GNE - NYSE

Good morning, and welcome to Genie Energy's First Quarter 2022 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation by Genie Energy's management, there will be an opportunity to ask questions. Please note this event is being recorded. I will now turn the call over to Brian Siegel of Hayden IR.

Thank you, operator. On this morning's call with me is Michael Stein, Genie's Chief Executive Officer; and Avi Goldin, Genie's Chief Financial Officer who will discuss operational and financial results for the three months period ended March 31, 2022. Any forward-looking statements made during this conference call either in the prepared remarks or in the Q&A session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those that the company anticipates. These risks and uncertainties include, but are not limited to, specific risks and uncertainties discussed in the reports that we file periodically with the SEC. Genie assumes no obligation either to update any forward-looking statements that they have made or may make or to update the factors that may cause actual results to differ materially from those that they forecast. During their remarks, management may make reference to adjusted EBITDA, a non-GAAP measure. Management believes that Genie's measure of adjusted EBITDA provides useful information to both management and investors that supplement our core operating results. Our earnings release includes a reconciliation of consolidated adjusted EBITDA to its nearest comparable GAAP measures, consolidated net income, and income from operations for all periods presented. In addition, adjusted EBITDA for applicable segments are reconciled to their respective segment's income from operations for all periods presented. Our earnings release is posted on the Investor Relations page of the Genie Corporation Web site, genie.com, and has been filed on a Form 8-K with the SEC. I will now turn the conference call over to Michael.

Thank you, Brian. Welcome to Genie Energy's first quarter 2022 earnings call. Today, I will go through a brief overview of our business and opportunities followed by a discussion of our first quarter results. Avi Goldin, our Chief Financial Officer will then provide a deeper dive into the financial results. And then we will be glad to take questions. As a reminder, business transitions and some weather anomalies complicated our financial statements in fiscal 2021. As a result, we will provide pro forma information in our investor presentation that will be posted on our Web site in the coming days to give investors a view of how the existing businesses have performed historically and to provide for current and future comparisons. Moving to a quick overview of our business, Genie Energy owns a portfolio of assets that offer an attractive investment opportunity within the energy space and our diversification, both as to our product offerings and geographically, reduces our risk profile while providing significant upside opportunities as we saw over the past two quarters. In the U.S., our asset-light Genie Retail Energy business, or GRE for short, has demonstrated a resilient ability to generate cash in a variety of market conditions. This business currently operates in 17 of 27 deregulated states, plus Washington DC. And our mid to long-term strategy is to opportunistically grow when market conditions warrant by taking share in existing territories, expanding into new areas, and offering additional products and services to our installed base. We will also at times take steps to slow growth and protect margins over a shorter time horizon when market conditions dictate, which is what we did in the fourth quarter and much of the first quarter. Our next business unit, Genie Retail Energy International, GREI, is an emerging growth business that has become profitable with improving margins. Similar to our domestic retail operations, we do at times manage the customer portfolio to protect margins and cash flow during times of price volatility as we are currently seeing in Europe. We also from time-to-time see opportunities to be a market consolidator as our risk management activities tend to be more sophisticated than some of our competitors. Longer term, this business affords the opportunity to expand into a handful of other European countries, bringing the potential total addressable market to more than 22 million meters over the next few years. Our Genie Renewables business provides access into multiple opportunities that can lead to outsized growth. In 2021, we pivoted to focus on higher margin solar opportunities. And in 2022, we are leveraging our stronger balance sheet to pursue opportunities up the solar value chain through financing solar generation assets. We believe this initiative will provide attractive financial returns, increase the win rate on new projects and contribute more meaningfully to top line and adjusted EBITDA growth. Moving to our first quarter results, GRE had another great quarter with $84 million in revenue and over $30 million gain from our operations and adjusted EBITDA, easily the most profitable Q1 in our history. The decisions that we made in the fourth quarter relative to the customer book and risk management left us well positioned to capitalize on the movements in the market. While our meter and RCE counts were up only slightly from the end of the year, our churn decreased both year-over-year and sequentially. GREI had a strong quarter as well. Due to the geopolitical situation in Europe, energy prices continued to be extraordinarily volatile which significantly impacted our mark-to-market position. In this quarter, the mark-to-market change swung to a loss, a reversal from the fourth quarter. Nonetheless, the business was able to expand non-mark-to-market margins and generate operating profits due to our decision to slow customer growth during this period of uncertain commodity prices. I applaud our risk management team for navigating a difficult period and coming out on the right side of the market. Thankfully, we have fared better than many of our competitors in the market, some of which took heavy losses. We believe it is still prudent to deviate from the approach of many of our competitors that are still competing on price to acquire new customers. Instead of engaging customers at this high customer acquisition costs, we will sit back, protect margins and wait for the market to rationalize before moving back into customer acquisition mode. Genie Renewables saw a dip in revenue and profits this quarter as several projects were still in process at quarter's end. However, we continue to expand our sales and marketing efforts, our pipeline of potential projects remain strong, and our contracted revenue continued to grow as we signed three new deals. As a result, we remain excited about the opportunity for Genie Renewables in the remainder of 2022 and beyond. Looking to the outlook for all of 2022, despite the continued volatility, high energy prices, Russia's invasion of Ukraine, inflation and other factors, we remain confident that our strong risk management program will differentiate us from the competition. While Q2 is seasonally a period of lower consumption in the U.S., we expect to continue to deliver strong results. Looking to the remainder of the year, we plan to enter some new states for our domestic retail operations, one of which we expect to come online in Q2. In addition, Genie Renewables, especially our solar business, is well positioned to contribute significantly to our top line. We currently have over $15 million in contracted solar projects, and now believe the entire renewable segment will do $15 million to $20 million of revenue for the year. Finally, our cash position remains very strong with $95 million in working capital. We are continually looking at inorganic investment opportunities across all three of our business units that would increase shareholder value, although there is nothing imminent at this time and we will only move forward if we are confident that the parameters make sense. In summary, we started the year on a high note with a very strong cash position that affords us numerous ways to create further shareholder value. Thank you for your time today, and I look forward to sharing our results for Q2 in early August. Now, over to Avi Goldin for his discussion of our Q1 financial results.

Thank you, Michael, and thank you all for joining us this morning. My remarks today cover our financial results for three months ended March 31, 2022. Throughout my remarks, I will compare the first quarter of 2022 to the first quarter of 2021, focusing on the year-over-year rather than sequential comparisons, controls for the impact of seasonal factors that are characteristic of our retail energy businesses. The first quarter is typically characterized by seasonally elevated per meter electricity and gas consumption, as it includes the peak heating months of January and February. The headline for the first quarter is that Genie delivered record results. The results were driven by strong performance of our core retail business were benefited from a strategic decision made in the fourth quarter to moderate customer load and adjust the hedge book accordingly, ahead of what was shaping up to be a volatile winter. Additionally, when comparing this quarter to the year ago quarter, I want to point out that last year's results reflected the $13 million negative impact of Winter Storm Uri in Texas and losses at Genie Japan which we sold in last May. Consolidated revenue decreased 8.3% to $98.5 million. At Genie Retail Energy, our domestic supply business, revenue decreased 7.5% to 83.9 million reflecting a 19% decrease in electricity sales. Kilowatt hours sold decreased 37%, partially offset by a 28% increase in revenue per kilowatt hour. The decrease in kilowatt hours sold was largely a result of a reduction in our customer base. As I mentioned, beginning in the fourth quarter of 2021, we sought to maximize the value of our forward commodity position and reduce our exposure to price volatility by pausing certain customer acquisition efforts and allowing lower margin customers, including those acquired through municipal aggregation deals, to attract [ph] to other suppliers. In addition, we did experience a moderate dip in our electricity consumption per meter in our residential heavy customer base, as employees are returning to in office work and weather moderated in certain territories, including Texas compared to the year ago quarter. Natural gas sales increased 42% year-over-year. This increase reflected a 20% increase in therms sold and an 18% increase in revenue per therm. The increase in therms sold reflected growth in our meter base as we entered several new gas-only utility territories over the past year, and an increase in average consumption per gas meter. The newly acquired meters have on average higher consumption profiles than our existing base. At Genie Retail International, revenue decreased 12% from 14.3 million to 12.6 million. This decrease is primarily a result of the sale of Genie Japan in the second quarter of 2021, augmented by a reduction in kilowatt hours sold during the first quarter, reflecting our decision to pause meter acquisition. These factors were partially offset by a strong increase in average revenue per kilowatt hour sold as electricity prices climbed across the EU versus the year ago period. At Genie Renewables, revenue decreased to 2 million from 2.5 million the year ago quarter. However, as Michael mentioned, we expect strong revenue growth for the remainder of the year as we execute on the expanding pipeline of projects within our solar activities. First quarter consolidated gross profit jumped to a record 45.5 million from 12.7 million a year ago, while our gross margin rose to 46% from 12%. At GRE, gross profit more than tripled to 46.6 million from 15 million, while gross margin increased to 56% from 17%. At GREI, we reduced our loss to 1.6 million from a loss of 3.4 million a year earlier. The year ago period included losses of approximately 2.5 million incurred by Genie Japan. First quarter 2022 gross margins generated by our Scandinavian operations were impacted by mark-to-market losses as commodity prices fell from the levels of the end of 2021. Note that mark-to-market gains positively impacted the fourth quarter. Consolidated SG&A expenses increased 17% to 21.1 million. This increase was incurred primarily at GRE and corporate [ph], reflecting higher marketing expenses as we increased sales during the quarter. Consolidated income from operations surged to a record 24.4 million from a loss from operations of 5.5 million a year ago. The improvement was driven by the extraordinary strong gross margins we achieved at GRE and the negative impact from Winter Storm Uri in Texas, which impacted our bottom line in the first quarter of 2021. Consolidated adjusted EBITDA climbed 25.7 million, also the highest level in the company's history, compared to a negative 4.4 million in the first quarter of 2021. In addition, adjusted EBITDA for the trailing 12 months totaled 67.8 million compared to 12.7 million in the preceding 12 months. GRE's income from operations increased to 30.2 million in the first quarter from 1.2 million a year earlier, and adjusted EBITDA increased to 30.5 million from 1.5 million. GREI's loss from operations narrowed to 2.8 million from 5.5 million primarily due to the sale of Genie Japan. Genie Renewables loss from operations was 479,000 in the first quarter compared to income from operations of 559,000 a year earlier. We have invested significantly to enhance our sales and operational teams and expect our growing pipeline to begin to positively impact results going forward. Earnings per diluted share in the first quarter were $0.67 compared to a loss of $0.09 for basic and diluted share in the year ago quarter. Turning now to our balance sheet. We remain very well positioned from a liquidity and working capital standpoint. On March 31, cash, restricted cash and marketable securities totaled 95.3 million, net working capital was 96 million and non-current liabilities were just 2.9 million. Consistent with our previous announcements, we have initiated the process to redeem a portion of our preferred stock in the second quarter. The Board authorized redemption of 2 million this quarter and up to an additional 1 million per quarter going forward. We have approximately 2.3 million shares of preferred stock outstanding with the total liquidation preference of $19.7 million. To wrap up, Genie generated record financial results in the first quarter. Our comprehensive approach to commodity risk management put us in a solid position heading into the winter and we were able to deliver exceptional bottom line results. Once again, we have demonstrated the ability of our retail supply business model to create value for shareholders across a wide range of market conditions. With our strong balance sheet, we're in a good position to rebuild our customer bases both in the U.S. and Scandinavia when market conditions warrant. Additionally, our Renewables business is poised for significant growth with a robust pipeline of projects and expanding execution capabilities. For those interested, we will be presenting at the Sidoti conference on May 12 at the 10.45 AM Eastern timeslot and available for one on ones on both May 11 and May 12. Now, operator, back to you for Q&A.

We will now begin the question-and-answer session. [Operator Instructions].

Our great quarter has left everyone speechless.

Yes, we can just close it out.