Q2 2022 Genie Energy Ltd Earnings Call

and welcome to Jeannie Energy's second quarter 2022 earnings call.

All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a zero.

After today's presentation by Genie Energy's Management, there will be an opportunity to ask questions.

Please note this event is being recorded.

I will now turn the call over to Brian Siegel of Hayden IR.

Thank you. With me today are Michael Stein, Geney Energy CEO and Avi Golden, Geney Energy CFO , who will discuss operational and financial results for the three month period and the June 30th, 2022. Any forward looking statements made during this conference called either in the prepared remarks or in the Q&A session, whether general or specific in nature are specific 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, the specific risks and uncertainties discussed in the reports that we file periodically with the SEC.

Genie assumes no obligation to either update any forward looking statements that we have made or may make or to update the factors that may cause actual results to different material from those that they forecast.

During the remarks, management may make reference to adjusted EBITDA, a non-GAP measure. Management believes that its measure of adjusted EBITDA provides useful information to both management and investors that supplement our core operating results. It actionable but is not made in financial cuts or promosions.

Our 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 in the earnings release for their respective segments income from operations for all periods presented.

Our earnings release is posted on our investor relations page at GNE.com and has been filed on form 8K with the SEC. I will now turn the conference over to Michael Stein.

You need to chiefs exactly about this, sir. Michael. Michael.

Thank you, Brian . Welcome to Genie Energy's second quarter, 2022 earnings call. Today I will provide some color on our second quarter results and then discuss our strategy moving forward. After my remarks, Avi Goldner, Chief Financial Officer will provide a deeper dive into our financial results. After Avi, we will be glad to take your questions. After Avi, we will be glad to take your questions.

The second quarter is typically our lowest consumption period of the year due to seasonally lower energy consumption during the spring.

Despite this, we recorded record profitability in both income from operations and adjusted EBITDA, easily the most profitable second quarter in our history. As I had mentioned in recent quarters, we adapted to the current period of high energy prices to optimize our portfolio of businesses while deliberately reducing our customer acquisition efforts to preserve margins. This strategy combined with the work of our excellent risk management team positioned us to generate the record profits we've delivered so far.

reported strong results. Similar to GRE, we significantly slowed marketing efforts and optimized our hedges moving into the winter season. GREI's results in this quarter were heavily impacted by the $35.8 million mark to market gain on our hedge position due to the extraordinary run-up and power markets in Europe .

Genearity Oables revenue grew from $2.3 million to $3.8 million sequentially. The revenue increase was generated primarily by our City Com Solar subsidiary, which provides customer acquisition, filling, and management services for third-party community solar developers. We believe that our City Com Sub-Cityary and the other promising businesses within our renewable segment will continue to grow revenue in the second half of the year.

Finally, we opportunistically re-purchased 639,000 shares of common stock and redeemed $2 million in par value of preferred stock. This combined with our regular 7.5 cent quarterly common dividend and the base dividend on the outstanding preferred stock, totaled nearly $9 million in capital return to shareholders during the quarter. Now I'll provide a quick overview of our business and strategy moving forward. The Genie Energy Owns RETs and Services at Portfolio Re...

or take other steps to manage our obligations to customers to drive higher margins. Underlying our strategy is our risk mitigation team, which among other themes, things hedges our forward obligation, and as I mentioned earlier, works to allow us to preserve margins during times of price volatility. In the U.S., our REPs operate in 16 of 2060 regulated states, as well as Washington, D.C.

GRE's asset light model has proven to be remarkably flexible and resilient, generating positive cash flow across a wide range of challenging market conditions, including the current period of extraordinary energy price volatility. While our customer-based management strategy has led to throttle back our customer acquisition engine at present, and even selectively trim our customer base, our mid-to-long-term strategy is to grow, but to do so opportunistically when market conditions warrant.

Our customer expansion programs include increasing our market share and existing territories, expanding into new areas and offering additional products and services to our installed base.

