Howard Jonas - Chairman and CEO Geoff Rochwarger - Vice Chairman Avi Goldin – CFO.

Aaron Shafter - Great Mountain Capital.

Good morning and welcome to Genie Energy's first quarter 2015 earnings conference call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions] In its presentation, Genie Energy’s management team will discuss financial and operational results for the three months ended March 31, 2015.

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 turn the conference over to Howard Jonas, Genie Energy's Chairman and Chief Executive Officer. Please go ahead, Mr. Jonas..

Thank you, operator. Welcome to the Genie Energy first quarter 2015 earnings conference call. Before Geoff Rochwarger and Avi Goldin discuss the exciting operational and financial results for the quarter, I want to announce several recent changes in the senior management of our operating division made by our board of directors.

As you know, our exploratory drilling program at Afek is now underway and it's proceeding at pace. The program which holds tremendous promise could take up to three years and evolve as many as 10 exploratory wells and it will require significantly strategic, operational and public affairs responsibilities.

At the same time, we have very ambitious plans for Genie Retail Energy, which is engaged in ongoing recovery from the impact of last year's Polar Vortex and is implementing a multifaceted growth plan.

To ensure that we continue executing across all businesses, we have reassigned several of our most talented managers, given these leaders specific portfolios to focus their efforts and created new subsidiaries to better meet some of these challenges.

Michael Jonas, we all call Michy [ph] who has been leading our efforts in Mongolia will become CEO of our new unit, Genie Oil Development Corp. He will be assuming primary responsibility for business development, business affairs, government and public relations across all GOGAS operations.

My colleague and Genie's Vice Chairman, Geoff Rochwarger, who's been with me for over 20 years, most recently running both our Genie retail business as well as our oil drilling program at Afek will now be focused on drilling and other operational issues as CEO of a new unit, Genie Oil E&P.

Geoff will continue to be our go-to guy for execution of our underground programs at Afek. Between Michy and Geoff, we feel each part of GOGAS’ operations will get strong focus and proven leadership as we hopefully move towards production.

Finally, Michael Stein, our Executive Vice President for Operations has been named CEO of our Genie Retail Energy Division. Michael has done a terrific job as our EVP of operations and is the right person to build on Geoff's legacy at Genie Retail and accelerate its growth project with.

Michael will be backed up by the experienced team at Genie Retail and supported by corporate management. I intend to remain a very active hands-on CEO, providing guidance, oversight and support to each of these managers, as each portfolio is critical to executing on our companywide goals.

Taking collectively, these changes will sharpen our management focus on key challenges ahead. I'm very pleased to be sharing this announcement with you today and look forward to working with our entire team in the months ahead. Now, I would like to turn the call over to Geoff to update you on the quarter's operational results..

Thank you, Howard. This morning, I will provide you with an operational update. First, to review our progress at Afek and then to discuss developments in Genie Retail and then I will turn the call over to Avi to discuss the first quarter’s financial results.

To those of you who may be new to our company, Afek is our subsidiary, conducting an oil and gas exploratory program in Northern Israel. On February 17, we spudded the first well of a multi-well drilling program, intended to characterize the potential oil and gas resource within our licence area.

We are nearing completion of the first well and have been carefully collecting and analyzing the data collected from the cuttings, the drilling mud and core samples as well as our drilling instrumentation. Our analysis is far from complete, however, our preliminary results, while non-conclusive indicate the presence of hydrocarbons.

Despite the positive indications, we do not have sufficient data at this point to understand the size and nature of the resource and whether and to what extent it may be commercially extractable.

We will require additional time to fully analyze data from this well and almost certainly will have to drill additional wells in our exploratory program before we make a reliable determination. We will make further announcements as developments warrant.

Elsewhere, Genie Oil and Gas, there have been no substantial changes in our projects since our last update.

And now turning to Genie Retail, let me begin by saying that this February was one of the coldest on record in many cities of the Northeast and Midwest and in fact it was approximately 2% cold during heating degree days on average during the first quarter of 2015 than it was during the first quarter of 2014, the storied Polar Vortex winter.

Because of the severe cold, in February, we saw significant price hikes in the cost of electricity and natural gas. Wholesale electricity grades briefly declined to five times the average price in the prior month on the PGM grid and natural gas prices also rose sharply.

However, these spikes were neither as severe nor as prolonged as those that appended our industry during the Polar Vortex of 2014 and this time, we were well-prepared to evaluate the impact of the changes in the commodity markets and to respond.

After analyzing the situation carefully, we chose to observe much of the impact of the February comedy price spikes.

As a result, our electricity margin was less robust than the prior quarter, although as Avi will discuss in greater detail, our margins for electricity and natural gas were still far better than margins generated during the first quarter of 2014.

One favourable result of our decision was that our average monthly churn remained at 5.9%, unchanged from the prior quarter and a significant decrease from the 7.2% level we saw a year earlier.

Turning now to our meter acquisition programs, we added 52,000 meters during the quarter, a total slightly less than the 55,000 gross meter adds in the prior quarter. The sequential decrease is not surprising given the challenges of door-to-door work in winter generally and particularly during this past February.

Still, we performed better than the year-ago quarter when we added only 47,000 meters after we temporarily suspended acquisition programs in much of Pennsylvania in the wake of the polar vortex. Our meter count at March 31 was 358,000 compared to 363,000 in the prior quarter and 391,000 a year earlier.

Likewise, RCEs declined to 241,000 from 243,000 in the prior quarter and 288,000 in the year-ago quarter. Year-over-year RCEs declined more quickly in percentage terms than meters because of polar vortex and increased churn rates most significantly in Pennsylvania where our customer base is higher than average per meter consumption.

Looking ahead, we continue on track to generate net meter and RCE growth for the full year driven by the various initiatives I discussed at length last quarter. One of those initiatives, the diversification of our product line has played a particularly important role in stabilizing our meter count.

Already, nearly 7% of our electric load is enrolled in our SmartBudget plans, which share many attributes of fixed-rate offerings. We initially rolled out SmartBudget programs in Pennsylvania and have now made them available in most of our service territories.

We are also continuing to enroll customers in our green electricity program, which provides electricity generated from renewable sources. Approximately one quarter of all of our electric meters are now green energy meters.

To wrap up, our board has provided GOGAS with some exceptional management resources to bring additional focus to our most critical operations. We continue to execute on our Afek exploratory drilling program with some encouraging but very preliminary results.

Genie Retail Energy, meanwhile, overcame a tough February to deliver a solid quarter and is poised for additional growth this year under Michael Stein’s capable leadership. Now, I will turn the call over to Avi to discuss Genie Energy’s financial results..

Thank you, Geoff, and thanks to everyone listening in for joining us this morning. Before addressing the results of the quarter, I want to point out that our Afek subsidiary began capitalizing certain exploration costs related to its drilling program.

Afek accounts for its oil and gas exploration activities under the successful efforts of method of accounting.

Under this method, acquisition costs, costs of drilling exploratory wells and exploratory type stratigraphic wells are capitalized in the company's balance sheet pending determination of whether the well has found proved reserves, while other exploration costs are charged to exploration expense.

As a result, we are now reporting Afek’s results in a separate reportable segment. Results of prior periods were reclassified to conform to the current year's presentation. Now, turning to the quarter. My remarks cover our financial results for the first quarter of 2015, the three-month period ended March 31, 2015.

Except or indicated otherwise, all comparisons in my remarks are to the results for the corresponding period in 2014. We are very pleased with this quarter's results. You will recall that the year-ago quarter was profoundly impacted by the polar vortex in early 2014.

In comparison, our financial results for the first quarter of 2015 represents a return to relative normalcy for Genie Retail Energy. Nevertheless, we did experience some severe cold weather of corresponding commodity spikes throughout much of our service area in February.

In order to maintain relative price stability, we observed much of the increase in gas and electricity supply cost rather than pass the costs on to our customers, which resulted in gross margin levels below historical levels.

Meanwhile, at Genie Oil and Gas, our financial results reflect the accelerated pace investment at our Afek exploration project in Northern Israel. Turning to the income statement, Genie Retail accounted for all of Genie’s revenue, cost of goods sold and gross profit.

Genie Retail’s revenue was $74.4 million in the current quarter compared to $130.3 million in the year-ago quarter. The revenue decrease, though significant, did not correlate with gross profit which was considerably higher compared to the year ago quarter.

Electricity revenue comprised 63.6% of total revenue this quarter, which is typically the seasonal low in relative contribution of electricity sales since the first quarter captures the bulk of the winter heating and gas consumption season.

Electricity sales totaled $47.3 million, a 50.6% decrease from the $95.8 million in sales we achieved during the year-ago quarter. Several factors played into that decrease. Revenue per kilowatt hours sold was significantly lower, down 27.9%. Electricity consumption likewise decreased significantly falling 31.5%.

The decrease in kilowatt hours sold reflects the 9.4% annual decrease in electric meters served at March 31 and the 20.4% decline in consumption per meter. The decrease in per meter consumption resulted from a shift in our electric meter base through relatively lower consumption meters after the polar vortex.

The story was similar for natural gas sales. Revenue on gas sales decreased 23.5%, falling to $26.2 million. Revenue per therm sold decreased 18.6% while therm sold decreased 6.1%. And while our gas meter count decreased by 6.7% year-over-year, consumption per meter actually increased by 6% compared to the year ago quarter.

Gas consumption per meter increased for two primary reasons.

First, the vast majority of our gas meters and consequently most of our churn during the year ago was in New York State while a large percentage of the gas meters we acquired during the year were from New Jersey, Pennsylvania and Maryland where average consumption per gas meter tends to be higher.

Second, the first quarter of 2015 was actually slightly colder as measured in heating degree days than the first quarter of 2014. Despite a significant year-over-year decreases in our existing gas revenues, we're able to increase gross profit by 73.8% compared to the year ago quarter to $17.2 million.

On a consolidated basis, gross margin was 23.1% for the quarter compared to just 7.6% in the first quarter of 2014. As I mentioned at the outset, our gross margin for this quarter while an improvement compared to the year ago quarter were negatively impacted by the commodity price spikes in both the electricity and gas markets in February.

To protect our customers, we responded by keeping our retail prices relatively stable and did not pass along most of the cost increases. The gross margin percentage on electricity sales increased to 22.6% from 9.1% in the first quarter of 2014, when the Polar Vortex caused multiple severe price hikes.

Average revenue per kilowatt hours sold decreased by 27.9% in the first quarter of 2015 compared to the year ago quarter but lacked an even more steep decline of 38.6% in the average cost per kilowatt hour.

The year-over-year improvement of gross margin on electricity sales more than offset the declines in electricity consumption and revenue per kilowatt hours sold. As a result, gross profit on electricity sales increased to $10.7 million from $8.7 million in the year ago quarter.

The gross margin on gas sales in the quarter increased to 22.9% from 3% in the first quarter of 2013. While average revenue per therm decreased 18.6% compared to the year ago quarter, our commodity cost dropped more. Our revenue per therm decreased 35.3% compared to the year ago quarter.

Gross profit on gas sales in the first quarter was $6 million, a significant increase from $1 million of gross profit in the year ago quarter. The improved margin on gas sales more than offset the 6.1% decrease in therms sold, which reflected the year-over-year decline in gas meters reserved.

On a consolidated basis, SG&A was $16.6 million compared to $14.3 million in the year ago quarter. Non-cash compensation primarily related to Howard Jonas' compensation agreement accounted for $1.2 million in SG&A expense during the quarter compared to $1.8 million in the year ago period.

At Genie Retail, SG&A expense increased to $13.7 million compared to $10.8 million in the year ago quarter. The increase reflects an accrual of $1.2 million for regulatory and legal matters, increased payroll and higher acquisition costs. At Genie Oil and Gas, SG&A expenses was $253,000 compared to $333,000.

Beginning this quarter, we are breaking out Afek results into a separate segment and is no longer consolidated into GOGAS' results. Afek's SG&A expense was $174,000 compared to $400,000 in the year ago quarter. Corporate SG&A expense totaled $2.5 million compared to $3.1 million in the first quarter of 2014.

Non-cash compensation expense comprised of $1.1 million of corporate SG&A expense this quarter compared to $1.6 million in the first quarter of 2014. Research and development expense on a consolidated basis was $700,000 compared to $1.2 million.

Afek capitalized $4.3 million of drilling expenses in the first quarter and recorded $1.6 million in exploration expense that is reflecting our consolidated statements of operations.

In addition, $900,000 of expense related to Afek’s oil and gas activities previously included as research and development expense in the first quarter of 2014 was reclassified to exploration expense. For all of Genie, adjusted EBITDA for the quarter was negative $400,000 compared to negative $4.6 million in the year ago quarter.

The improvement was driven primarily by the increase in gross margin at Genie Retail Energy and the capitalization of expenses at Afek. At Genie Retail, adjusted EBITDA in the quarter was $3.6 million compared to negative adjusted EBITDA of $ 800,000 in the year ago quarter.

We continue to expect that Genie Retail will generate between $15 million and $20 million of adjusted EBITDA in 2015. Consolidated loss from operations in the first quarter was $1.7 million compared to $6.5 million in the year ago quarter.

Adjusting for non-controlling interests, the net loss attributable for Genie common stockholders after preferred stock dividends for the current quarter was $2.4 million $0.11 per diluted share compared to net loss of $7.1 million or $0.33 per diluted share in the year ago quarter.

Net cash used in operating activities for the first quarter was $9.3 million compared to $29.7 million in the year ago quarter. The first quarter typically sees significant outflows of cash as we pay for the peak commodity consumption of the winter months before collecting cash from our customers.

That wraps up my discussion of the first quarter's financial results. This is an incredible time for Genie. Geoff and his team at Afek are making strong progress in the joint program and at Genie Retail; we are poised for positive growth in the year ahead. 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..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Aaron Shafter of Great Mountain Capital. Please go ahead..

Hi, congratulations on your quarter.

My question relates directly to the Afek project in the Golan and if you could go into more detail about the -- how the drilling has gone so far as far as speed and what the schedule is?.

Sure. Hi, this is Geoff. Thank you for your question. I can -- what I’ll do is, I will present to you just an overview of what we've experienced.

As we expected even prior to starting to drill the Golan, since this is not only a new project but it’s a new project for Israel, nobody has ever drilled exploratory oil wells in the Golan Heights, so we certainly expected and had taken into account that there would be a learning curve and I would say that we are close to finishing up the actual drilling process with the first well.

And in addition, what we've seen as is the case with any exploratory oil drilling that shows some kind of promises, we have been analyzing almost on a daily basis as it's relevant, the cuttings that come of the drilling of the mud in the mud picks as well as some of the core samples that we've already taken and what we have seen is there is certainly some evidence of hydrocarbons, but as we've -- certainly for the last two years as we've said on these calls as well as information that we've given out to the public, this is a fairly long-term drilling exploration program, the permit that we received was to drill up to ten exploratory wells, this is really just the first and while we are certainly encouraged by what we've seen and encouraged enough to move along and proceed with the drilling program, it's really one of the first steps and we hope to as soon as possible start drilling our second well and it's our intention to try to move forward and proceed with the program, continue to take samples, analyze, send the course out of laboratories for results and at such a time that if there are more positive results to speak about when it makes sense, we will certainly communicate those findings to the public..

My question really has to go to the schedule for the test wells.

When do you expect number two to end and number three to begin, et cetera?.

So, it's -- unfortunately, it's a little bit more complicated than that as, if you remember, once we received our license and then subsequently the permit, we then had to fight in the Supreme Court against several people who were unhappy with the results and as such, there are many restrictions that have been placed upon us specifically as it relates to the drilling operations.

So, one such restriction is that currently we are not allowed to begin any new operations on a second site, while there are ongoing operations at the previous site.

So, what I would say is, I guess the best way to respond to you is, we did have a learning curve with the first well, we do expect that the subsequent wells will go faster, will be more efficient, we've learned much more of the geology and the substructure, but short of estimating that our hope is that we can drill at least three of these wells during the remainder of the calendar year, that’s probably the best guesstimate at this point that I can communicate to you about..

Okay, thank you..

[Operator Instructions] There are no further questions at this time. This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect..