Q3 2022 Genie Energy Ltd Earnings Call

Yeah.

Good morning, and welcome to Genie Energy's third quarter 2022 earnings call.

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After todays presentation by Genie Energy's management, there will be enough.

Opportunity to ask questions.

Please note this event is being recorded.

I will now turn the call over to Brian <unk> Segal of Hayden IR.

Thank you operator with me today are Michael Stein, Genie Energy's, CEO , and Avi Goldin Genie Energy's CFO , who will discuss operational financial results for the three months period ended September 32022.

Any forward looking statements made during this conference call, 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 we filed 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 differ materially from those that they forecast during their remarks manager.

It may make reference to adjusted EBITDA, a non-GAAP measure management believes that its measure of adjusted EBITDA provides useful information to both management and investors that supplement our core operating results.

Our earnings release, which is posted on the IR page 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 to their respective segments incur.

From operations for all periods presented.

Finally, please note that Genie retail energy International's results were accounted for under discontinued operations during the third quarter and our historical results reported today and discussed on this call reflect the smooth I will now turn the call over to Michael Stein Genie Energy's Chief Executive Officer.

Thank you, Brian and welcome to Genie Energy's third quarter 2022 earnings call, we achieved record third quarter margins and profits this quarter as energy prices remain high with increased volatility we were well positioned from a risk management perspective, and in combination with our reduced customer acquisition efforts at GRE, we were able to generate significant year over year.

<unk> and gross profit adjusted EBITDA net income and cash flow from operations.

Looking at our segments Genie retail energy or GRE generated record Q3, gross profit of $43 million and adjusted EBITDA of nearly $28 million or.

Over the course of the third quarter, we executed our plan to spend operations and are no longer servicing customers in the Scandinavian market. As a result, <unk> results are now reflected in discontinued operations in our financial statements Genie renewables or grew as we have taken to calling it had an exciting quarter first.

We signed several new contracts to build solar arrays for commercial customers, which significantly grew our backlog of existing business.

Separately, we also made significant progress in our vertically integrated strategy, where we will build a requires solar farms ourselves or through some light energy investments in the third quarter grew secured the site rights on which to potentially build 64 megawatts of solar generation in New York and Pennsylvania, We expect the first project to receive full approvals.

Necessary for construction in the fourth quarter.

Once construction begins we expect solar fields to be generating power as soon as the second quarter of 2023. This project to community Solar farm, which will be wholly owned and operated by group will leverage our vertically integrated business model and strong balance sheet. We will keep you apprised of our progress on this project as well as significant milestones.

Cheap with our other projects as they advance through the permitting process.

Also this quarter, we redeemed $1 billion in par value of preferred stock, while paying a regular seven <unk> quarterly common dividend and the base dividend on the outstanding preferred stock for a total of approximately $3 5 million in capital returned to stockholders during the quarter.

After the quarter, we announced that we would redeem an additional $8 $3 million and stated value of our preferred stock on November 15th leveraging our strong balance sheet to increase future cash flows available to common stockholders.

After the November 15th redemption, there will be a further $8 $4 million worth of preferred stock outstanding.

We intend to continue redeeming at least $1 million of preferred stock on a quarterly basis in the coming quarters.

Now I'll provide a quick overview of our business and strategy Jerry operates retail energy providers or rfps that servicer portfolio of retail customers in 18 of 28, Deregulated States and Washington D. C. We actively manage our reps and customer bases, both geographically and within geographies in response to evolving.

<unk> conditions, we will invest in customer acquisition and growth during some periods, while reducing our growth investment or obligations to customers during other periods to drive higher margins as we have done this year.

Underlying our strategy is our risk mitigation team, which among other things hedges, our Ford obligations to preserve margins during times of price volatility.

In terms of customer acquisition, our program seek to increase market share in existing territories expand into new areas and offer additional products and services to our customer base and.

In light of current energy market conditions, we expect to generally continue our strategy of margin preservation over the near term. However, despite the current volatility we are seeing opportunities within certain areas to potentially be more aggressive in customer acquisition.

Our Genie renewable segment seeks to generate outsized returns from multiple high growth potential opportunities related to solar energy generation.

