Q2 2021 Genie Energy Ltd Earnings Call
Good morning, and welcome to Genie Energy's second quarter 2021 earnings call all participants will be in listen only mode.
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On this morning's call Michael Stein Genie Energy's, Chief Executive Officer, and Avi Goldin Genie Energy's Chief Financial Officer.
I'll discuss operational and financial results for the 3 months period ended June 30th 2021.
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 S E C.
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 day forecast.
During their remarks management may make reference to adjusted EBITDA, a non-GAAP measure.
Management believes that Genie Energy's measure of adjusted EBITDA provides useful information to both management and investors that supplement Genie Energy's core operating results.
<unk> energy earnings release includes a reconciliation of consolidated adjusted EBITDA to its nearest comparable GAAP measures.
Investment opportunity within the energy space Genie operate in 2 cor parts of the energy industry retail and renewables, our global retail energy businesses are asset late operations that market and resell electricity and natural gas to consumers and small enterprises and deregulated markets, while on renewables business sells.
Services and installs solar solutions currently our U S retail business as the primary driver on our profit, but we believe the other segments have tremendous potential.
Our current businesses are supported by our enterprise function, which is responsible for customer acquisition risk management and customer care, our marketing and sales professionals leverage deep data analysis to identify market opportunities inefficiencies that our sales and marketing teams can then exploit through a variety of sales channels offering green or.
Channel options as well as fixed and variable rate plans. This data analysis also allows us to segment current and potential customers with specific payback periods based on product and customer type, while also enabling us to bring a higher level of customer care and retention and also offer customer reward programs for.
Finally, our risk management function requires both green energy and carbon based supply and utilizes hedging strategies to reduce commodity volatility risks.
From a total enterprise viewpoint, we believe free care key areas differentiate us from the competition on will allow us to create outside stockholder returns over time.
First we have derisked the company through market product and geographical diversification with retail energy operations across 16 U S jurisdictions, the UK in Scandinavia, and the rapidly growing solar energy business in the US second we differentiate ourselves from the competition through our strong balance sheet with minimal to know that an asset late because the business.
Model, which not only reduces in a relative cost of capital, but allows us to self fund and invest in growth opportunities such as expanding our international retail energy and domestic solar businesses.
It also provides us the flexibility to opportunistically grow our U S retail business through a disciplined approach to taking share an existing markets or enter new markets as conditions from it.
Finally, we believe the operational excellence, we have gained in deregulated markets in the US will help drive growth and profit and are you for European business.
Ultimately, we believe these factors provide us with competitive advantages and will help us drive higher returns on on the competition.
Moving into each of our businesses, we have 3 reporting segments..2 of these are emerging growth businesses Genie retail international and Genie renewables and the third Genie retail USA consistently generates cash and up or down markets on an annualized basis or retail energy business operates under several different names in both the us and Europe.
Our core business today Genie retail U S is the largest and most mature for the 3 segments generating the most revenue and highest margins and profits. It currently operates in 15 states in Washington, DC under a variety of names reselling electricity from both carbon based on green sources as well as natural gas. This group this business has proven to.
Be financially stable and has made money on a variety of market environments, which has allowed the company to remain principally debt free and make a disciplined investments and growth the competitive environment is fragmented with few large players and many independent small players, we believe our competitive advantages, including our ability to self unexplained without borrowing on.
For a strong risk management and training programs that reduce commodity volatility strong data on analytics capabilities and the depth and breadth of experience in our various sales channels on.
Our current newest strategy revolves around opportunistically, taking incremental share in our existing 16 markets. We also plan to leverage our installed base and marketing prowess to add new products and services bottom line. We believe we have market, leaving capabilities that will allow us to take share introducing up sell new products and successfully expand into new stages conditions warrant.
With respect to our current growth investments, we've been investing in in generating customer growth with expanding margins and Genie retail international through an established presence and unregulated markets in the UK in Scandinavia, We believe this opportunities comparable to the us opportunity with a few differentiators that we believe bode well for value creation between the UK and scan.
The Navy on there are roughly 60 million energy meters installed with about 80% of them in the UK. We initially penetrated the UK, which is strong shown strong growth expanding margins and is now nearly capable self funding continued growth in Scandinavia. We initially acquired our way into Finland in 2019, which similar to the UK is starting to mature and we will.
Soon have the ability to self on future growth in Finland, while also expanding into new markets such as our recent expansion into Sweden, or Scandinavian strategies to centralize our enterprise functions to efficiently manage operations and create significant operating leverage as we continued to gain scale and in the years to come move into other markets such as Denmark.