Our Gini Renewable segment seeks to generate outsize returns from multiple high-growth potential opportunities related to solar energy generation. This segment consists of Gini Solar, which markets a full suite of solar procurement and installation services, CityCom Solar, which as I mentioned earlier provides customer acquisition, billing, and management services for third-party community solar developers, and Diversigy, a full-service energy broker. In recent quarters, I've mentioned that our solar strategy includes creating value with robust returns by putting our solar energy into the solar system.

participate in individual projects at the limited departments. We believe that sunlight will provide attractive financial returns for genie and outsize investors will increase the win rate on new projects, creating significant value for genie over the median to long term.

In our international business, as I mentioned earlier, the second quarter results benefited from very significant mark to market gains on our forward electricity hedges. Given the continued volatility and overall global economic and geopolitical risks, we are now taking steps to optimize this position and reduce our forward obligations in the market starting with the sale of our Swedish book. We expect to be able to provide more details on this effort during our third quarter earnings call.

Looking to the remainder of the year, at GRE we currently expect adjusted EBITDA to remain strong and to exceed historical seasonal averages. We expect that Gini Renewables will contribute $15 to $20 million of revenue for the year and are looking forward to sharing more about our work in solar development space over time. In summary, we had record bottom line results during the first half of the year and we expect to continue to generate strong year-over-year consolidated adjusted EBITDA expansion in the second half.

We have also taken several steps to laid a foundation for long-term growth in our emerging renewable businesses. And finally, we continue to fulfill our commitment to return capital to shareholders. Now, over to Abbey Golden for his discussion on our Q2 financial results. Thank you, Michael, and thanks to everyone to call for joining us this morning.

My remarks today cover our financial results for the three months ended June 30, 2022.

Throughout my remarks, I will compare the second quarter of 2022 results to the second quarter of 2021.

Focusing on the year over year rather than sequential comparisons from seasonal factors characteristic of our retail energy businesses.

The second quarter is typically characterized by reduced levels per meter electricity and the air consumption compared to the peak heating and cooling seasons.

of the first and third quarters respectively.

Overall, Gini Energy had a very strong second quarter, achieving record profitability driven by strong performance in our domestic retail business, as well as gains due to the market market increase for our international forward hedges.

Our results continue to be positively impacted by the decision to late 2021 to optimize the value of our forward hedge book by reducing customer load in response to increasingly volatile wholesale electricity prices, both in the US and internationally.

This approach has helped the company deliver record margins and income.

As Michael noted, we also continued to return capital to our shareholders to our dividends in acquisition of both our common and preferred stock.

Turning now to the second quarter P&L.

consolidated revenue decreased 1.8% to $75 million.

This decrease was from GRE, where sales fell 5.7% to 63.2 million, reflecting reduced electricity sales due to lower meter counts.

partially offset by higher electricity rates and increased gas sales.

Not only have gas prices risen substantially over the past year, but we're selling more gas after entering new gas only markets during the last four quarters, and are rolling relatively high average consumption gas meters. And are rolling relatively high average consumption gas meters.

thus boosting average gas consumption per meter.

Electricity consumption per meter, which began to significantly decline last quarter, as more workers return to the office, declined to slightly compare to the year-go period in the second quarter.

Revenue at GREI climbed 14.6 percent year over year to 8.1 million as electricity prices increased which more than offset consumption declines resulting from fewer meters served.

Revenue at junior renewables climbed 61.2 percent to 3.8 million.

Results this quarter were driven by growth within the CityCon solar business.

which leverages our sales and marketing expertise to acquire and manage customers for community solar programs.

Consolidated growth profit increased to 118% to 67.5 million, as growth margin increased to 89.9% from 27.8% in the year-of-go quarter, impacted by the mark to market gain on our international hedges.

GRB's growth profit increased 58.3% to 29 million, and the growth margin rose to 45.9% from 27.4%. The growth margin rose to 45.9% from 27.4%.

