Geoff Rochwarger - Vice Chairman and CEO-Genie Oil E&P Michael Stein - EVP and CEO-Genie Retail Energy Avi Goldin - CFO.

Aaron Shafter - Great Mountain Capital Management.

Good morning, and welcome to Genie Energy's First Quarter 2017 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-month period ended June 30, 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 Corporation website, www.genie.com. The earnings release has also been filed on the Form 8-K with the SEC. Please note this event is being recorded. I’ll now turn the conference over Mr.

Michael Stein, Genie's 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 first quarter 2017 earnings call. This morning we will review our operational and financial results for the first three months ended June 30, 2017.

I will lead off with an update on operational progress at Genie Retail Energy, then Geoff Rochwarger, Genie Energy's Vice Chairman and CEO of Genie E&P will review OpEx operations in Israel. After Geoff remarks 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. This quarter we achieved some exciting milestones and made good progress on two of our most significant priorities, growing our customer base and de-risking our business.

During the three months of April, May and June our gross leader additions were nearly 70% more than in the same three months last year acquiring nearly a 100,000 gross new meters compared to 58,000 in the second quarter of 2016.

On a net basis during the current quarter our customer base increased by 12,000 net meters and 2,000 RCEs to 430,000 meters and 289,000 RCEs. Last year during the same period our meter base decreased 3,000 meters and 8,000 RCEs.

Our successful customer acquisition efforts drove churn in the second quarter up from 5.8% in the year ago quarter and 6.1% in the first quarter to 6.3%, this uptick is to be expected as churn rates are highest among newest customers. And we having enrolled over 180,000 new customers so far, this year.

We generated the bulk of our net meter and RCE growth in the new states and utility territories adding through the acquisition of Town Square energy last November even as we continue to open up new utility territories in certain states in which we are already licensed.

I want to take a moment here to congratulate our sales and marketing groups including the team who joined us through Town Square energy. Their creativity and hard work were big factors in our success again this quarter.

Our acquisition of Town square energy in the subsequent meter growth as we expanded our customer acquisition efforts throughout town squares footprint, illustrates the potential for additional strategic and organic growth in domestic residential markets. We recently began to pursue opportunities in certain commercial markets as well.

We believe we have the depth and scale of supply management expertise to be competitive in this space. And while we have just begun to supply certain commercial customers the early indications are encouraging. While we believe that there will continue to be opportunities for both residential and commercial expansion here in the U.S.

we are also looking at potential of growth opportunities at global context. Subsequent to quarter close we announced a JV with a market entry specialist firm to launch in Great Britain's deregulated retail market.

The margin in Great Britain is large with approximately 50 million addressable customers and offers the potential for very significant growth given favorable market dynamics.

We could begin acquiring customers in Britain as early as the fourth quarter and continue to promise successful achievement and milestones we will continue to invest in the business there. I'm optimistic not only about our prospects in Great Britain but also in the international markets generally.

They represent a potential avenue to further accelerate our growth and leverage our operational expertise. The second quarter is also successful from a risk mitigation perspective. As we continue to diversify our customer base and preparation for significant regulatory changes in New York state.

Late last month a New York state supreme court judge denied an industry backed appeal of a New York public service commission order prohibiting low income residents in the state from enrolling with any retail energy provider.

The order requires Genie and other retail energy providers to turn our customers over the incumbent utility upon the expiration of their current contractor, a process that will begin later this month.

We are in the process of determining exactly how many of our New York customers are covered by the TSEs low income order and assessing the order's financial implications for our business. To wrap up because of the investments we have made in growth and diversification we are well positioned for a strong second half of 2017.

Moreover, we expect to enter the deregulated market in Great Britain later this year and we believe it affords a longer-term opportunity for growth that could transform our business. Now here is Geoff Rochwarger to discuss our Afek’s operational results..

Thank you, Michael, I'll begin with a brief refresher of Afek's status as of our last update. In early April, we began drilling the sixth well of our exploratory program in northern Israel. Ness 10 is the first well in the northern portion of our license area and is intended to answer two questions.

First, does the abundant hydrocarbon source rock identified in all five of the world's drilled south of the Sheik Ali Fault extend through into the North Western portion of our license area; and second, are the subsurface characteristics in the Northern portion of the licensed area including the depth of the resource with associated level of maturation sufficient to have produced fully matured hydrocarbons.

