS | $0.26 | ($0.08) | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased for the first half of 2020, while cash was primarily used for financing activities including dividends and share repurchases, resulting in a net increase in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,642 | $3,872 | | Net cash used in investing activities | ($1,882) | ($2,076) | | Net cash used in financing activities | ($8,567) | ($6,132) | | Net increase (decrease) in cash | $3,205 | ($4,324) | Notes to Consolidated Financial Statements The notes detail the company's subsidiary structure, the mixed financial impact of COVID-19, key corporate events including increased ownership in Lumo and ongoing capital returns, and various legal and regulatory proceedings - The company operates through four main subsidiaries: Genie Retail Energy (GRE), GRE International (GREI), Genie Energy Services (GES), and Genie Oil and Gas (GOGAS)[25][26][27] - The COVID-19 pandemic had mixed effects: it increased demand for residential electricity as customers worked from home, but also led to the suspension of face-to-face customer acquisition programs, reducing acquisition expenses but also gross meter additions[31][32] - In January 2020, the company's interest in Lumo Energia Oyj increased to 92.5% after Lumo paid off half of a secured loan in exchange for additional shares[44] - The company declared quarterly dividends of $0.0850 per common share in Q2 2020, an increase from $0.0750. It also repurchased 213,206 shares for $1.5 million in the first half of 2020[86][89] - The company is involved in several legal and regulatory proceedings, including class action lawsuits alleging violations of the Telephone Consumer Protection Act and investigations by state utility commissions in New York, Connecticut, and Illinois. The company denies wrongdoing and states that losses are not probable or estimable[120][121][126] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant revenue growth and improved profitability in Q2 2020 to mixed COVID-19 impacts, primarily driven by the GRE segment, while maintaining a strong liquidity position and engaging in capital returns Coronavirus Disease (COVID 19) The COVID-19 pandemic had a mixed financial impact, increasing residential electricity demand and consolidated revenues while suspending face-to-face customer acquisition and reducing churn - Consolidated revenues for Q2 2020 increased by $15.1 million (24.7%) compared to Q2 2019, and by $32.5 million (22.0%) for the six-month period[157] - The company benefited from increased electricity demand from residential customers working from home[158] - Face-to-face customer acquisition was suspended in March 2020, which decreased gross meter acquisitions and customer acquisition expenses. Customer churn also decreased[158] Results of Operations Operating performance significantly improved in Q2 2020, primarily driven by the Genie Retail Energy (GRE) segment's turnaround to operating income, while other segments showed mixed results Genie Retail Energy (GRE) Segment Performance (in thousands) | Metric | Q2 2020 | Q2 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $66,472 | $54,431 | $12,041 | 22.1% | | Gross profit | $17,052 | $8,243 | $8,809 | 106.9% | | Income (loss) from operations | $5,957 | ($5,418) | $11,375 | 209.9% | - GRE's gross meter acquisitions decreased to 40,000 in Q2 2020 from 91,000 in Q2 2019 due to reduced sales activity from COVID-19 restrictions[191] - GRE's average monthly churn decreased to 3.9% in Q2 2020 from 4.4% in Q2 2019, reflecting a shift in customer mix and decreased competitor sales activity[192] - The GES segment recorded an $0.8 million impairment of a customer relationship in Q2 2020 after renegotiating a contract[214] Liquidity and Capital Resources The company maintains a strong liquidity position with substantial working capital and cash, believing its resources are sufficient for future requirements, while engaging in dividend payments and share repurchases - The company had working capital of $49.1 million and unrestricted cash and cash equivalents of $33.4 million at June 30, 2020[228][229] - In Q2 2020, the quarterly dividend on common stock was increased from $0.075 to $0.085 per share[240] - In the first six months of 2020, the company repurchased 213,206 shares of Class B common stock for $1.5 million[241] - The company's $20 million revolving loan facility with Vantage expired in April 2020 and the outstanding balance of $3.5 million was paid off[142][244] - At June 30, 2020, the company had outstanding purchase commitments of $143.9 million, primarily for electricity[234] Item 3. Quantitative and Qualitative Disclosures About Market Risks The company's primary market risk is natural gas and electricity price volatility, which it mitigates using derivative instruments without hedge accounting, with a hypothetical analysis showing significant impact from price changes - The primary market risk exposure is the price of natural gas and electricity purchases and sales[250] - The company uses derivative instruments (put/call options, swaps) to hedge against price volatility but does not apply hedge accounting, so mark-to-market changes are recorded in earnings[252] - A hypothetical scenario shows that if Q2 2020 gross profit per unit for the GRE segment matched Q2 2019 levels, gross profit would have been $4.2 million lower for electricity and $1.8 million lower for natural gas[250] Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2020. There were no material changes in the company's internal control over financial reporting during the second quarter of 2020 - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2020[253] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2020[254] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company refers to Note 17 of the Consolidated Financial Statements for a full description of its ongoing legal proceedings - Details on legal proceedings are provided in Note 17 to the Consolidated Financial Statements[257] Item 1A. Risk Factors The company highlights the COVID-19 pandemic as a significant and fluid risk factor, with potential adverse effects on strategic plans, financial condition, and operational aspects including credit quality and costs - The primary updated risk factor is the potential adverse effect of the COVID-19 pandemic on business, operations, and financial condition[258] - Potential negative impacts include disruption to strategic plans, increased bad debt expense from customer non-payment, reduced employee productivity, increased costs, and impairment of long-lived assets[264] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2020, the company repurchased Class B common stock under its existing stock repurchase program, with a significant number of shares remaining available for future repurchases Share Repurchases in Q2 2020 | Period | Total Number of Shares Purchased | Average Price per Share | | :--- | :--- | :--- | | April 1–30, 2020 | — | $ — | | May 1–31, 2020 | — | $ — | | June 1–30, 2020 | 200,873 | $7.26 | | Total | 200,873 | $7.28 | - As of June 30, 2020, 5,951,694 shares may yet be purchased under the existing stock repurchase program[265]