The increases largely reflect the optimization of our risk management portfolio and advance to the recent increase in energy crisis.

Gross profit of GREI increased to 37.7 million from 2 million to the second quarter of 2021. Also as a result of the appreciation of value for our forward hedges and demand side management.

For profit at Gini Renewables was $817,000 compared to $922,000 a year ago.

Consolidated SGNA expense, including corporate overhead, increased to 19 million from 16.7 million a year earlier, reflecting a modest increase in GRB's customer acquisition spend in general overhead.

Consolidated income from operations was $48.5 million.

At GRE, income from operations was 14.4 million compared to 5.4 million a year ago, the strength of our increased growth profit.

TRII delivered 36.4 million in income from operations compared to 144,000 in a year ago quarter.

The increase in the driven by the factors I have discussed earlier.

Gini renewables pose a loss from operations of 518,000 compared to income from operations of 334,000 as we continue to invest in our solar businesses.

Consolidated adjusted EBITDA was $49.1 million this quarter compared to $5.5 million the second quarter fiscal 2021.

Through the first two quarters of the year we have generated $74.8 million in adjustedhews.

Net income attributable to Gini Energy increased to $34.5 million compared to $5.4 million in the second quarter of 2021, and earnings per diluted share in the second quarter increased to $1.30 from $0.19 in the year of the quarter.

Turning now to our balance sheet.

On June 30th, cash restricted cash and Markable Equity Securities totaled $67.2 million, or $2.58 per diluted share.

Networking capital increased 29.7 million during the quarter to 125.8 million.

Our cash balance declined compared to last quarter as a move cash to the administrator of a former UK business as the insolvency process there moves forward.

During the quarter, we really purchased the 639,000 shares of our Class B Common Stop for $4.4 million, an average purchase price of $6.90 per share. We also redeem $2 million with our preferred stock.

Looking ahead, we are well positioned for a solid second half.

At GRB, the second half out look is strong, although we expect the year of a year gains will be more modest when we achieve in the first half of the year. The year is a year of a year. The year is a year of a year. The year is a year of a year. The year is a year. The year is a year.

Our balance sheet provides plenty of support to ramp up custom requisition efforts with market conditions worth. And with the culture of carbon fiber really concentrates to open hand lots of Energyensive mm, innovative property cope. It's paid off. Thank you.

Given the current electricity pricing environment in Europe , we have taken initial steps and are exploring additional options to reduce GREI's forward obligations and optimize our position.

We'll have a further update on our plans for the business in the third quarter.

Finally, we are very excited about the range and depth of opportunities for Gini in the solar generation and related businesses.

We are moving quickly to build out our infrastructure and leverage our balance sheet and relevant expertise in the expectation that we able to generate attractive long-term returns for shareholders.

Now operator, back to you for Q&A.

We will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

Your first question for today is coming from Aaron Schaeffer with great mountain capital management.

Hi guys, congratulations on a second consecutive record-setting quarter. Had some questions last quarter but I guess there were some problems with me being able to...

press the buttons right or something on wrong. Glad I'm able to ask you this time. My first question is related to the buybacks. You said that you bought back the shares at average price of $690. And the stock went out at $9 on Friday and is currently in pre-market is trading. The engine level up at $1340 is running out.

is bid at $963. So it's a lot higher than where you did the buybacks, but on a PE basis, it looked like it was a little bit cheap before, now it looks really cheap. Do you still see yourselves doing buybacks at these levels?

Hi Aaron, thanks for the questions. First of all, if we ever have that problem again in the future, obviously you can reach out to us with any questions you might have. In terms of the buyback, we still have plenty of runway left on the authorization that the board has given us on the buyback. We will, as always, continue to assess.

best use of cash and value when making that decision. As you know, we're also, we've been buying back the preferred, an attempt to give some money back to shareholders, so we're trying to balance a bunch of different things. It's always on the table.

