Good morning, and welcome to Genie Energy's Second Quarter 2019 Earnings Call. [Operator Instructions]. In this presentation, Genie Energy's management team will discuss financial and operational results for the 3-month period ended June 30, 2019.

Any forward-looking statements made during this conference call, either in the prepared remarks or in the question-and-answer 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.

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.

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 a Form 8-K with the SEC. [Operator Instructions]. Please note, this event is being recorded.

I will now turn the conference over to Michael Stein, Genie Energy's Chief Executive Officer. Please go ahead, Mr. Stein..

Thank you, Operator. Welcome to Genie Energy's second quarter earnings call. Today, we will discuss our operational and financial results for the 3-month period ended June 30, 2019. My remarks today will focus on our business strategy and operational results. Avi Goldin, our Chief Financial Officer, will follow with an overview of our financial results.

Following Avi's remarks, we will be glad to take your questions. While the underlying financial performance in the quarter was not as strong as expected, there were some short-term factors at play, and we remain very excited about the near-term and long-term prospects for the company.

Overall, I was very pleased with our operational results this quarter. We grew our customer base substantially, both here in the U.S. and in our international markets. We continue to diversify our revenues, further mitigating certain risks to our business, and we significantly lowered our monthly churn rate.

Finally, after the quarter closed, we entered the Texas electricity market, the largest in the country and a market that affords us a great opportunity going forward. This quarter, we added 49,000 meters, including 35,000 meters in the U.S. and 14,000 meters internationally, representing 10% and 25% increases, respectively, quarter-over-quarter.

RCEs increased significantly as well, as we added 24,000 new RCEs through organic growth net of churn, including 18,000 in the U.S. and 6,000 internationally, primarily in the U.K. and Finland.

We've now added 101,000 net RCEs since the first of the year, increasing our customer base by a solid 39% to 357,000 RCEs and successfully made the investment while maintaining a very strong balance sheet with no debt and without diluting our shareholders.

Moreover, we continue to build our customer base in geographies outside of our legacy footprint in the Mid-Atlantic region, providing further diversification to mitigate commodity, regulatory and other risks. Not only are we acquiring more customers, we are keeping them longer.

In the second quarter, we took a big bite out of our customer churn, reducing our monthly domestic rate to 4.4% from 5.3% in the first quarter and 5.7% in the year ago quarter. The reduction partly reflects our channel, product and customer diversification.

The reduction in churn is also a function of our internal programs to systematically improve customer retention and renewals. Genie Energy Services contributed $3.7 million in revenue. Our Prism Solar solution subsidiary generated substantial majority of that total.

Prism has a robust pipeline of orders through the second half of the year, and we are working to obtain sufficient key inputs and manufacturing capacity to meet the demand. We recognize revenue as we deliver finished product.

And despite the uncertainty in our supply chain, I do expect GES will generate increasing levels of revenue and profitability in the second half. So operationally, there was a lot to like in the second quarter, highlighted by greater meter growth and lower churn.

But before I turn over the call to Avi, I want to comment further on our bottom line financial results.

We lost $0.29 a share this quarter, largely as a result of our investment in organic meter growth, mild spring weather that reduced commodity consumption, the impact of our shifting customer mix and a mark-to-market accounting treatment of our forward commodity hedges.

Our customer acquisition expense increased significantly as we increased domestic gross meter adds to 91,000 this quarter from 57,000 in the year ago quarter. And internationally, we added roughly 14,000 net meters compared to the year ago quarter when we were just getting underway.

The second quarter typically generates the lowest levels of consumption of the year as well as the lowest levels of gross profit since it is comprised of the spring months that fall between the peak heating and peak cooling seasons. This effect is felt more strongly within the fixed rate book, which is a growing part of our overall portfolio.

This year, the weather was exceptionally mild, causing a significant decrease in meter consumption. Electricity consumption per domestic meter fell 2.7% compared to the year ago quarter, and per meter national gas consumption decreased 8.7%.

Additionally, we saw a decrease in forward wholesale commodity prices, which resulted in mark-to-market reductions in the reported value of our commodity hedges.

The market moved against our hedge position this quarter, as electricity and natural gas prices both fell, resulting in a $1.8 million decrease in our gross margin that dropped straight to our bottom line. While mark-to-market movements affect our results in every quarter, its impact on this quarter is particularly significant.

Adjusting for cumulative impact of these items, the second quarter is within range of expectations. Now with more on this quarter's financial results, here is our Chief Financial Officer, Avi Goldin..

Thank you, Michael, and thanks to everyone on the call for joining us this morning. My remarks today cover our financial results for the 3 months ended June 30. Throughout my remarks, I will compare the second quarter 2019 results to the second quarter of 2018.

Focusing on the year-over-year rather than sequential comparison removes from consideration the seasonal factors that are characteristic of our retail energy business.

As Michael discussed, the underlying financial performance in the quarter was impacted by a number of factors, including higher sales activity, weaker-than-expected volumes and a shift in the mix of the book that exacerbated the normal cyclical weakness of the second quarter.

Typically, the second quarter falls between the peak heating and cooling seasons and has the weakest demand per meter for electricity and natural gas of any quarter. Consolidated revenue in the second quarter increased to $61 million from $56.4 million.

Our top line growth largely reflects increased contributions from Genie International driven by the acquisition of Lumo Energia in the first quarter and from Genie Energy Services driven by the acquisition of Prism Solar in the fourth quarter of last year.

Genie International and Genie Energy Services contributed revenue of $2.9 million and $3.7 million, respectively. GRE revenue decreased to $54.4 million from $55.9 million in the year ago quarter.

Electricity sales increased to $49.2 million from $48.5 million, as an increase in electric meters served offset the decrease in consumption per meter caused by the mild spring weather that Michael mentioned earlier.

However, the increase in electricity sales was more than offset by a decrease in natural gas sales, which declined to $5.2 million from $7.4 million. Gas meters served consumption per meter and revenue per therm sold all declined.

Despite the increasing consolidated revenue, consolidated gross profit in the second quarter decreased, falling to $9 million from $16.1 million.

The decrease was generated entirely at GRE where we felt the impact of a generally weaker operating environment on the consumption and cost side and a number of factors, including a mark-to-market loss on our forward hedge book.

Under accounting rules, we're required to mark to market the unrealized value of our electricity and natural gas hedges, which resulted in a loss of approximately $1.8 million. Consolidated SG&A expense increased to $18.2 million from $15.4 million. The increase was largely the result of increases in customer activity at GRE and Genie International.

We added 91,000 gross meters domestically during the quarter compared to 57,000 added the year ago period. This increased SG&A at GRE to $13.7 million from $11.7 million. At Genie International, SG&A increased to $1.9 million from $53,000.

Equity in the net loss debentures in which we use the equity method to report results, predominantly Orbit Energy, but also our minority stake in Atid, was $1.1 million compared to $716,000 in the second quarter of 2018. Our consolidated loss from operations increased to $9.3 million from $1.6 million in the year ago quarter.

Adjusted EBITDA was negative $9.1 million compared to positive EBITDA of $1.8 million. The changes reflect primarily the reduction in gross margin at GRE and increased customer acquisition expense at GRE and Genie International. Our loss per share was $0.29 compared to a loss of $0.09 per share in the year ago quarter.

Our balance sheet remained strong. At June 30, we recorded $147.6 million in total assets, including $39.9 million in cash, cash equivalents and restricted cash. Liabilities totaled $58.9 million. And working capital, current assets, plus current liabilities totaled $42.7 million.

Supported by our financial and operating results this quarter, our positive forward-looking outlook, our Board of Directors again declared a quarterly dividend in our common stock of $0.075 a share. To wrap up, the second quarter is characteristically our lowest consumption period of the year.

This year, mild spring weather further reduced consumption per meter and contributed to a difficult market environment that compressed margins. The impact of the narrowed margins was augmented by increased spending on new customer acquisition, driving our bottom line results.

Nevertheless, we believe they are well positioned for the second half, and we'll continue to focus on market growth opportunities. Now we'll turn the call back to the operator for Q&A..

[Operator Instructions]. And our first question comes from Aaron Shafter of Great Mountain..

First, congratulations on what I think is a strong quarter. If I recall correctly, at the last earnings release conference call, you had said that you had hoped to enter the Texas market in this past quarter. And I noticed that you -- and you did after the quarter had ended.

Can you tell us anything though about how the Texas market is going for your, so far?.

Yes, thanks for the question, Aaron. So we did start a little bit later than we were hoping. We're about 30 days or so behind schedule, but I don't expect any material impact as a result of that.

The first 2 months or so was always supposed to be a bringing on friends and family kinds of customers to make sure we're testing the billing system and the enrollment applications and make sure they're working properly. We will be starting full enrollments probably sometime later this month, meaning full marketing.

We think that the first 6 months -- first or 5 months through the end of the year, we're going to be cautious and we're not going to try to bring on tons and tons of customers right away. But I do believe that we should be bringing on at least a few thousand customers over the next few months..

Okay. And a question related to Afek. On the last conference call, you had indicated that you'd received the necessary permits, but the release says that you're still suspended, awaiting permitting. I thought the only holdup was the testing equipment.

And if it is just the only testing equipment, if you could flesh out -- give us the latest information on when you expect that testing equipment and when you expect to begin testing..

Thanks, Aaron. This is Avi. Your recollection is correct. At this point, it's primarily an equipment-related delay. And so right now, it looks like it's going to be sometime in the sort of more towards the end of the year..

Can you be more any more specific than that?.

Let's call it mid-fourth quarter..

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