And possibly others.
Finally, moving to Genie renewables our strategy here today is to leverage our existing geographic footprint in sales channels in the us to offer a range of residential and commercial solar solutions.
We aspire to capture a larger part of the solar solar value chain to both drive growth and higher margins. While we are not ready to talk in full detail publicly about these plans we have a robust pipeline of solar installations and projects that we expect will generate meaningful revenue and profits. We believe our renewable segment has excellent potential and we will provide more details as appropriate.
Today, we benefit from diversification, both at the state level and with our international operations and solar business. However, we realized that with 3 business segments, Egypt, which is in a different stage of maturity, we have to prioritise growth investments and therefore can't always take advantage of opportunities on a business by business basis.
Additionally, we believe that our evaluation doesn't reflect the individual prospects in performance of each business as there are different value propositions for investors due to the higher growth International energy operations and the moderate growth in cash flow generation of the U S retail business.
Given these factors we have been conducting a strategic review of our businesses and are currently evaluating opportunities to unlock shareholder value by separating our international operations from the U S business potentially through a spin off to existing Genie stockholders of a new publicly traded entity as we don't believe the combined company is being valued appropriately by investors.
We believe doing cell accomplishes several goals and the rationale here is typical for companies carving out operations first with a dedicated management team. The international operation can be solely focused on aggressive expansion in current on new markets through both organic and inorganic mechanisms without diluting Genie energy stockholders with less internal come to.
Titian for resources. It will also allow genie to grow more aggressively and it's U S retail business through market share gains in existing markets as well as potential expansion into new states as well as provide additional capital to expand our renewables operations as discussed earlier.
We are currently still on the evaluation process and we will continue to provide updates on any material progress now I'll talk briefly about our second quarter business trends in results as well as provide some insight into the third and fourth quarter expectations Q2, with a strong quarter. Despite ongoing restrictions related to COVID-19, we did have some moving parts from the financials due to the sale of.
Japanese business and in Texas as the Governor signed relief legislation into law, which is expected to provide a minimum of $1.5 million of early.
We hope and expect the relief amount to grow as the legislature in Texas continues to discuss fair outcomes from the February storm in the U S. R door to door marketing efforts are still not back to full strength due to government restrictions, but they are growing again that growth of course continues to be dependent on on what happens with COVID-19 in the meantime, our USB.
Tell business contributed strong profitability, even as a second quarter is usually the season, the weakest part of our year inter.
International operations revenue and gross profits increased as we continue to invest in our UK in Sweden operations, and Finland, Finland business recorded material profitability the.
The renewables division, while still small executed on another profitable quarter and is poised for both revenue and gross profit growth in the future. We are excited about our potential and look forward to updating you further on the potential spin off and other initiatives now over to Avi Goldman for his discussion of our queue to financial results.
Michael on thanks to everyone on the call for joining us this morning.
My remarks today cover financial results for the 3 months ended June 30th 2021.
Throughout my remarks that compare second quarter of 2020 on results for the second quarter of 2020.
Focusing on the year over year, rather than sequential comparisons were moves from consideration that seasonal factor that are characteristic of a retail energy business I do want to point out however that the second quarter like are for it is characterized by low commodity consumption relative to the peak heating and cooling seasons during the first and third quarters respectively.
I'd also like to point out that there is some moving parts this quarter that Megan apples to apples comparison somewhat challenging.
For example required the part of orbit energy that we didn't already on in the fourth quarter of 2020. So our second quarter of 2020 results were not fully consolidated into our financials as they are in the second quarter of 2021 under Genie retail energy International.
On the other side, we sold our Japanese operations in early 2 Q21, which generated again, but we recorded minimal revenue during the quarter long Q2, 2020 Ah for quarter of Genie, Japan revenue was recorded under Jeanniot retail energy International.
That said results this quarter were strong and comparable to the outstanding second quarter results reported a year ago.
<unk> revenue increased 28% to 98 and on the highest level for any second quarter on our history.
Outline increases generated predominantly by Genie retail energy International for revenue increased 28 million for $5 million a year ago quarter.
The results from orbit energy in the UK, we're not consolidated to purchase the outstanding stake in the fourth quarter and the year ago quarter orbit generated $15 million in revenue sent.
Setting aside the impact of consolidated orbit revenue in the current period, the international business increase revenue by 8 million year over year, driven by the robust growth of our business in the UK in Scandinavia.
Revenue achieve retail energy or domestic retail business increased 1% to 67 million electricity and natural gas consumption premier both increase compared to a year ago quarter, which suggests that the boost in per meter consumption you've seen since the shift to work from home could have an enduring impact.
The increase my assumption was augmented by higher average sales for commodity and partially offset by a decrease in overall meter surfed. The net meter account decreased in the quarter as churn outpaced sales both churn and sales are below historical levels of the industry continues to be limited and access to face to face marketing channels that showed up that traditionally drive growth.
Revenue for renewables business was $2.3 million, a decrease from for $6 million a year ago quarter.
Delivered the remainder of a large solar panel manufacturing order that had very low margins is.
As Michael mentioned, we are excited about the potential of this segment as we continue to expand into higher margin renewables focus businesses, including our community solar installations and community solar projects.
Consolidated gross profit increased 22% to $24 million very strong second quarter results with increased can true contributions from all 3 of our reporting segments.
Consolidated SG&A increased to $22 for a million dollars from sixty-nine increases incurred primarily Tru international and reflects the consolidation of orbit energy, including Orbitz customer acquisition expense, but also at Genie retail energy driven by the partial resumption endure door sales channel as well as other marketing spending.
Arkansas, ladies income from operations totaled $1.4 million compared to $2.79, the year ago quarter to key driver here was again consolidation of orbit energy, which while it is nearing the ability to self fund is still losing money as we continue to invest in customer acquisition.
Adjusted EBITDA was $3.1 million compared to 3.5 million in the year ago quarter, Although the scale small it's worth noting that Ah renewables business achieve positive income from operations and adjusted EBITDA for the second straight quarter.
Genie energy incumbents for diluted share was 19 cents compared to 6 cents and the year ago quarter. Our bottom line benefited from a for $2 million gain on the sale of Genie, Japan, and an unrealized gave $2.9 million on marketable equity investments predominantly our investment and Rafael holdings that on Mark to market turning out of the balance sheet quarter added cash restricted cash.
[noise] marketable equity securities totaled 59 million at June 30th a strong increase from 41.7 million 3 months earlier and our highest levels in recent years from working capital perspective, we have more than fully recovered from the impact of Winchester in your area in the first quarter.
To wrap up our operating results for strong even compared to outstanding year ago quarter, and our bottom line results are positively impacted by the non routine gains I mentioned earlier, our balance sheet isn't very good shape and provides us for flexibility to invest in the growth programs that Michael discussed now operate on I will turn it back to you for Q&A.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star 1.
On your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys.
Draw. Your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question today, it's coming from Aaron Shafter of Great Mountain Capital Management. Your line is lie. Thank you may begin.
From shop writer congratulations on a solid quarter. The growth internationally was very impressive you mentioned the the sale of operations in Japan, and adding a to your bottom line about how many cents per share to debt add to the quarters gained.
So the the sales of the <unk> business the proceeds for about $4.2 million I don't know when you factor will pass on those sounds for sure that is.
On do you know offhand.
You know I don't have the number on I can I can follow up with you afterwards on a flow through sure. Okay. So and you mentioned that you're exploring splitting operations on spin offs and I'm wondering if you have any kind of timetable for that.
Oh, we're hoping that the market will get an update on the next few weeks on on our timing, we're hoping that we could potentially do the spin off for for your rent butter love turns on that.
Next 2 weeks.
Okay. So.
<unk>.
You've you've done a nice job expanding internationally I saw that meters really we're pretty much flat in the U S and I'm wondering if there's any new markets that you're gonna be going into the in the U S.
So no new brand new markets that we're going into this quarter, but we are starting with some of our stronger sales channels. In 2 day you just didn't markets that we have not yet use those those marketing channels. Okay.
Okay, Yeah on pets than in Georgia, we expect to be starting telemarketing.
Pretty soon.
Okay and you just mentioned near the end of the call debt. Your the situation with your financial assets was basically at an all time high I'm wondering after the the the crazy once in 100 years weather event.
From Texas, where you decided to suspend the dividend and and suspend buybacks, whether or not you feel that you are in a position to to start paying dividends again and <unk>.
So we didn't suspend buybacks absolutely we bought back in this quarter 393000 shares Alright, I was this quarter last quarter also brought back some stock sorry buyback program continues.
And an opportunistic way then we continue to have that authority from from the board to to continue that program as we see a the opportunity arise.
From the dividend, we are still keeping the dividend on hold.
We believe that right now on money is better spent on on growth on the company that is subject to change as we continue to assess in future quarters, but now or or tried to focus on growth.
Okay, and getting back to international and in new markets. The the previous Israeli government announced that it was gonna be allowing competition on electricity market and just a couple of months ago. The lesson 2 months ago Cellcom energy the a.
Her sister company of the for Telecom Company announced that there was beginning to compete on the Israeli electricity market and I'm wondering if that's something for the company is explored.
When we had so much for Tori conversations about it already.
For 3 years ago.
My guess is we'll have more exploratory conversations about it and we put it on hold on the time and from.
Imagine we'll have some more for totally conversations now that the market is officially open our our thinking at the time was that the market is a bit small.
Given and that knowing how things go on Israel players like the telecom businesses have just such a tremendous advantage.
You know first move on advantage.
We thought at the time that it would be very difficult for us to get to get involved and can really make profits, but is absolutely something that that we expect will be looking out in the next 2 months left Sir.
And also in regards to Israel never got a chance for the last 2 calls Unfortunately to ask about you you announced it the nurse 10, well was a bust, but can you say exactly what you'd found it's the best time well.
We we what we were looking for on the next 10, well was for signs of liquid hydrocarbons of oil that flows freely into the well.
And that's just not balance we continue to believe.
No that was it was it was it just more betjeman.
Yeah, we can we can.
Nothing really was was flowing into the well and I'm, not saying that that that could possibly be commercially viable was flowing into the well you know we still we <unk>. We believe there's organic matter. There we have not been able to find it and you know we we've decided at this point in time we.
Just don't have the the bandwidth send <unk> to to.
To try to find it and give them kind of where oil and gas is going we just don't take it for what I play right now.
Okay and.
Also near the end of the call you mentioned the 1 for 5 knowing their belief that governor Linda Abbott had sign in Texas and the possibility of more to come and I'm wondering if you've got any kind of idea about how much more really for the company will see from <unk>.
Overpriced energy that your force Brian.
Yeah, So <unk>.
The the 1.5 is our kind of.
You know minimum estimate for how much we should be able to get from the relief Bill that was signed by the governor and the beginning of June.
There is some question in in the legislation as to who gets.
Dibs on some of that money and our contention is that that if the money is is divided and the way. We believe it should be our portion of that money could go up to 2 and a half million just on that bill alone, but we we've only accrued for.
The for the for.
For the very minimum that we should see from the pool of money that was approved by Congress in terms of what else might be coming down the pike, yeah. The lieutenant governor in the last congressional session.
Dave commit to trying to put together a special session in the next few months to address some of the other items that came out of the February storm that we're on Sarah our interest rate some of those items could be bigger tickets for us, but you know until they get the section together until you know there's.
Bill on the table, we don't we don't have much more to to say about it other than we we will be actively fighting to get a bill on the table and get it passed by Congress. So we get from actual really quick can.
Okay, great. Thank you very much.
Okay.
Thank you.
Thank you. Our next question today is coming from Kevin <unk>, a private investor Youre Linus life you may begin.
The previous call or ask about get net income there was attributable to Japan and come into effect on on on.
The <unk>.
Gosh.
Uhm cents per share and you should refer to it that it was 4.2 million so that would be the price of all he says there is $5 million net income <unk>, where any hardly have $800000 on a net income which would probably be about 3 cents per common share them or are you looking at that correct.
Do you want to pay you.
So yeah.
I'm not 100% clear on some of the math that youre doing there, but remember between you know sort of the operating income on the net income line would be both the day activities in Japan and also some mark to market on on on marketable securities. So those would all on account for different net.
If taxes between those 2 lines so I'm not.
I'm not 100% clear on the math, but like Michael said, the the gain on the sale was about 4.29.
Mmk for anyway that'll be honest.
I should get back on <unk>.
For your honest thoughts on me here is that on a retail investor in your stock and you're you're on <unk> Ah you're a utility that doesn't pay a dividend and your I guess you cut the dividend probably on the March 11th 20 reported the the previous quarter and your stock went from like I guess it for like 7.730 down to 5.
<unk> I think the reason why because you don't pay a dividend. Okay. I just started out there because now you're talking about trying to increase shareholder value by splitting the company part.
I see 2 wasting assets <unk> coming coming out of that that is my opinion you are free to run. This company, how you want and I'm free to Shout and you look more like a shower today than you did yesterday, but thank you for your time.
We appreciate your comments.
Oh so.
Thank you once again, if you have a question. Please press Star then 1.
This concludes our question and answer session and conference call. Thank you for attending today's presentation.
May now disconnect.