And I'm

recently I mean right now it's close I haven't really done any updated calculations yet no one here has done them but maybe we should about what where the stock would have to be for Gini to get back into the the Russell 3000 and then being the to bustle 2000 indices

Is that something that you guys follow at all?

So we're obviously aware of the timing and the potential for that. They don't publish the exact specific metrics. So it's hard to say where the cutoff is exactly going to be. But we know from prior experience that it is around this area.

Okay, yeah, and I mean...

Recently, when the stock was trading above $10, at least by our calculations, that was you definitely would have qualified. You mentioned the sale of your Swedish book and worried about being able to hedge properly in Europe giving a situation there. I'm wondering if you can lay out exactly right now which markets you're operating in Europe and......and......and...

in particular and outside the US in general.

Sure, so yes, we sold our Swedish customers, so we're no longer serving Swedish customers.

Instead, what we're doing is essentially profiting on the value of the hedge book that we had built up for those customers and the value of the hedge book is well in excess of what we thought the value of the customers are and would be. And since we sold the customers, there's nothing precluding us for going back into that market.

whenever we please.

Literally if we wanted to tomorrow we can we can start marketing again In Sweden, but for the moment we're not We're not serving Sweden customers. So a little bit of a complicated answer there I would say we are still potentially in that market Even though as of the moment we're not serving customers actively there In Finland

We are still serving customers. As Avi mentioned, we're actively looking for ways to maximize the value of those hedges as well. And ideally, we're looking to do it in a way there as well that would allow us to continue marketing at some point in the future if that's something we, we, team, is in the best interest strategically of the company.

Those two are the only ones where we have licensed entities ready to market when we decide we want to, and ready to serve customers when we want to. We are not operating in the retail energy space anywhere else internationally.

Okay.

Okay, that covers it. Thanks very much.

Keep it the good work.

Thank you.

Your next question for today is coming from Yehuda Fruchter with Onboard Global.

Hi, good morning guys. I'm a private investor. I have a couple of questions here. The first thing is just on the – I'm trying to understand the balance sheet and the cash flow statement because the cash went down pretty significantly year over year, quarter to quarter. And then also you have this line of net cash used in investing activities of discontinued operations 50 million went out this year. Just explain what's going on there and what the cash use is going forward.

Sure, this is obvious. So over the course of the past, I say a little bit over a year, we've been looking to optimize our position in the UK market, specifically exiting that market. And in the tail end of the year of 2021, there was a series of transactions that moved some cash to the US that we over the course of the first half of the year and moved back into the UK.

pending that resolution. And because that entity is currently in the hands of the administrators that are working through a process there, it's not on our balance sheet and it all flows through as, you know, within that discontinued operations line on the balance sheet. So for all intents and purposes, as the money went back in, it moved from.

cash into that other current asset.

So, is it possible for you to get that cash back or that cash is just gone now, pretty much.

So the expectation is that some portion of that cash is going to be returned to us when the administration is resolved, but we don't know at this point exactly what that number is going to be.

The asset that you see on the balance sheet reflects our current best estimate of what the ultimate resolution is going to be.

Okay, and is there any more cash you need to fund to the UK operation in that respect or no?

No.

Okay. My next question is, I mean, how sustainable is this right now? I mean, you're not really doing any marketing, the users are going down. It is just like the base case, I mean, you did no marketing in the next year, would you consider the business to be able to generate this kind of cash flow going forward? I'm talking about like the US business.

So, you know, I would say that the

We certainly expect in the next few quarters in the short term for very strong financial results, given the market and given the portfolio moves that we've made, I mean, do with the customers in our hedge book. If you asked us a year ago, would we see these kinds of returns? You know, we would not confidently say yes.

So we're a little bit more careful about what we say and what we say that we're going to expect out into the future. But I would say that the next few quarters look strong.

I mean, there isn't a certain level of turning your business, and at some point you have to start getting your customers, you've got to get the customers turn off. And then if you're not doing the marketing, then this is like a peak kind of earning situation now. And then this is like a peak kind of earning situation now.

Or am I on the yes, so there's there's definitely more money we could be spending which would take down ultimate profitability There's certainly more money we could be spending on marketing You know if you look at our at our P&L, it's not like we spent no money on marketing spend We spend money on marketing But you know no question about it. You know to build a book back up again. We'd have to we'd have to spend marketing marketing dollars

you know how that obviously doesn't affect or touch the question of you know what kind of gross profits we can generate you know it's really the the marketing line item you know which figure you know over the course of the year you know if we went back to marketing at full strength you know over the course of the full year we'd probably be another five six million dollars worth of cost

Okay. And then, I mean, just in terms of the growth question with regards to the solar energy, I'm trying to understand you have a lot of different subsidiaries now. You started the new subsidiary for financing, which I think is a great direction to go into. But I just want to understand how you see the structure going forward. Is it the financing that's the biggest growth area? And then in that case, you know, how the genie energy exactly benefit if you're going to have a lot of different. And then in that case, you know, you're going to have a lot of different.

private equity investors getting in on the deals, what kind of benefit is Dini going to get in that situation? They're going to be sort of a small shareholder in one of these power deals.

Yeah, so we're taking a, we, you're right, we got a few different subsidiaries in there. Um, and we believe that those subsidiaries represent essentially a complete vertically integrated approach to the, to the solar commercial, uh, utility scale commercial industry. Um, you know, where exactly, I can't say that all the value is gonna, you know, come from one place or another. They weigh 2008 to 2001 dollars. That's one thing. What we are Latin to is our electric technology is our internet technology is Mister

I think the fund that we've set up with the GP LP structure is obviously going to be a critical piece of us getting really scaling up fast. But what we like about the structure is it gives us a little bit of flexibility in terms of how much we decide to put in versus how much we decide to collect from LPs. Essentially determining exactly the question or the answer to the question that you're asking which is.

you know, how much would Genie benefit specifically from the financing piece versus how much it might benefit from the development to the building of the business and selling the offtake to customers which are obviously also line items that the Genie family of companies will be benefiting from.

So, but on the financing front, I mean, basically the money comes back to G&E as a dividend on the power of any investment in some. in some.

Solar project, right? So you're getting a dividend back, right? Is that how the money gets back as you need?

to their

In the GPLP structure, yes. I mean you're essentially you own an asset and then you know You have expenses related to the upkeep of the solar Of the solar array which the I mean there's Small small amounts of money that's related to the operation and maintenance of those facilities And then whatever debt service you might have

associated with building the project in the first place. You obviously want to maximize the leverage as much as you can when you build these things and operate these things. And then from there, yes, you have an income that gets distributed to the LPs, and which, like I said, will include a genie, how much exactly over the course of time.

is the flexibility we like to have. And then of course the GP generates dividends or generates our management fees and incentive fees associated with what it's able to generate in returns to its limited partners.

So it's another line item of potential fee income. I'll let someone else get in. I kind of understood. Thanks a lot. I appreciate it. So I think this is appropriate for all of the staff too, for those who are interested to see each other's issues.

We'll probably, thanks for joining.

Your next question for today is coming from Jason Lustig at Jay Goldman.

Hey, thanks for the question. Fantastic results, guys. Hey, I just wanted to obvi clarify a question and answer to a question you gave earlier. The other current asset on the balance sheet is...

That's the company's best estimate of cash eventually released from the UK administration.

So.

the discontinued operations portion.

the discontinued operations portion of that is.

Okay, and what is that number today?

18.7

Okay.

any high level estimate on timing.

But we also expect, I believe, and I think currently. I'm sorry. OK, fine, sorry. Yeah, yeah. No. I'll manage. Yeah. So on timing, it's really hard to say. And it really wouldn't want to prognosticate. I will say that we are seeing small incremental progress towards a resolution, which might ultimately come in some stages. Certain funds coming back. And then others being held for some period of time.

Gotcha. Okay. Thank you very much.

Okay.

You're welcome, sorry.

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