Genie Energy(US:GNE)2022-03-16 11:59Part I Item 1. Business Genie Energy Ltd. is a global energy services provider operating through three segments: U.S. retail energy, Scandinavian retail energy, and renewables, supplying electricity and natural gas to residential and small business customers - The company operates through three main segments: Genie Retail Energy (GRE) for U.S. retail supply, GRE International for Scandinavian retail supply, and Genie Renewables for solar and energy brokerage services11 - In 2021, the company experienced significant operating losses from unprecedented price volatility in the Japanese and Texas wholesale energy markets due to extreme weather28 - Strategic shifts in 2021 included the sale of its interest in Genie Japan in May and the exit from the U.K. energy supply business in November2930 - The company suspended common stock dividends in March 2021 to rebuild its cash position after weather-related losses but reinstated them in February 2022283031 Genie Retail Energy (GRE) GRE, the company's largest segment, contributed approximately 85.7% of consolidated revenue in 2021 by reselling electricity and natural gas in 16 U.S. states and Washington D.C GRE Financial and Operational Highlights (2021 vs 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenue | $311.8 million | $304.5 million | | - Electricity Sales | $273.0 million | $270.9 million | | - Natural Gas Sales | $38.8 million | $33.6 million | | % of Consolidated Revenue | 85.7% | 85.3% | | Meters Served (Year-End) | 285,000 | 370,000 | | - Electric Meters | 210,000 | 305,000 | | - Gas Meters | 75,000 | 65,000 | - GRE operates in 16 states and Washington D.C., reselling electricity and natural gas purchased on wholesale markets3536 - A significant portion of GRE's customer base (74.6% of electric load) is on variable-rate products as of December 31, 20215354 - The company settled disputes with the Connecticut Public Utilities Regulatory Authority (PURA) for its subsidiaries Town Square Energy and Residents Energy, paying a total of $0.7 million and agreeing to temporary marketing suspensions7780 GRE International GRE International operates retail energy providers in Scandinavia, with performance significantly impacted by the sale of Genie Japan in May 2021 - Operates REPs in Finland (Lumo Finland) and Sweden (Lumo Sweden) under the Lumo Energia brand8688 - The company completed the sale of its Genie Japan subsidiary in May 2021, which was the primary reason for the decrease in meters served and RCEs for the segment8789 GRE International Customer Metrics (Year-End) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Meters Served | 67,000 | 88,000 | | RCEs | 40,000 | 57,000 | - Customer acquisition is focused on digital channels, including search engine marketing and social media, driving traffic to branded websites100 Genie Renewables The Genie Renewables segment provides diverse energy solutions through four businesses: commercial solar development, community solar customer acquisition, bifacial solar module manufacturing, and commercial energy brokerage - Genie Renewables consists of four businesses: Genie Solar, CityCom Solar, Prism Solar Technologies, and Diversegy116 - Genie Solar develops and builds commercial, industrial, and community-scale solar projects, focusing on the Northeastern and Mid-Atlantic U.S125128 - Prism specializes in manufacturing bifacial solar modules, which generate energy from both sides of the panel132133 - Diversegy acts as a commercial energy advisory firm, helping clients reduce costs and mitigate risk through customized energy solutions and brokerage services135 Item 1A. Risk Factors The company faces significant risks, primarily related to its retail energy operations, including intense competition, regulatory changes, extreme weather events, and a material weakness in internal control over financial reporting - The retail energy business is highly competitive, facing pressure from incumbent utilities and other REPs, which can force price reductions and impact market share155 - Regulatory changes, such as the New York PSC's 2021 Orders limiting product offerings, could adversely impact customer acquisition, revenue, and profitability158159 - Unusual weather conditions and climate change pose significant risks; extreme weather in Texas in February 2021 resulted in an approximate $10.6 million negative impact on consolidated profitability for the year161167 - The company has a material weakness in internal control over financial reporting related to the review of its income tax provision, which was first reported for FY 2020 and continued to exist as of December 31, 2021233 - Eight trusts for the benefit of the children of Chairman Howard S. Jonas collectively hold approximately 68.0% of the combined voting power, limiting the influence of other stockholders240241 Item 2. Properties The company's headquarters are leased in Newark, New Jersey, with additional leased office spaces for operations in New York, Arizona, Texas, and Finland - The main corporate headquarters are leased in Newark, NJ, with the lease expiring in April 2025246 - Other key leased office locations include Jamestown (NY), Chandler (AZ), Houston (TX), and Helsinki (Finland)247248 Item 3. Legal Proceedings The company is involved in certain legal proceedings, with details incorporated by reference from Note 16 of the Notes to Consolidated Financial Statements - Details regarding legal proceedings are incorporated by reference from Note 16 of the Notes to Consolidated Financial Statements249 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class B common stock and Series 2012-A Preferred Stock trade on the NYSE, with limited share repurchases in Q4 2021 for tax withholding obligations - Class B common stock trades under the symbol 'GNE' and Series 2012-A Preferred stock trades under 'GNEPRA' on the NYSE252254 Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price per Share | | :--- | :--- | :--- | | October 1 – 31, 2021 | — | $ — | | November 1 - 30, 2021 | 22,485 | $ 4.99 | | December 1 – 31, 2021 | — | $ — | | Total | 22,485 | $ 4.99 | - The shares purchased in Q4 2021 were tendered by employees to satisfy tax withholding obligations related to restricted stock awards and were not part of the publicly announced repurchase program260 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated revenues increased by 1.9% in 2021, driven by higher energy prices despite fewer U.S. meters, while extreme weather in Texas and Japan significantly impacted profitability, leading to a net income of $29.2 million - The exit from the United Kingdom market was accounted for as a discontinued operation, with Orbit Energy being declared insolvent and its administration transferred to third-party Administrators effective December 1, 2021268269 - Extreme weather in Texas in February 2021 led to approximately $13.0 million in additional costs, partially offset by a $3.4 million recovery under Texas House Bill 4492510512 - The company sold its