Initially we made good progress drilling towards our target depth level of approximately 1,900 meters, however we encountered a very thick layer of heavy and sticky clay at approximately 900 meters. As we start to extract the drilling string [ph] an above ground mine ruptured injuring two of our employees.

I'm pleased to report that both men are doing well and are expected to make full recovery. Immediately following the accidents, we suspended drilling to ascertain the cause of the rupture and ensure the safety of our workforce.

We then conducted an internal investigation and hired an outside QA and quality control firm to perform an independent review. In parallel the Ministry of Labor initialed an investigation pursuant to regulatory requirements. While this process was ongoing, we redesigned some of our equipment to prevent a recurrence of the rupture.

We're now completing the final equipment test and have just received approval from the energy ministry to resume operational and drilling activities on the site. We expect to resume drilling in the next few days.

The accident and its aftermath delayed our schedule by two months and going forward the mud based drilling system will be using in the clay layer will further slow our progress. As a result, we now expect to complete the well by the close of the third quarter.

Setting ahead the accident for a moment, I'm pleased that the drilled subsurface today is consistent with our seismic analysis for this area. That analysis indicate that we should enter the target zone at about 1,500 meters and exhaust it after drilling an additional 450 to 500 meters.

The thickness of the clay level also though closes drilling challenges also can serve as an effective geological barrier and may explain the increased depths of the target zone compared to the southern well size. With that in mind I look forward to reporting on our progress during our next quarterly call in early November.

Before I turn the call over to Avi, I want to mention that our drilling services start up Atid, is negotiating with a third party to drill second water well in Israel. This work would be undertaken only after the completion of NES-10.

We continue to discuss other projects with potential clients and it is evident that there is a robust and receptive market for Atid services. Now Genie Energy's Chief Financial Officer, Avi Goldin will review the second quarter's financial results..

Thank you, Geoff, and thanks to everyone listening and for joining us this morning. My remarks cover our financial results for the second quarter 2017, the three months period ended June 30. Except where indicated otherwise, all comparisons in my remarks attribute to results for the corresponding period in 2016.

Consistent with my approach in prior quarters, I will focus on the year-over-year comparisons rather than the sequential comparisons to the first quarter in order to remove from consideration the seasonal fluctuations that characteristic of our retail energy business.

While the second quarter is traditionally our weakest quarter, as Michael mentioned this quarter was marked by some significant operational accomplishments. Genie Retail accelerated the growth of its residential customer base and prepared to enter its first international market.

In Israel OPEC is about to resume drilling on NES-10 and expects to complete the well as early as in this quarter. In addition to these millstones we reached a primarily settlement of a class action lawsuit that stands at least in part from the Polar Vertex during the winter of '13 and '14.

Accordingly, we approved $9 million in the second quarter reflecting our estimate of the settlement cost. We expect a cash will be disbursed in tranches during the first half of 2018. The actual amount to be paid will depend on several factors including the number of customers who claimed settlement payments.

This settlement would result the last significant legal claim stemming from the Polar Vertex and bring greater financial certainty to our capital structure and outlook. The accrual reduced revenue in the second quarter by $3.6 million while the remainder of the accruals in SG&A expense.

Note that the reduction in revenue will affect gross margin comparisons. Turning now to a financial review of the second quarter. Genie Retail again generated all of Genie Energy's revenue, direct cost of revenues and gross profit.

Genie Retail's revenue increased to $52.2 million from $44.6 million primarily from the growth in electric customer base from the acquisition of Town Square and the subsequent sales and marketing efforts in those new territories. Electricity sales increased to $45 million from $38.3 million.

We served on average 24% more meters than the year ago quarter and consumption per meter increased 4%. Natural gas sales increased to $6.8 million from $5.8 million as a rapid increase on the underlying commodities cost drove the substantial increase in revenue per [gram] sold.

Our gross margin percentage decreased to 25.6% from 40% in the year ago quarter. Margins were affected by the legal accrual and an increase in average cost per unit. Consolidated gross profit decreased to $13.4 million from $18.1 million as the decrease in gross margin more than offset the increase in revenue.

Gross margins on the sales of electricity decreased to 24.5% and the average sales price per kilowatt hour sold decreased while the underlying commodity cost of electricity increased. The margin reductions decreased to gross profit on electricity sales to $11 million from $14.6 million despite the revenue increase.

Gross margin percentage in natural gas sales decreased to 31.9% and the underlying cost of natural gas increased more rapidly than our rates. Gross profit on gas sales decreased to $2.2 million from $3.2 million.

As a reminder the second quarter's revenue, gross margin and gross profit numbers were all impacted by the $3.6 million reduction in revenue resulting from the accrual for the legal settlement. Consolidated SG&A expense increased to $24.7 million from $15.9 million including new accruals for the legal expenses pursuant to the settlement.

Corporate and consolidated SG&A expense in the second quarter also included a $500,000 accrual for severance expenses. In addition to legal and federal [ph] accruals the increase in SG&A expenses driven by higher rates of customer acquisition, gross meters adds in the quarter totaled 98,000 compared to 58,000 in the second quarter of 2016.

Exploration expense incurred by OpEx operations in Northern Israel is $1 million compared to $1.4 million the year-ago quarter. Additionally, OpEx capitalized $2.2 million in exploration costs compared to $4.7 million in the year-ago quarter.

The legal accrual increased in SG&A expense and decline in gross profit resulted in a consolidated loss from operations to $12.3 million compared to income from operations of $1.9 million in the year ago quarter. Adjusted EBITDA fell a negative $10.6 million from the positive $1.9 million in the year-ago quarter.

Genie Retail Energy's loss from operations in the second quarter was $8.2 million compared to income from operations of $5.2 million in the year-ago quarter. Adjusted EBITDA was negative $7.6 million compared to positive $5.3 million in the second quarter of 2016.

Looking ahead to the remainder of 2017 we are confident that the recent investments in growth and diversification achieved at Genie Retail Energy will boost its performance for the balance of the year.

We expect that the business will generate between $20 million and $25 million and adjusted EBITDA for the full-year exclusive of the $9 million legal accrual in this quarter.

The net loss attributable for the Genie common stockholders after non-controlling interest in proffered stock dividends [ph] in the second quarter was $11.8 million or $0.50 per basic and diluted share compared to a net income of $2.4 million or $0.10 per basic and diluted share in year ago quarter.

Based on our financial and operating results this quarter Genie's Board of Directors again declared a quarterly dividend on our common stock of $0.75 a share.

Turning now to our balance sheet, we remain in a strong position with $35.2 million in cash, cash equivalents in redistricted cash $39.6 million in working capital on long term debt of 2.5 million. That concludes my remarks on the second quarter's financial results.

Now Michael, Geoff and I will be glad to take your questions on the business in general or the second quarter's results specifically. I will now turn the call back to the operator for Q&A..

We will now begin the Question-and-Answer Session. [Operator Instructions] And our first question comes from Aaron Shafter of Great Mountain Capital Management. Please go ahead..

Couple of questions about Afek and then on the retail energy fronts. Afek you said that you expect the low results now by the close of the third quarter. I'm wondering if you could be more specific than that..

This is Geoff. Because we have not drilled at all for the last two months, resumption drilling will now begin probably in the next week, that will be proceeded by several operational exercises on the site.

Not knowing exactly what we are going to encounter, we do know really only allows me to guess at this point [indiscernible] it will be earlier and there are discoveries or findings, we'll obviously alert everybody..

And if there are any more delays, will there be some kind of a [indiscernible].

If there is a blade caused by inventorial issue we will do our best to notify investors..

And from the drilling that you have done in the testing you have done so far does that make you more or less confident?.

I remain as optimistic, and confident as I was when we started to drill, what we drilled thus far would not give us any indication whether or not the hydrocarbons are present and if they are what the level maturation is.

However, but as I said in my comments what -- the one thing the one very common thing that I did see thus far is that as our pre-site make analysis report drilling showed, we do see additional depths in this well than we've seen in any of the other five wells that we drilled south of the Sheikh-Ali Fault.

So, I believe one of the three underlying assumptions that are required for us to find the oil seems to be present, more than that we [indiscernible]..

And then on the retail energy front. When do you expect to be able to determine the impact of the New York Supreme Court ruling about the regulatory change and about them to give up these costs. .

Hi, thanks for the question, so Michael Stein. So, the ruling is supposed to officially go into around August 26 or 27, that’s when we're supposed to give up the customers that the state is required. I know that there are ongoing appeals on the litigation front that various companies and the industries amounting against the ruling.

So, we won't know definitely until those appeals are completely rejected. So, I don’t have a timeline but obviously if its material and it's something that needs to be disclosed we will be disclosing it. .

[Operator Instructions] As we have no further questions, this concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect..