Michael Stein - Chief Operating Officer and CEO, Genie Retail Energy Geoffrey Rochwarger - Vice Chairman and CEO, Genie Oil E&P Avi Goldin - Chief Financial Officer.
Analysts:.
Good morning, and welcome to Genie Energy's Fourth Quarter and Full-year 2016 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.
[Operator Instructions] In its presentation, Genie Energy's management team will discuss financial and operational results for the three and twelve month period ended December 31, 2016.
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. During their remarks, management may make reference to adjusted EBITDA, which is a non-GAAP measure.
Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.
Management believes that Genie Energy's adjusted EBITDA provides useful information to both management and investors by excluding certain expenses that may not be indicative of Genie Energy's or the relevant segment's core operating results.
Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, gross profit, income or loss from operations, cash flow from operating activities, net income or loss, basic and diluted earnings or loss per share or other measures of liquidity and financial performance prepared in accordance with GAAP.
The Genie Energy earnings release including a reconciliation of adjusted EBITDA to net income is available on the Investor Relations page of the Genie Energy 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 Michael Stein, Genie Energy's Chief Operating Officer and the CEO of Genie Retail Energy. Please go ahead, Mr. Stein..
Thank you, operator. Welcome to Genie Energy's fourth quarter and full-year 2016 earnings conference call. On today's call, we will review operational and financial results for the three and 12-months ended December 31, 2016. I will lead off the call with an update on operational progress at Genie Retail Energy.
After conclusion of my remarks, Geoff Rochwarger, Genie Energy's Vice Chairman and CEO of Genie E&P will review our Afek operations in Israel. Finally, Avi Goldin, our Chief Financial Officer, will discuss the quarter's financial results. At the conclusion of Avi's remarks, we will take your questions. Turning now to Genie Retail Energy.
I'm excited to announce that 2016 was our most profitable year in more than five years. Avi will provide the details for our financial performance, but Genie's adjusted EBITDA was $3.1 million for the quarter and approximately $27.3 million for the year. Operationally, we had one of our most productive years since inception.
Taking into account, our acquisition of Town Square Energy in November, we grew meters and RCEs entered five new geographic markets and added at the Town Square Energy brand. In addition to growing our core REP business, our commercial brokerage business adversely turned to profit for the first time since it was acquired in 2013.
[Diversity] (Ph) contributed $200,000 in adjusted EBITDA and we expect that the contribution will increase in 2017. We have also restructured our network marketing division and renamed it [Diversity Pro] (Ph) to focus our partners on bringing more than this to diversity. Lastly, we set the stage for a successful solar business.
In 2016, we were still investing into business and building a solid pipeline to serve large commercial customers, but we expect to see a contribution from this unit in 2017. As this is the first call since we closed on the acquisition of the entity that owned and operated Town Square Energy I want to provide some context.
Town Square Energy was a privately held Retail Energy provider operating in eight states. The acquisition was not only a immediately accretive to our bottom line and other customer base but it also opened an additional birth opportunities for our combined operations.
Town Square Energy brought us 47,000 electric RCEs and 43,000 electric meters which increased to 51,000 RCEs and 45,000 meters by year-end. These geographic and marketing synergies should help us to increase our pace of organic customer acquisition in 2017.
Indeed I'm pleased that through the end of February we grew our [indiscernible] net of churn at a healthy rate. We are working to make sure this trend continues through the remainder of the first quarter and all 2017. Now let's take a look at Genie Retail Energy's operational results for the fourth quarter and full-year 2016.
GRE serves 283,000 RCEs at December 31st comprising 218,000 electric RCEs and 65,000 gas RCEs. 51,000 of the electric RCEs were Town Square Energy customers, exclusive of the Town Square Energy acquisition Genie Retail Electricity RCEs declined 7,000.
Genie Retail Energy also serves 412,000 meters at December 31, comprising 296,000 electric meters and 116,000 gas meters. 45,000 electricity meters were Town Squares’, exclusive the Town Squares, Genie Retail Energy meters declined by 12,000.
Exclusive in Town Square we added 54,000 gross meters in the fourth quarter compared to 58,000 in the prior quarter and 70,000 in the year ago quarter. For the full-year 2016 we added 235,000 meters compared to 275,000 meters in 2015.
As of the prior quarter our new meter acquisition efforts in the fourth quarter has slowed as we have worked vigorous by our customer base in response to the regulatory uncertainty New York by focusing our new year acquisition efforts under other states.
Average monthly customer return in the fourth quarter was 6.7% that represents a 25 basis point increase compared to the year ago quarter. Turning now to the situation in New York, as I mentioned last quarter we're working aggressively to mitigate the risks and meet the regulatory charges confronting the retail energy provider industry in New York.
