Q3 2021 Genie Energy Ltd Earnings Call

Good day, and welcome to Genie energies third quarter, 20th 21 earnings call all.

All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the Starkey followed by a zero on this morning's call Michael Stein Genie energies, Chief Executive Officer, and Avi Golden Genie energies, Chief Financial Officer will discuss operational and <unk>.

Financial results for the three month period ended September 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.

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.

Jeannie 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 the remarks management may make reference to adjusted EBITDA, a non-GAAP measure.

Management believes that Genie energies measure of adjusted EBITA provide useful information to both management and investors that supplement Genie energies core operating results. The Genie energy earnings release includes a reconciliation of consolidated adjusted EBITDA to its nearest comparable GAAP measures consolidated net income.

And income from operations for all periods presented.

In addition, adjusted EBITDA for applicable segments are reconciled to their respective segments income from operations for all periods presented.

The Genie energy earnings release is posted on the Investor Relations page of the Genie Corporation website Genie Dot com.

And has been filed on a form eight dash K with the S E C.

After today's presentation by G energies management, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded I will now turn the conference over to Michael Stein Genie energy.

As Chief Executive Officer. Please go ahead Mr. Stein.

You are welcome to junior energy third quarter 2021, or in school today required to start the calls nothing on the Orioles spin off transaction in our ongoing Rizzo marches and discuss how this impacts our growth strategy.

I will also provide a review of our operational high level financial results for the three months and then September 30th 2021.

The Golden Archie Financial Officer will then provide a deep regard quarter's financial results and then we will be what is your question.

Previously announced are plans for an oriole energy equity offerings and I'll throw in fiscal year, 20th 21 would be real by market conditions impacting our orbit subsidiary of new to this market is faced increasing challenges over the past eight weeks as a regulatory body of you guys decided not to raise price caps to keep up with significant spikes in wholesale energy call.

As a result, 19 energy supply companies have already filed for bankruptcy and responses factors. After the third quarter clothes, we pivoted and began to work with nuclear regulators on an orderly exit from this market.

Looks are ongoing and we anticipate providing enough food when we have finalized an arrangement with the regulators.

And do three orders Wallstrom operations increase from 4.2 million last year.

<unk>, formerly in this year due to asset write downs and incremental bad that expense of 10, and a half million dollars related to the plan exited from the UK Margaret on a go forward basis. Once we have agreement with the regulators we will classify orbis operating results is discontinued operations, regardless, we are no longer investing in this business and currently expect so.

[noise] material negative cash in fact from its operations did your clothes I want to be clear. The orbit was unprofitable in a relatively immature business compared to our cash generating U as in Scandinavian operations. Additionally, the regulatory environment in the UK is very different than in the U as in Scandinavia as it is as an institution price caps. After we entered the market and they didn't <unk>.

Possible to pass on extraordinary slides and also cost the customers. So.

So where does this leave us moving forward as I stated last quarter Junior he owns a portfolio of assets that offer an attractive investment opportunity within the energy space and hour diversification, both within markets and geographically reduces R. As profile as we saw it in two three at the corporate level leaves us with a strong deprey balance sheet, a major competitive differentiator.

We expect will get stronger over the next couple of quarters as we both generate cash from operations as well as the exit that UK market, which required additional investment of growth capital.

It leaves us with a profitable asset light January til energy business or do you already for sure that is demonstrated a resilient ability to generate cash in a variety of market conditions. This business business. Currently operates in 17 of twenty-seven deregulated States plus Washington D C and our mid to long term strategy is the opportunities typically grow in marks condition.

By taking share an existing states extending into these days and offering additional products and services to our installed base. We will also at times take steps to slow growth and protect margins over a shorter time horizon when market conditions are not as favorable which is what we are doing this winter. It also leaves us with two growth those verses are emerging growth business.

Lemonade, Yeah, which will in the immediate term constitute genie retail energy international or G. R E I for sure there's.

This business is already adjusted EBITDA positive and we expect to see increase profitability in 2022.

Longer term this business affords the opportunity to expand into a handful of other European countries, bringing the total potential.

Total addressable market to more than 30 million meters over the next few years.

Our Genie renewables business is another exciting growth averaged over the past year, we have taken steps to significantly improve its margins N. As we recently discussed have the opportunity to move up the solar value changed some projects financed by leveraging our strong balance sheet. We believe this initiative will provide attractive financial returns increase the wind right on new project.

<unk> and contribute more meaningful even top line and adjust for your Douglas.

Moving to our third quarter performance, we reported a record 37, 7% gross margin and generated record adjusted EBITDA. Jerry was the main driver behind the strike delivering a record 40 per cent gross margin and 23% of adjusted EBITDA margin Mark to market gains in our financial had to go ahead and continued high per meter consumption rates drove this strong performance.

Customer acquisition at G. R. A is not returned to pull breathing free COVID-19 strength, but I'll return rate remained below typical pre COVID-19 levels at 4% GRE I grew it's meter base by nearly 6% and reported strong gross margins. Despite the situation in the UK, we believe our Scandinavian businesses outperforming a competition for higher margin customers and.

It is delivered positive income from operations before $4 million you're to Dave.

Looking to queue for we are shifting our short term tactics to preserve margin and maximize cash flow. This as a move we have made from time to time based on market conditions as such we are currently position favorably with our hedges and forward contracts relative to the free winter run up in wholesale energy and natural gas prices, allowing us to focus more acutely on high margin customer.

Position, while reducing overall sales calls. Additionally, we have some low margin aggregation deals that are coming off the books, which would further improve our financial profile to invest in sales activity heading into the spring.

January levels will continue to focus on on customer acquisition, and adding new projects. We have begun on a limited basis to offer financing to our solar system offers which we believe will both help us win new business and increase project returns in summary, we are excited about our potential and look forward to updating you further on performance and growth initiatives next quarter as well as on the developing.

K situation now over to Avi Goldman for his discussion of our two three financial results.

Thank you Michael and thanks to everyone on the call for joining us this morning.

Marseille cover financial results for the three months ended September 30th 2021.

Throughout my remarks, I compare the third quarter of 2021, and the results to the third quarter of 2020.

Focusing on the year over year, rather than the supernatural comparisons <unk> consideration to seasonal factors that are characteristic of a retail energy business.

Would also like to point out that there was some moving parts this quarter and make an apples to apples comparison. So much allergy. For example, we acquired the part of orbit energies equity that we didn't already own in the fourth quarter of 2020.

So while our third quarter of 2020 results were not consolidated into our financials. They were in the third quarter of 2021 under junior retail International.

On the flip side, we still there Japanese operations in early Q2, two 2021, while in Q3 2020, a full quarter of Genie, Japan revenue as required under G. R E.

And finally, we are assessing the impact of or planned exit from the UK market I'll provide some color on these impacts throughout my part of this call.

That said results from this quarter were generally strong relative to last year.

Consolidated revenue increased 18% to $113 million the top line increases generated mostly by Jerry I, where the revenue increased $25.5 million from $5.8 million a year ago quarter, mainly reflecting the consolidation of the results had orbit energy in the current period.

For comparison orbit generated $15.1 million in revenue into Q3, 2020, which is not reflecting on a reported revenue figures.

Revenue of can you retail energy or domestic retail business decreased 3% to 86 million driven by decline in both a tricky metre served in consumption on natural gas saw an increase in meters and consumption per meter.

It is important to note <unk> well down from last year consumption per unit remained above pre COVID-19 levels for the season did.

Could you. Please do overall consumption was offset by higher average sales for commodity Union. We also saw increase turn from the prior quarter, albeit below historical levels. Additionally, we continue to be limited access for traditional face to face marketing channels that generally gripes <unk> drive growth.

Revenue for renewables business is $1.3 million, a decrease from $1.6 million a year ago quarter as Michael mentioned in decline in revenue was not unexpected and was offset by improved margins were excited about the potential of this segment as we continue to expand into higher margin renewables focus businesses, including our commercial solar installations community solar projects and system financing.

Consolidate gross profit increased 55% to $42.4 million and gross margins expanded by 700 basis points very strong third quarter results with increased contributions from all three of our party segments. In addition to strong underlying business performance you benefited from the reduction of costs due to the approval of the plan for the state of Texas.

His reimbursement of expenses related to winter storm here as well so mark to market games in our financial contracts. This wholesale prices have increased heading into the window.

Consolidate SG&A increased 28.9 million from $18.8 million, the increase primarily from Jerry international or if I see consolidation in orbit energy, which added $10.7 million ish and SG&A expense, including customer acquisition expenses.

The decision to explore an exit from the UK market resulted in a $6.7 million write down an intangible assets as well as approximately $3.8 million in bed that expense above normal levels.

Arkansas that income from operations totaled 6.9 million compared to 8.5 million a year ago quarter. The key driver here was again the impact of orbit energy I've just mentioned.

Adjusted EBITDA increased 58.5% to $15 million compared to 9.5 million a year ago quarter.

Jeannie energies loss per diluted share it was 10 cents compared to EPS and 24 cents in the yugo quarter.

In addition to the 26 cents per share negative impact in the UK right off of assets are bottom line was negatively impacted by an unrealized loss of $5.3 million a marketable securities predominantly our investment in Rockville holding.

Nope that Raphael reported disappointing news last week and reasonably expect an additional unrealized lost in the fourth quarter as the stock was down sharply.

Turning out of the balance sheet encoder and cash restricted cash and marketable securities was totaled 48.6 million working capital was 44 149.

To wrap up our financial results from operations for strong our balance she's also in good shape and with a planned exit from the U K you would expect to see low rates of ongoing Casper and higher adjusted EBITDA.

We continue to believe the value of our hedging geographic diversification and other risk mitigation strategies are competitive differentiator I will allow us to grow the business and invest in other attractive opportunities now operator back to you for Q&A.

Thank you.

We will now begin the question and answer session to ask a question you May <unk> then one on your Touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too at this time, we will pause momentarily to assemble our roster.

Thank you. Our first question today is coming from Erin Shafter at Great Mountain Capital. Your line is life you may begin.

I'm good at good morning, guys. Congratulations on some strong numbers I do have some concerns, though I'll be answered some of them regarding orbit in the situation in the UK, but uhm two other questions relating to that one is that you mentioned that the the regular.

<unk> is there were unwilling to race the the the limit on rates, giving me extraordinary situation and I'm wondering if this rule on on rates and being basically all her great a hard cap whether or not that exist.

Before or after you purchase the outstanding.

Amount of orbit that your your former partner Salt.

Hi, Hi, Erin how are you so the the the cap which instituted after re entered the market.

And 2017.

It was instituted shortly after.

And you know we were able to see you know decent margins subsequent to to the the price cap being instituted.

Yes, but this is a situation that we could've never never possibly envisioned and you know it it's a situation where we believe it's kind of a force mature kind of a situation.

Situation that the the unfortunately, the regulators are not are not an alternate appropriately responding to.

It and I think Michael mentioned something about upgrading in the future. The the situation in the UK did I hear that correctly and and what what type of update would be.

It would be an update just done operationally you know when and how we we got out of you know, we we no longer had any customers to serve and you know what the what the right down associated if any if any more would be.

As a result again, we don't believe though there'll be any cat negative cash impact, but there may be some some more write downs of intangibles uhm.

Uhm Okay.

And.

Me before this for your your Big surprise was early in the year you had the the once in 100 years, so situation and Crazy weather in Texas is there any progress at all I'm not getting any more will be from that.

Yes. So we we thank God you mentioned in his remarks, we got another.

You may recall last quarter.

<unk>, we announced that we got about a million and a half dollars of relief from.

From the Texas government this quarter, we announced that we got I believe the number was one 9 million there's too.

A relief from.

From Texas, and we continue to to work with other industry representatives to try to get more.

Okay, Uhm dark and just to just to be clear that the funds will flow through expect it started in the first half of 2022. So the you know the the order was formerly approved and voted on but the you know the mechanism by which entities are going to receive their relief should kick in.

The first half of 2022.

Okay <unk>.

You you noted in the relief that you repurchase 230000 shirts of the Genie come in at 1.4 million. So that's roughly works out to $6.08 a chair.

Yesterday, the the the stock closed just below $5 a share more than 20 per cent you know <unk>. If that's your that your purchase price, which 20 per cent higher I'm wondering if you have plans to maybe increase buybacks given the what would seem to you to be an attractive level for.

The chairs.

We we continue to have the authorization from the board to to do buy back.

And you know our position has to do it opportunistically.

You know when when we think the the share prices is attractive so I can't tell you exactly what <unk>, what we're going to do.

But you know our strategy through your general feeling about it.

Pretty much the same.

And related to that obviously recently the the stock and said the Communist had a a note of decline, but the preferred stock his head Ah Ah noted increase so it seems that investors in the preferred have confidence that you'll be able to continue pay.

<unk> the dividend on the preferred but investors in the common are concerned about the the company in general how do you convinced investors in the common to look it up more like investors with the preferred.

I you know I think I think we just we have to execute you know you have to execute catch a few breaks or you know.

Not not get hit by some of these events that.

You know an under normal circumstances seem very very rare.

I think with a few quarters of execution and some of this difficulty behind us I think.

The market will react.

Okay and are there.

Any other market state you're in that have these type of her cap on rates that put the UK yes.

Nope.

Okay not at the moment.

Can we assume that you you don't plan on going into it it entering any markets that have her cap on routes.

We we we don't know of any that were interested in going into right now and as I said in the UK. They introduced it. After we had already entered the market is child, probably would've changed our opinion about entering the market, but you know we had it been operating for a few years. So you know we thought that the.

The regulator was responsible enough with how they they set that cat and you know it would be responsible and and a kind of a force Ms. Your situation, but it seems like we have proven wrong in that regard.

Okay, Alright, thanks, and good luck going forward.

Thank you.

Thank you. Our next question today is coming from David <unk> at <unk> wealth management. Your line is life you may begin.

Good morning [noise]. Thanks.

Thanks for taking my question, so I'm gonna keep it simple I don't have a whole lot, but given in general given your outlook on the business going forward exiting U K the prospects for the remaining international scandal, Scandinavian et cetera.

You know, you're you're gonna be generating significant free cash flow I. Appreciate the fact that you're buying back stock. What's your view on dividends at this time historically the common has paid a dividend.

Is the board's appetite further shrink <unk> be common share count first and then go back to dividend or is it something up for discussion now.

I think I think it's probably something that's gonna come up if I had to guess after next quarter.

We we did not we have not discussed you know we instituting the dividend yet I think at the time when we when we.

One of them would be suspended the dividend think we we had indicated we wanted to take about a year to think about it.

You know a few quarters at least so we're we're still continuing to think about it.

Okay, I mean I I appreciate the fact that the companies buying back stock I I. My personal opinion is that these levels were better off buying back as much stock as possible, but then once the stock recovers paying dividends, which would ultimately be more.

For the remaining common shareholders, given a shrunken share account, so well I wish you much luck in the future I Hope you don't get hit by any of these crazy events anymore, you know hopefully it'll be smooth sailing [laughter] going forward. Good luck.

Hello, Thank you.

Thank you again, if you have a question. Please press Star then one.

Okay.

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