Genie Japan subsidiary in May 2021 for approximately $5.2 million, recognizing a pre-tax gain of $4.2 million333 Consolidated Financial Summary (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $363,725 | $356,930 | | Income from Operations | $33,091 | $21,872 | | Net Income from Continuing Operations | $23,872 | $14,802 | | Income from Discontinued Operations | $3,970 | $752 | | Net Income Attributable to Genie Energy Ltd. | $29,214 | $13,155 | Results of Operations In 2021, GRE's operating income slightly decreased despite revenue growth, while GRE International and Genie Renewables significantly improved their profitability due to strategic shifts and a focus on higher-margin products Income (Loss) from Operations by Segment (in thousands) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Genie Retail Energy (GRE) | $34,695 | $36,508 | | GRE International | $4,788 | $(5,097) | | Genie Renewables | $252 | $(2,572) | | Corporate | $(6,644) | $(6,967) | | Total Income from Operations | $33,091 | $21,872 | - GRE's revenue increased 2.4% to $311.8 million, but operating income fell 5.0% due to an 8.5% rise in SG&A, primarily from increased marketing and customer acquisition costs320329 - GRE International's turnaround was driven by a 62.8% revenue increase and a 33.4% decrease in SG&A, largely due to the sale of Genie Japan334 - Genie Renewables' revenue dropped 70.2% to $7.5 million following the discontinuance of a major customer relationship at Prism, but gross profit increased 25.8% due to a focus on higher-margin products341 Liquidity and Capital Resources The company's cash and cash equivalents significantly increased to $95.5 million in 2021, primarily driven by cash from discontinued operations, leading to the reinstatement of common stock dividends and authorization of a preferred stock repurchase program in 2022 Summary of Cash Flows (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities (Continuing) | $21,315 | $25,028 | | Investing Activities (Continuing) | $2,687 | $(2,483) | | Financing Activities (Continuing) | $(5,675) | $(15,194) | | Cash from Discontinued Operations | $45,679 | $(2,453) | | Net Increase in Cash | $63,976 | $4,630 | - Working capital stood at $84.1 million at December 31, 2021358 - In February 2022, the Board reinstated the quarterly dividend on common stock at $0.075 per share and authorized a program to repurchase up to $1.0 million per quarter of its Preferred Stock376380 - The company had purchase commitments of $131.3 million at year-end, primarily for electricity364 Item 7A. 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, though a sensitivity analysis indicates potential significant impacts on gross profit from commodity price changes - The primary market risk exposure is the price of natural gas and electricity purchases and sales400 - The company uses derivative instruments such as options and swaps to hedge against price volatility but does not apply hedge accounting, meaning mark-to-market changes are recognized in cost of revenue402 - A sensitivity analysis indicated that if gross profit per unit had remained at 2020 levels, 2021 gross profit would have been lower by $4.5 million for GRE and $6.0 million for GRE International due to commodity price changes400401 Item 8. Financial Statements and Supplementary Data This section presents the company's consolidated financial statements for 2021 and 2020, along with auditor reports, including an unqualified opinion on financial statements but an adverse opinion on internal controls due to a material weakness in income tax accounting - The independent auditor, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements464 - The auditor issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2021, due to a material weakness related to the accounting for income taxes441447465 - Note 2 details the discontinuation of UK operations, where Orbit Energy was declared insolvent; the company deconsolidated Orbit effective December 1, 2021, and recognized a significant gain from the settlement of a supplier contract581587588 - Note 18 provides a breakdown of financial performance by segment, showing GRE as the primary profit driver, with significant turnarounds in the GRE International and Genie Renewables segments in 2021709 Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2021, due to a material weakness in the income tax provision review, with remediation efforts from 2021 proving ineffective and a new plan for 2022 underway - Management concluded that disclosure controls and procedures were ineffective as of December 31, 2021405 - A material weakness in internal control over financial reporting related to the review of the income tax provision was identified in 2020 and continued to exist as of December 31, 2021410411 - Remediation efforts in 2021, which included engaging a third-party tax consultant and performing formal reviews, were tested and found to be ineffective412413 - A new remediation plan for 2022 includes enhancing internal tax personnel and the scope of the third-party consultant's work417420 Part III Item 10. Directors, Executive Officers and Corporate Governance This section lists the company's executive officers, including CEO Michael Stein and CFO Avi Goldin, and directors, chaired by Howard S. Jonas, with further details incorporated by reference from the proxy statement - The company's principal executive officers are Michael Stein (CEO) and Avi Goldin (CFO)421 - The Board of Directors is chaired by Howard S. Jonas421 - Detailed information for this item is incorporated by reference from the company's proxy statement for its annual stockholders meeting422 Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its upcoming Annual Stockholders Meeting - Information on executive compensation is incorporated by reference from the company's proxy statement426 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners, management, and related stockholder matters is incorporated by reference from the company's definitive proxy statement - Information on security ownership is incorporated by reference from the company's proxy statement427 Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement - Information on related party transactions and director independence is incorporated by reference from the company's proxy statement428 Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the company's proxy statement429 Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K, including auditor reports, omitted financial statement schedules, and key exhibits such as corporate governance documents and Sarbanes-Oxley Act certifications - All financial statement schedules have been omitted as they are either included in the Notes to Consolidated Financial Statements or are not applicable431 - Key exhibits filed include the company's 2021 Stock Option and Incentive Plan, an employment agreement with the CFO, and the Preferred Supplier Agreement with BP Energy Company432 - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits432