Geoff Rochwarger - Vice Chairman & CEO, IDT Energy Avi Goldin - CFO.

Analysts:.

Welcome to Genie Energy's Fourth Quarter and Full Year 2014 Earnings Conference Call. [Operator Instructions]. In its presentation Genie Energy’s management team will discuss financial and operational results for the three and 12 months ended December 31, 2014.

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 which the company anticipates.

These risks and uncertainties include but are not limited to specific risks and uncertainties discussed in the reports that Genie Energy files periodically with the SEC.

Genie Energy 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.

Please note that the Genie Energy earnings release is available on the investor relations page of the Genie Corporation website www.genie.com. The earnings release has also been filed on a Form 8-K with the SEC. Please note this event is being recorded.

I will now like to turn the conference over to Geoff Rochwarger, Genie Energy's Vice Chairman and CEO of IDT Energy. Please go ahead Mr. Rochwarger..

Thank you, operator. On behalf of our management team, including our Chairman and CEO, Howard Jonas, I thank you for joining us for Genie Energy's fourth quarter and full year 2014 earnings conference call. This morning I will provide you with an operational update.

First for Genie oil & gas and then I will touch upon some significant operational development at Genie Retail before Avi discusses the quarter and full year financial results.

Overall this quarter was highlighted by the exciting developments at our Afek subsidary and by the steady progress we have been making in returning Genie Retail to growth mode after a year of careful investment and recovery from the impact of last winter's polar vortex.

Afek our subisdary operating under an Oil and Gas exploratory license in Northern Israel won another major victory in December when the high court of justice in Israel dismissed the suit challenging our drilling permit.

The court found that our exploratory drilling program pose no risks to either public health or safety and lifted the injunction that had prevented us from commencing drilling.

The moment the injunction was lifted we set to work to finish the preparations at our first drilling location in the Southern Golan Heights and accelerated preparations to prepare, transport and deploy the rig. On February 17, after completing the extensive site preparation work we spudded the first well.

Since then drilling continues and we expect to reach the depth at which we may encounter the target resource soon. Nevertheless we may not have sufficient definitive data to provide investors with meaningful results until late summer or fall.

Keep in mind that any single well provides a very limited number of data points and we will likely to have to analyze and compare core samples from several wells at disparate locations before we have enough information to comment. Elsewhere GOGAS there have been no substantial changes since we provided you with our third quarter update.

We will keep you posted on these quarterly calls on any newsworthy developments.

Now turning to Genie Retail, for the second consecutive quarter we held our retail meter count steady and in addition we significantly improved our rate of gross meter acquisitions picking up 55,000 new meters in quarter four 2014 compared to 45,000 in the fourth quarter of 2013.

In part this increase may be attributed to [trash and] [ph] gained in the ComEd, Illinois territory during 2014 but it also reflects more aggressive approach to customer acquisition companywide. While we were adding more meters our average monthly churn rate fell 30 basis points compared to the year ago and sequential quarters to 5.9%.

Looking ahead our rate of gross meter additions may slow in the first quarter of 2015 due to the harsh winter in the Northern United States but we were on track to generate steady meter growth later this year.

In part this projection reflects the trajectory of Epiq, during 2014 we invested significantly in building out the Epiq platform bringing on-board key personnel and integrating our respective operations and financial systems.

The bulk of that work has been completed and Epiq's network marketing program is poised to become an ever larger part of our growth story this year.

We also expect to see the benefits of the diversification of our brands and product offerings including it's reduction of resident synergy and fixed rate offerings for electricity that I discussed last quarter.

Moreover we have implemented other operational initiatives to ramp up the pace of acquisitions via our traditional door to door and telemarketing sales channels. In aggregate this effort should have a meaningful impact on gross meter adds in the year ahead.

In addition to these operational initiatives we were in the preliminary stages of expanding our geographic footprint into additional utility territories in Massachusetts, Ohio, Illinois, Maryland and Pennsylvania. We will keep you posted on these opportunities.

Before I turn the call over to Avi to discuss the financial results for the quarter, I want to take a minute to discuss the market conditions for natural gas that impacted our results this quarter.

With the arrival of the heating season some key utilities in our service area held their retail prices below the wholesale market rates that Genie Retail and other suppliers were charged for gas delivered to the utilities distribution system.

The price we paid for gas is typically a combination of commodity cost which generally tracks the NYMEX and pipeline transport cost. Our cost for transport from the gas fields to the utilities distribution point increased sharply during the quarter. Generally the utilities rates reflect this aggregate price plus a mark-up.

This quarter however saw several utilities selling their gas below the delivered cost we paid requiring us to reduce our gross margin in order to remain competitive. We expect to see the margins on the gas side of the business turn positive and gradually recover during 2015.