Since our last we call the New York state public service commission issued an order prohibiting retail energy providers from our serving customers enrolled in low income systems programs.
The order which was become effected in mid February would have prohibited REPs from enrolling now customers that participate in certain New York state programs for low income users and included a process for REPs to return their current low income customer to the income in utility.
The REP industry was founded by filing a legal challenge and in January the PSC grants an industry request to delay implementation of the order until May 26, 2017 to allow time for judicial review.
Simultaneous with its tent to denied lower income the orders the benefits of comparative retail markets, the PSC is undertaking a broader examination of the roles played by REPs in New York retail energy markets. This proceeding may result in additional restrictions on retail energy providers.
In response to these developments during 2016 Genie Retail Energy focus its near acquisition efforts outside the New York state, while simultaneously taking steps to reduce the prospective and continue in tax of the PSC orders and our year end customer base. We will keep you prior to the situation in coming quarters.
To wrap up we are in strong position to continue to grow the R&D business while maintaining our focus on cash generation.
Not only we will continue to leverage the benefits of the Town Square Energy acquisition to accelerate the organic growth of our customer base, but we expect to add additional state chart portfolio organically, expanding our reach in devaluated markets where we can leverage our for sales and region management competencies.
Additionally we are working for additional acquisitions to grow our inner base marketing channels, products and services, while enhancing our profitability. Now, here to Geoff Rochwarger to discuss OpEx operational results..
however, in the North the source rock begin approximately 700 meters further below the surface then in the South. The initial debt and the associated increases in pressuring heat are key drivers of maturation of organics.
Under the right conditions and with sufficient geological time 700 meters of additional depth could be more than sufficient to have converted the partially mature resources we identify that the relatively shallow debts in the south into the live crude that we are seeking.
Accordingly we intend drill our next well NES-10 in the Northern portion of our license area to confirm that the potential source rock in the North continues level of organics comparable to the south and to determine whether the conditions are necessary to have converted these organics to like crude are present presence.
Our findings will be used to further refine our model of a sub surface geology north of the Sheikh-Ali Fault and to determine the next steps in the exploration program. We expect to spud NES-10 before the end of this months and to complete the well approximately 90-days after the initiation of drilling.
This schedule was longer than those of our five completed wells for several reasons. First the well would be substantially deeper with a total debt of approximately 2,000 as compared to an average of 1,400 in the first five wells. Second, we will be using a more controlled slower approach to drilling this well.
Manage pressured drilling will allow us to evaluate the drilling conditions in the real-time and to immediately collect and evaluate gases and liquids from the borrow. And finally, we will be pausing during the drilling schedule to upgrade the rig and extend its capabilities.
In particular, to enable efficient operations at the depths we will achieve in NES-10. The equipment is currently being fabricated and assembled for us in Calgary Canada and we will be ship two days drill and installed at the NES-10 sites during the drilling high [indiscernible].
Following the quarter close, we announced the formation of a new Genie Energy operating subsidiary a key drilling remediate. The new company will act as the drilling contract on behalf of effect and one for onshore drilling services in Israel and other countries in the region for oil and water and other natural resources.
Our decision to formative reflects the benefits of owning and controlling our drilling operations and the potential to benefit from the region's growing appetite to specialized drilling services.
As our team prepares to spot NES-10 I'm very excited that we maybe closing on a potentially significant resource in the north of our license area and look forward to updating you on our drilling progress during the next quarters call.
Now, I will turn the call over to Genie Energy's Chief Financial Officer, Avi Goldin for a discussion of the financial results..
Thank you, Geoff, and thanks to everyone listening and for joining us this morning. My remarks cover our financial results for the first quarter and full-year 2016, the three and 12-month period ended December 30, 2016 except or indicated otherwise all comparisons in my remarks are to the results of the corresponding period in 2015.
Consisting with my approach in prior quarters, our focus on the year-over-year comparisons when discussed into quarter's results rather than on comparisons to the prior quarter, in order to remove the consideration the seasonal fluctuations that are characteristic of our retail energy business.
Overall this is very productive quarter for Genie Energy. Genie Retail Energy delivered strong financial results including significant increases in revenue, income from operations and adjusted EBITDA, while our Afek subsidiaries successfully controlled expenses and while preparing for the drilling of the next well.
As in prior quarters, Genie Retail and Genie Energy's consolidated revenue, cost of revenue and gross profit. As Michael mentioned, at the close of the acquisition announce for Energy in November including separations in our results for November and December.
Genie Retail's revenue on sales of electricity decreased to $41 million and $37.5 million in year-ago quarter. The revenue increase reflects an increasing kilowatt hours sold as a result of higher per meter consumption and then increase in meter served partially offset by lower revenue per kilowatt hours sold.
For the full-year 2016, revenue from electricity sales increased to $179.5 million from a $170.3 million in 2015. Gas revenue increased to $10.1 million compared to $7.3 million in the fourth quarter of 2015. Increases in [term sold] and revenue per term offset a slight decline in the meter shares.
Full-year 2016, gas revenue decreased to $31 million and $40.8 million reflecting declines in both term sold and average revenue per term. For the quarter higher commodity profits and more competitive pricing compared to the year-ago quarter reduced our gross margin on electricity sales just 27.1%.
Gross profit on electricity sales decreased to $11.1 million in the fourth quarter of 2016 from $14.7 million in the year-ago quarter. So the full-year 2016 gross margin on electricity sales increased to 37% driving a gross profit increase to $66.5 million from $57.6 million in 2015.
Gross margin on natural gas revenue increased to 31.9% in the fourth quarter of 2016, as average revenue per meter increased even if the underlying cost where gas decline. The gross profit on gas sale increased to $3.2 million in the fourth quarter of 2016 from $1.2 million in the fourth quarter of 2015.
For the full-year gross margin and natural gas revenue increased to 30.5%, gross profit on gas sales for 2016 hedge up slightly to $9.5 million from $9.3 million in 2015. Genie’s consolidated SG&A expense decreased to $14.7 million in the fourth quarter from $70 million in year ago quarter on lower sales and marketing and other general expenses.
Full-year SG&A expense decreased to $61.6 million in 2016 from $66 million in 2015, on decreased regulatory legal expense, savings from reorganization of our versus the energy brokerage business and reduction in customer acquisition cost. Also in 2015 we accrue $2.7 million for shipping regulatory and legal matters that were not repeated in 2016.
Express this percentage of total revenue SG&A expense decreased to 29% in 2016 from 31% in 2015. Research and development expense the opening gain of $479,000 in fourth quarter representing over crude expenses retailed to the decommissioning of our [Anston] (Ph) well development project.
At this point, we have concluded the reclamation efforts in Anston and expect any additional expenditure to be demonisms. Exploration expense in the fourth quarter were entirely by [indiscernible] operations in Northern Israel is $1.6 million compared to $2.2 million in the year ago quarter.
For all of 2016 exploration expense totaled $6.1 million comparing to $6.6 million in 2015. Afek the non-capital [indiscernible] and the exploration cost in the fourth quarter 2016, compared to $9.2 million in the fourth quarter of 2015. Over the course of 2016 Afek capitalized $12.9 million of exploration expenses compared to $27 million from 2015.
Recall that all capital as exploration cost written on in the third quarter of 2016. Loss operations on a consolidated basis in the fourth quarter of 2015, was $1.3 million compared to $4.2 million in the year ago quarter.
A loss from operations for the full-year of 2016 was $30.5 million including a write-off of capitals exploration cost of $41 million compared to $8.3 million in 2015. Consolidated adjusted EBITDA increased to $322,000 in the fourth quarter from negative adjusted EBITDA of $3 million either earlier.
Adjusted EBITDA for the full-year 2016 was $14.7 million compared to negative adjusted EBITDA of $2.7 million in 2015. And Genie retail adjusted EBITDA in the fourth quarter increased to $3.1 million compared to the $1 million in the fourth quarter of 2015.
For the full-year 2016, Genie retails generate $27.3 million adjusted EBITDA compared to $11.8 million in 2015.
The net loss attributable to Genie common stock holders after non-controlling interest in preferred stock dividends from fourth quarter 2016 was $1.2 million or $0.05 per basic and diluted share compared to a net of $4.2 million, or $0.19 per basic and diluted share in the fourth quarter.
For the full-year 2016 the net loss attributable to Genie common stock holders including the impact of capitalized exploration cost write down was $26 million or $1.14 per basis can diluted share compared to $8.9 million or $0.40 per basic and diluted share in 2015.
Turning now to our balance sheet, we remain in a strong position financially with flexibility to invest in significant growth initiatives even now it is the acquisition of transfer energy November. At December 31, we had $47.1 million in cash, cash equivalents, restricted cash and $56.7 million in working capital.
Reflecting the strength of our financial position operating results this year and positive growth [indiscernible] Genie's Board of Directors have decided to raise the quarterly dividend on our common stock by 25% to $7.5 a share. That concludes my remarks from the fourth quarter financial results.
Jeff, Michael and I would be glad to take any questions you may have for us on the business in general or this quarter’s results specifically. I will now turn the call back to the operator for Q&A..
Operator:.