Genie Energy Q2 Earnings Decline Y/Y Amid Squeezed Margins

Core Viewpoint - Genie Energy Ltd. experienced a significant decline in share price following its second-quarter 2025 results, contrasting with the overall market performance, indicating investor concerns despite initial enthusiasm [1] Earnings & Revenue Estimates - Second-quarter 2025 revenues increased by 16% year over year to $105.3 million, up from $90.7 million, driven by growth in retail energy and renewables segments [2] - Gross profit fell by 29.6% to $23.5 million, with gross margin decreasing from 36.8% to 22.3% [2] Income and Profitability - Income from operations dropped 81% to $2 million, while net income attributable to common stockholders decreased by 70.6% to $2.8 million, or 11 cents per diluted share, down from 36 cents a year earlier [3] - Adjusted EBITDA fell by 74.9% to $3 million, primarily due to increased wholesale power and gas costs [3] Key Business Metrics - Genie Retail Energy (GRE) revenues rose 14.2% year over year to $99 million, with a customer base expansion to approximately 419,000 meters, a 14.8% increase [4] - Segment income from operations fell 72.7% to $4 million, and adjusted EBITDA plummeted 70.5% to $4.4 million due to commodity price spikes [4] Growth in Renewables - Genie Renewables (GREW) saw revenues soar by 57.3% to $6.3 million, with the Diversegy brokerage and advisory business contributing significantly [5] - GREW's operating loss narrowed to $0.2 million from $1.4 million a year earlier, aided by improved profitability at Diversegy [5] Management Commentary - CEO Michael Stein described the quarter as mixed, highlighting revenue growth alongside significant margin compression [6] - CFO Avi Goldin noted pricing challenges in retail energy due to higher wholesale costs, with electricity sales volumes increasing by 17% while costs per kilowatt hour rose by 20% [6] Factors Influencing Earnings - Higher commodity costs were the main driver of the earnings shortfall, with unseasonably hot weather elevating electricity and gas procurement expenses [7] - The retail segment's gross margin fell by 1,567 basis points year over year, indicating the impact of these costs [7] Legislative Impact - Recent U.S. legislation is expected to accelerate the phase-out of federal solar investment tax credits, prompting Genie Energy to pause early-stage solar projects [8] Guidance - For 2025, Genie Energy reaffirmed its expectation of generating $40-$50 million in consolidated adjusted EBITDA, assuming normalized retail margins and sustained growth at GREW [10] Shareholder Returns - In the quarter, Genie repurchased approximately 159,000 shares for $2.7 million and paid a regular quarterly dividend of 7.5 cents per share, returning a total of $4 million to shareholders for the first six months of 2025 [11] Development Projects - The Lansing community solar project is expected to be commissioned in the third quarter of 2025, while Genie Solar has reduced its project pipeline due to legislative changes [12] - The company has begun leveraging its insurance operations to offer health insurance products to retail customers, with potential plans for future expansion [12]