On the electric side we were able to achieve another quarter of strong margins even as wholesale rates increased slightly. Those of you who remember the wholesale commodity price spikes that wreaked havoc on our business and the entire industry during last winter's polar vortex maybe wondering whether the bitter cold in the Northern U.S.

this February would result in a similar scenario. I'm pleased to report that as of today on average wholesale electric prices have increased only modestly in response to the winter weather. It appears that the ISOs have done a much better job anticipating this year's demand for natural gas to supply electricity generating needs.

Electric suppliers have benefited from ample supplies of natural gas through the winter and with spring just a couple of weeks away it looks as though there will be no polar vortex repeat. Now I will turn the call over to Avi, to discuss Genie Energy's financial results..

Thank you, Geoff and thanks to everyone for joining us this morning. My remarks cover our financial results for the fourth quarter and full year 2014, the 3 and 12 month period ended December 31, 2014, except where I indicate otherwise all comparisons in my remarks are to the results for the corresponding periods in 2013.

Our financial results for the fourth quarter reflect a strong performance on sales of electricity tampered by difficult conditions in the natural gas markets that Geoff mentioned and continued investment in growth initiatives at both Genie Retail and at our Afek exploration project in Northern Israel.

Genie Retail accounted for all of Genie's revenue, cost of goods sold and gross profit as it has in all prior quarters. Genie Retail's revenue was $49.7 million in the fourth quarter compared to $67.1 million in the year ago quarter. For the full year revenue was $275 million compared to $279.2 million.

Electricity revenue comprised 73.8% of the total revenue this quarter contributing $36.7 million, a 26.7% decrease from the 50.1 million in sales during the year ago quarter.

We increased average revenue per kilowatt hour sold by 11.9% but this increase was offset by a 34.4% decrease in kilowatt hours sold reflecting the net reduction in our electric meter base and a disproportionate loss of higher than average consumption meters following last winter's polar vortex.

In addition many of our gross meter adds have been in relatively low consumption areas notably in the ComEd territory in Illinois because of these two factors kilowatt hour sold decreased 34.4% compared to the year ago quarter. For the full year this story is much the same.

Electricity revenue totaled 214.5 million or 78% of total revenues, slight decreases compared to 2013 when electricity sales totaled $216.7 million and 77.6% of total revenue.

We were able to increase revenue per kilowatt hour a strong 35.6% but that was more than offset by a 27% decrease in kilowatt hour sold driven by the reductions in both meter served and average consumption per meter. Gas revenue for the fourth quarter was $12 million, a 29.2% reduction from the $17 million attained in the fourth quarter of 2013.

We sold 21.1% fewer therms compared to the fourth quarter of 2013 reflecting decreases in both gas meters and to a lesser extent consumption per meter while average revenue per therm sold decreased 10.3%. For the full year gas revenue is $57.9 million, a 7.4% decrease from the 62.5 million we achieved in 2013.

Therm sold decreased 10.5% a decline in meters served partially offset by higher consumption per meter. Average revenue per therm sold increased 3.5% compared to 2013. On a consolidated basis gross margin was 25.7% for the quarter compared to 25.1% in the year ago quarter. For the full year gross margin was 18.9% compared to 23.6% in 2013.

The gross margin on electricity sales was 36.1% in the fourth quarter of 2014 compared to 24.5% in the fourth quarter of 2013. The increase in gross margin drove an increasing gross profit to $13.3 million compared to $12.3 million in the year ago quarter despite the significant decrease in kilowatt hours sold.

Average revenue per kilowatt hour sold increased 11.9% compared to the year ago quarter while the average cost per kilowatt hour decreased 5.4%. For the full year the gross profit on electricity sales was $49 million, an increase from $47.8 million in 2013 as improved margins more than compensated for the decrease in kilowatt hours sold.

The gross margin on gas sales in the quarter was negative 1.3%. As Geoff discussed in greater detail utilities in several of our key markets priced at retail gas below our wholesale commodity cost. We sacrificed margin on gas sales in order to remain competitive. In the year ago quarter the gross margin was 26.7%.

For the full year gross margin on gas sales was 5% compared to 28.7% in 2013. Gross profit on gas sales in the fourth quarter was negative of $152,000 a significant decrease from $4.5 million of gross profit in the year ago quarter.

Therm sold decreased 21.1% while the average revenue per therm decreased 10.3% and the average cost per therm increased to 23.9%. As Geoff mentioned we believe that natural gas margins will improve in 2015 as utility pricing falls in-line with the underlying commodity cost.

For all of 2014 gross profit on gas sales was $2.9 million compared to $18 million in 2013. We increased average revenue per therm by 3.5% but our average cost per therm jumped to 38%. Consolidated SG&A for the fourth quarter increased to $15.1 million compared to $12.2 million in the fourth quarter of 2013.

Non-cash compensation was a key driver of this increase rising from $1 million in the year ago quarter to $2.3 million.

The non-cash compensation increase is almost entirely attributable to modification of Howard Jonas' employment agreement with the company which provides for the substantial portion of his base salary to be in the form of equity that he purchased from the company at market prices.

Absent non-cash compensation SG&A expense was $12.8 million compared to $11.2 million. For all of 2014 SG&A expense totaled $61.4 million compared to $49.7 million in 2013. The increase is primarily attributable to increase non-cash compensation, additional expense associated with customer acquisitions in the investment in Epiq and Diversegy.

Non-cash compensation expense comprised $10.8 million of the 2014 SG&A total compared to $4.2 million in 2013.

At Genie Retail fourth quarter SG&A expense increased to $11.5 million from $9.3 million a year ago due to the cost of integration and roll out of Diversegy and Epiq partially offset by reduction in billing fees and other expenses resulting from the decrease in our customer base at Genie Retail.

At Genie Oil and Gas fourth quarter SG&A expense is $279,000 compared to $206,000 in 2013. Corporate SG&A expense for the quarter totaled $3.3 million including $2 million in non-cash compensation expense compared to $2.7 million and $600,000 respectively in the year ago quarter.

Research and development expense incurred primarily at Afek was $5 million in the fourth quarter compared to $3.7 million. For the full year R&D expense totaled 12.5 million compared to $11.4 million in 2013 as the level of operations intensified at Afek.

Looking into 2015 we expect to see an acceleration of spending at Afek as we continue to execute on our exploration drilling program. For all of Genie adjusted EBITDA for the quarter was negative $5 million compared to positive $670,000 in the year ago quarter.

The decrease is driven primarily by the reduction in gross margin on sales of natural gas and higher SG&A expense at Genie retail. For the full year adjusted EBITDA was negative $11.4 million compared to positive adjusted EBITDA $4.9 million in 2013.

Year-over-year the impact of the polar vortex was a significant driver of the decrease as well as the factors that figured into this quarter's results. At Genie Retail adjusted EBITDA on the quarter is $1.4 million compared to $7 million in the year ago quarter. For the full year adjusted EBITDA was $7.5 million compared to $26.7 million in 2013.

As you may recall early in 2013 we said that given roughly normal weather in the current book of business we expected Genie Retail would contribute about $25 million of EBITDA. We ended up generating over $26 million in 2013 and 2014 was just beginning when the polar vortex struck.

Looking ahead now to 2015 we begin with the smaller book of business and some headwinds in the natural gas market. We also expect customer acquisition expenses to increase as we gradually ramp up our multi-prong effort to grow our meter base during the course of the year.

Nevertheless we believe that the underlying rep business remain strong and dynamic. Electricity sales and margins have been very healthy and are now a fair larger percentage of our overall business.

Our meter count has recently stabilized and we’re excited about the potential of our brand strategies and meter acquisition channels to build our customer base this year. Given the usual caveats of our normalized weather we expect Genie Retail to generate between $15 million and $20 million of adjusted EBITDA in 2015.

Loss from operations in the fourth quarter was $10.7 million compared to a loss from operations of $386,000 in the year ago quarter. The loss in the fourth quarter of 2014 included a goodwill impairment of $3.6 million reflecting a write-down of the goodwill associated with the purchase of Epiq and Diversegy.

While remaining steady about the prospects for these businesses and their ability to drive growth in the Genie Retail business the annual goodwill impairment test that we performed at the end of the year resulted in a write-off of the carrying value of the goodwill.

The full year loss from operations is $25.6 million compared to income from operations of $626,000 in 2013. Adjusting for non-controlling interest and net loss attributable to Genie common stockholders [indiscernible] preferred stock dividend for the fourth quarter was $10.8 million compared to $800,000 in the year ago quarter.

The full year loss is $27.9 million or $1.31 per diluted share compared to a loss of $7.1 million or $0.36 per diluted share in 2013. Net cash used in operating activities in the fourth quarter was $11 million compared to net cash provided by operating activities of $1.9 million a year ago.

For the full year 2014 net cash used in operating activities was $19.1 million compared to net cash provided by operating activities of $1.2 million in 2013.

Total working capital, current assets, less current liabilities December 31, 2014 was a $110.3 million compared to a $105.8 million at December 31, 2013 reflecting in part the purchase of 3.6 million shares of Class B common stock for $24.6 million by Howard Jonas during the year.

Management is very excited about the future of Genie Energy, the exploratory program in Northern Israel is underway which remains upside potential of all contingencies fall into place.

Our Genie Retail business has stabilized [indiscernible] base and is poised for growth in the year ahead and our strong balance sheet puts us in an enviable position to take advantage of strategic opportunities as they arise. As always Geoff and I are happy to take any questions about the business that you may have.

We’re joined by Terry Stronz, CFO of Genie Retail. I will now turn the call back to the operator for Q&A..

Q -:.

This concludes our question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect..