Q4 2021 Genie Energy Ltd Earnings Call
Good day, and welcome to Genie Energy's fourth quarter and full year 2021 earnings call.
All participants will be in a 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, who will discuss operational and financial results for the three and 12 months periods ended December 31st 2021.
Any forward looking statements made during this conference call either in our 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 made me 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, 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.
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 in a form 8-K with the S. E C.
After todays presentation by Genie Energy's management, there'll be an opportunity to ask questions.
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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 fourth quarter and full year 2021 earnings call today I will go through a brief overview of our business and opportunities followed by a discussion of our fourth quarter results Avi Goldin, Our Chief Financial Officer will then provide a deeper dive into the financial results and then.
We'll be glad to take your questions during.
During 2021, some portfolio management moves as well as some weather anomalies complicated our financial statements.
These factors include the sale of our Japanese business and our order we withdraw from the UK market, which led to classifying our UK operations as discontinued plus the impact of winter storm jewelry last February .
As a result, we will provide pro forma information in our investor presentation that will be posted on our website. After the filing of our 10-K next week to give investors a view of how your existing businesses have performed historically as well as for future comparisons.
Despite these factors we grew revenue by 2% during the year and gross margin expanded by 220 basis points to 28, 8%. We also finished the year with our strongest balance sheet in many years in the meantime, I'm going to quickly review our businesses before I go into our fourth quarter results and outlook for 2022.
Genie energy owns a portfolio of assets that offer an attractive investment opportunity within the energy space and our diversification of both as to our offerings and geographically reduces our risk profile, while providing upside opportunities as we saw in Q4.
In the U S. Our asset light Genie retail energy business or <unk> for short has demonstrated a resilient ability to generate cash in a variety of market conditions. This business. Currently operates in 17 of 2007 Deregulated States plus Washington D C and our mid to long term strategy is to opportunistically grow when market conditions warrant.
By taking share in existing states expanding into new states 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 did in the fourth quarter, our second business Genie retail energy International.
<unk> is an emerging growth business that has become profitable with improving margins. Currently this business operates in Finland, and Sweden longer term this business affords the opportunity to expand into a handful of other European countries, bringing the potential total addressable market to more than 22 million years over the next few years.
Our Genie renewables business provides entree into multiple opportunities that can lead to outsized growth. During 2020 wanted to improve margins, we refocused our solar operations on projects rather than panel manufacturer. It now as we discussed last quarter, we are leveraging our strong balance sheet to pursue opportunities to move up.
The solar value chain through project Finance, we believe this initiative will provide attractive financial returns increase the win rate on new projects and contribute more meaningfully to top line and adjusted EBITDA growth.
Moving to our fourth quarter results GRE was in a strong financial position, which led to mark to market gains on our commodity positions and allowing us to focus our sales and marketing operations on higher margin customers as some of our low margin municipal aggregation customers came off contract. We saw a significant jump in gross margin gross.
Profit and adjusted EBITDA, Despite revenue and total customers served being down as compared to the fourth quarter of 2020.
<unk> had a particularly strong quarter with 64% revenue growth and a 38% gross margin similar to our domestic business. We were favorably positioned relative to energy prices and were able to benefit from mark to market gains and focus our sales and marketing on higher margin customers. Additionally, given the volatility in energy price.
Our strong financial position allowed us to take advantage of a small consolidation opportunity to increase our customer base.
Genie renewables grew revenue by 19% gross profit by 26% and generated a gross margin of 22% all significant increases from the year ago quarter.
While these numbers were significant improvements year over year, we expect continued revenue and gross profit growth as solar projects are constructed and more of their revenues are realized.
Looking to 2022, despite the continued volatility high energy prices and Russia's invasion of the Ukraine, our strongest management keeps us confident that the first quarter will be strong we continue to monitor the situation and tailor our risk management decisions for the short and midterm periods.
Current political environment.
The combination of our very strong balance sheet and financial positioning for the winter season will allow us to begin reinvesting in sales and marketing activities and grow our retail customer base in the U S and Scandinavia.
Julian J renewables is also in a strong position for growth currently Genie solar is under contract to install more than 10 megawatts in 2022, which if constructed and completed will generate approximately $15 million of revenue.
A tremendous increase over our 2021 revenue beat.
Beyond this contracted business, we have a strong pipeline of potential new contracts that we hope to win in 2022.
In addition to building new systems, we have become involved in the financing of commercial scale and community solar projects. These activities have the potential to provide us with our own electricity generation assets that could yield attractive cash flows for years to come we expect to have more to share about the progress progress of such projects in the coming quarters.
In 2022, together with our diversity in silicon solar businesses. The other two entities that comprise Genie renewables, we think that overall revenue for the segment could approach $20 million approximately triple into 2021 revenue.
In summary, we finished the year on a high note with a strong cash position we.
We have fully recovered.
From winter storm urea and repositioned our business portfolio to continue to generate both growth and cash as a result of this strength in operations and balance sheet. We recently resumed our common stock dividend, which is currently yielding nearly 5%. We also announced an authorization to buyback our preferred stock over time, which we anticipate will begin during the second.
Water.
You for your time today, and I look forward to sharing our results for Q1 and early May now over to Avi Goldin for his discussion of our Q4 financial results. Thank you Michael and thanks to everyone on the call for joining us this morning.
My remarks today cover our financial results for the three and 12 months ended December 31, 2021 with a focus on the fourth quarter's results when discussing the quarterly results I compare the fourth quarter of 2021 to the fourth quarter of 2020 to remove from consideration the seasonal factors that are characteristic of our retail energy business.
During the fourth quarter, we completed our withdrawal from the United Kingdom's retail energy market operating results assets and liabilities of orbit energy our reflect the discontinued operations for all current and historical periods presented in our filings and in my remarks, our fourth quarter and full year 2021 consolidate financial results were both strong highlighted by increased revenue.
Gross profit adjusted EBITDA and earnings per share compared to the year ago quarter and prior year, respectively. The gains reflect our decision driven by volatility in energy markets and other factors to focus on near term profitability and cash generation as well as the inherent strength of our business model, which enabled us to pivot to changes in the marketplace while main.
Any prudent risk managed strategies.
Fourth quarter consolidated revenue increased five 3% to $84 7 million. This revenue growth was generated primarily by Genie retail energy International where sales increased 64, 3% to $15 5 million, reflecting the continued growth of our customer base and an increase in power prices compared to the year ago quarter at GRE revenue.
Greece, two 9% to $67 9 million decline in electric meter served that Michael referred to and a slight decrease in electric consumption per meter more than offset a strong increase in revenue per kilowatt hours sold.
Revenue for our renewables business increased by 19% to $1 3 million from $1 1 million.
Full year 2021 consolidated revenue declined one 9% to $363 7 million led by a 62.8% increase in <unk> revenue to $44 4 million GRE revenue increased two 4% to $311 8 million as increased per meter electricity consumption and revenue per kilowatt.
Our soul were partially offset by a decline in the average number of electric meter served.
Genie renewables revenue decline.
So thats the business towards higher margin services and away from low margin tablet sales.
Consolidated gross profit in the fourth quarter increased 53% to $29 6 million at both GRE and GRE I delivered strong margin performance as well as increased mark to market valuations of our forward supply hedges, reflecting of the rising commodity price environment.
At GRE gross profit increased 31, 3% to $23 4 million gross profit benefited from the increased value of our hedges as well as reducing exposure to certain customer segments.
Gross profit at GRE, I climbed 223% $5 9 billion, reflecting growth in our customer base and mark to market gains associated with certain of our forward supply hedges, while achieving renewables gross profit increased to $208000.
Full year consolidated gross profit increased 10, 3% to $104 9 million led by G. Rei, where full year gross profit increased 147, 3% to $11 2 million at GRE exceptionally strong margins in the second half of the year drove a two 9% increase in gross profit to $90 9 million.
Genie renewables gross profit increased 26% to $2 8 million.
Consolidated SG&A expense in the fourth quarter increased four 4% to $18 9 million at GRE SG&A expense increased 21% to $15 3 million, primarily driven by increased customer acquisition spending at GRE I SG&A expense decreased 51, 8% to $1 1 million, primarily as a result of this.
Sale of Genie, Japan in May of 2021.
Full year consolidated SG&A expense decreased one 9% to $71 7 million, primarily reflecting the sale of Genie, Japan, which took place early in the second quarter.
Our consolidated income from operations increased by $9 4 million to $10 7 million in the fourth quarter, while adjusted EBITDA quadrupled to $12 5 million.
At GRE fourth quarter income from operations and adjusted EBITDA climbed to $8 3 million and $8 8 million, respectively propelled by the strongest profit margins on electricity sales at GRE. Our income from operations increased to $4 7 million from a loss from operating operations of 547000, a year ago quarter and adjusted.
EBITDA increased to $4 9 million from 46000.
The gains reflected the sale of Genie, Japan, and the Mark to market valuations of our Florida electricity hedges.
Genie renewables continued toward profitability trimming its loss from operations to 439000 from $1 $2 million, a year ago quarter, while increasing a topline contribution.
For the full year consolidated income from operations totaled $33 1 million and adjusted EBITDA was $37 7 million note that figure includes the $10 million net impact of winter storm, you're in Texas, $3 $4 million in losses incurred by Genie, Japan prior to its sale in may of 2021 and approximately $100.
$50000 of shutdown related expenses incurred by Genie oil and gas during the year.
Absent those items adjusted EBITDA for the year would've been $51 $3 million.
Diluted EPS from continuing operations were 90 cents in 2021 compared to 41 in 2020 discontinued operations contributed an additional 21 cents compared to <unk> <unk> a year earlier, turning now to the balance sheet at December 31, cash restricted cash and marketable securities totaled $103 5 million.
Working capital was $86 1 million and non current liabilities totaled just $2 4 million subs.
Subsequent to the end of the quarter cash and current liabilities were both reduced by $21 $1 million related to the orderly exit from the UK market. This will be reflected in our first quarter balance sheet.
To wrap up the fourth quarter's robust margins, reflecting our careful approach to risk management and focused scope of operations drove strong results in the second half of 2021, and we expect to build on that progress in the year ahead, our balance sheet has never been stronger and our cash balance and no debt provide strategic flexibility to expand our business and return value to shareholders.
Now operator back to you for Q&A.
Yes.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Your first question for today is coming from Aaron Shafter with Great Mountain capital management.
Your line is live.
Thanks, operator.
Congratulations on a strong quarter, especially the the numbers from.
Your International Division.
A month ago, you issued a press release.
Downstream that you are resuming the dividend that you were just going to be doing some.
Preferred share buybacks.
And I'm wondering if you can shed any light on.
Does the.
The preferred share buybacks, how you expect that to go.
Do you intend to buy back all of the preferred shares were or just a certain amount of overtime depending upon conditions are.
<unk>.
Are there any kind of schedule and any light you can shed on that specifically.
No higher than thanks for the support kind words.
Yeah, So the board authorized.
Us to buyback.
Up to a million dollars worth of preferred per quarter, obviously, the board always has the opportunity.
To change their buying either.
To stop doing that or to increase it.
At any point in time, but the current.
Authorization is that that staged process, we did not yet buyback any of the preferred.
We mentioned in the earnings release that or one of our remarks cant remember.
That we plan on starting that that buyback in the second quarter.
Alright.
And you stated Darrin.
Prepared remarks.
Cash flow has been very strong your balance sheet is extremely strong, especially your your cash holdings and I'm wondering besides <unk>.
Looking for new opportunities is there any possibility of an increase in the dividend.
So.
We did just.
Did just approve the dividend just reinstate the dividend only a few weeks ago.
So I don't envision that we're going to change it right away, but again, that's always up to the board.
And I'm sure, we'll be revisiting that and talking about it.
Next quarter as early as next quarter when we willingly.
And finally.
No not really financially related but.
As the <unk>.
Have you considered.
Doing some type of.
Video call, where you don't see us, but we see you when we get to see what you look like.
When you're speaking something like a zoom call or something that are one ways on the call.
It's a good idea we're happy to do something like that we'll consider it for future calls.
Okay, alright, thanks, and good luck.
Thanks, Dan.
Your next question for today is coming from Jason <unk> with J Goldman Jason Your line is live.
Hey, Michael Hey, Avi nice job great execution on the quarter.
Can you.
Can you talk about the growth in renewables a little bit.
And you talked about the backlog and I think I heard I think I heard the $15 million of revenue in the backlog already.
Can you just talk a little bit about the cadence of that that backlog and how it burns off throughout the year.
So so the way that the the revenue in the renewables business, mostly works is or let's say the way that the.
Kind of trajectory from.
Sale to revenue recognition is as follows.
We contract with the customer to build a solar array.
Then we go for planning and permitting.
And start executing on the plan to actually build.
We only recognize revenue in phases as we complete certain milestone.
Portions of the project. So in my remarks, when I said, we have a backlog of about 10 megawatts about $15 million revenue. What I was referring to is that in 2021, we came to an agreement with customers to build that.
And now we are in various stages in 2022, we are in various stages of the process of.
Building those.
When exactly how that revenue comes whether it's more first quarter more second quarter or third quarter or fourth quarter is really just dependent on too many factors to be able to get into.
Now, but assuming we are able to.
Construct in the timelines that we expect to construct those.
These projects.
That revenue number should shared holdup.
Okay, Great and can you help can you help me understand the gross margin and SG&A profile of these kinds of projects.
Sure. So I think what we saw in the in the fourth quarter, which was around mid twenty's in the renewables for gross margin is something that we.
We can expect to see.
Going forward <unk>.
<unk> is mostly salespeople.
Because all of the building of the project goes into.
Cost of goods.
Okay.
And then I guess, if we take a step back can you talk about some of the I think you alluded to this a little bit earlier, but can you talk about some of the longer term plans within that segment talk a little bit out.
Good thing some of the projects and.
Community solar as well.
One of our better understand the various opportunities and perhaps even the growth profile that you are hoping to achieve as we think several years out into the future.
Yes, so what we do or what we're looking to do in community solar we've done already a little bit.
It is really is really to two parts of the community solar or maybe three parts of the community solar value proposition.
Number one is we're looking to.
Sure.
Yeah.
Lock in sites, where we can build community solar projects in favorable jurisdictions.
And when we lock in those sites.
We have to follow that up with planning and permitting and engineering as.
As well as locking in the incentives related to community solar.
So we're on the development side of community solar.
Number two is we'll probably want to self finance some of those community solar projects. The ones that we think are most in line with our return return requirements and the number three we are actively involved in the customer acquisition side of the community solar.
<unk> business.
Because when.
Developer puts up an array of solar they need to find the customers to consume the energy generated by the solar field.
So you know as that that's kind of our business our core business and we're looking for customers before for electricity and natural gas, it's a very easy fit.
For us to be looking for customers to be the off takers of that community solar so those are the three.
Parts of community solar we participate in.
And you know it's.
I think we're.
We're on our way we are progressing and we think it will bring value over overtime.
Okay.
And then Andrew.
And just digging into the results a little bit on the on the <unk> side.
I forget the comment that you made in the third quarter call but.
I had thought or expected that SG&A would have been down in the quarter.
And given the you were pulling back on customer acquisition I think you said.
But I think it ticked up sequentially can you talk a little bit about what happened between.
The call at the time and then the end of the quarter that led to that change.
So so this is avi thanks for the question so.
Broadly speaking you know customer acquisition is still a little bit challenging relative to where we had been kind of in the pre COVID-19 environment just given the.
The difficulty in some of our channels, but we have started to accelerate within the fourth quarter, putting more money back into the field to try to try to get more customers, where we can.
And as well as where we're seeing some growth in some of our other channels within the commercial channel as well. So what you what you saw in the in the fourth quarter was that you know it was a calculated decision to try to.
Accelerate.
The sales activity.
With then.
The understanding that it's a little more expensive right now than it was in the pre COVID-19 environment to acquire customers.
Got it Okay, and then can you reconcile that that pick up in spend with the decline in Rcs.
Yeah.
So the overall decline in Rcs.
As a function of both the.
In the aggregate.
Nation deal that we alluded to in the remarks that those are kind of one time large basket of customers that move up as well as strategic decision within the fourth quarter to allow certain customer segments that aren't as profitable to to not renew so.
As we've said.
We take a very structured portfolio approach, where we see opportunity to add customers with good margins will look to add and in situations, where we think theres opportunity to take margin, let the base shrink a little bit we're comfortable doing that as well knowing that on the other side, we will be in a position to put the capital back to work around the base again.
Right that makes sense, how many how many.
Gradation customers, where they are in the quarter that rolled off.
Somewhere in the neighborhood of 40000 customers.
Okay.
Alright, and then I guess, just lastly on the on the exit from the UK.
What remaining items as we as we sit here today or I guess as of quarter end and also today, but while remaining the items are there to exiting.
The company is currently in in administration in the U K.
We arent.
Junior parent is not incurring any.
Any new costs related to that.
To like exiting.
Aside for whatever the administration.
Is doing in order to close things out.
We're just working with the administrators as.
Best as we can to try to.
You know make that.
Speed that up progress at an exit as soon as possible.
Okay. Thank you very much for the time and nice job.
Thank you guys.
This concludes our question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect.
Yes.