Our business is currently provide services to third party solar farm owners and operators ranging from our full suite of solar procurement and installation services to customer acquisition billing and management services as we move forward with our own projects the strength of our burden vertical integration strategy will become more evident as we also provide these services.

The genie or sunlight energy owned and operated firms on that node Genie took several steps forward during pension third quarter in furtherance of this strategy. We acquired the site rates to 64 megawatts of potential solar generation and we expect to break ground in one of these projects during the next two quarters.

As we work to advance the remainder of these projects through the permitting process. We continue to hunt for additional opportunities to own and operate with ge's balance sheet or with sunlight Energy's investments to evaluate additional opportunities. We currently have over 50 megawatts of projects either under exclusive due diligence or in active.

<unk> with well over one gigawatt of projects in our evaluation pipeline. These.

These projects are in various stages and range from early site rights to more mature cash flow producing assets looking to the fourth quarter at GRE. We currently expect adjusted EBITDA to remain strong and to exceed historical seasonality seasonal averages. In addition, we expect the Genie renewables will contribute strong revenue in the remainder of the year.

And we look forward to updating you on the progress of our solar business as more information becomes available in summary, we had record bottom line results for the first three quarters and we expect to continue to generate another strong year over year increase in consolidated adjusted EBITDA in the fourth quarter. We have also taken several steps forward in our efforts to generate long term growth in our emerge.

Renewables businesses and finally, we continue to fulfill our commitment to return capital to stockholders now I'll turn over the call to Avi for his discussion of our Q3 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 months ended September 32022.

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

Focusing on the year over year, rather than sequential comparisons removes seasonal factors characteristic of our retail energy business.

The third quarter is typically characterized by the highest levels of Permian or electricity consumption associated with the peak cooling season, and the lowest levels of per meter gas consumption, which is highly dependent on heating usage.

Our financial results this quarter reflect the exit from our Scandinavian RFP businesses during the quarter.

Results for these businesses are reported as discontinued operations for this and all prior periods.

<unk> results for the year ago quarter also include results from our operations in the U K, which were discontinued in the third quarter of 2021.

Genie posted an exceptionally strong third quarter building on the positive momentum from the first half of the year.

Our results continue to be positively impacted by our decision in late 2021 to optimize the value of our forward hedge book, reducing customer load response to volatility in wholesale electricity prices in the United States.

As a result of our consolidated results include record levels of third quarter gross profit adjusted EBITDA and net income.

As Michael noted, we also continued to return capital to our shareholders through dividends and redemptions of our preferred stock.

Turning now to our third quarter P&L.

Consolidated revenue decreased seven 3% to $81 3 million at GRE sales fell seven 4% to $79 9 million, primarily reflecting reduction electricity sales from our lower electric meter count substantially offset by a combination of higher electricity rates and increased gas sales.

As I noted last quarter gas prices have risen substantially over the past year.

In addition, we're selling more gas after entering new gasoline markets during the year in these markets with targeted relatively high average consumption gas meters, thus, increasing average gas consumption per meter and putting us in a stronger position for the higher gas consumption quarters coming up.

Revenue of Genie renewables increased two 2% to $1 4 million.

Consolidated gross profit increased 24, 7% to $43 1 million and gross margin improved to 53, 1%.

<unk> gross profit increased 26, 6% to $43 2 million and gross margin increased to 54, 1%.

The increase is largely reflect the optimization of our risk management portfolio prior to the onset of the high energy price environment.

Gross loss of Gd renewables was $86000 compared to gross profit of 455000 a year ago.

The results were driven by our ongoing investment to develop the solar generation projects that Michael highlighted in his remarks.

SG&A expense, including corporate overhead increased 14, 3% to $19 6 million, partly reflecting increased project development activities as we grow Geneva renewables.

Consolidated income from operations increased 34, 8% to $23 5 million driven by the strong margins at GRE.

At GRE income from operations increased 39, 1% to $27 4 million.

While our Genie renewables the loss from operations increased to $1 5 million from a loss of 204000, a year earlier, reflecting our initial investments in our promising solar generation projects.

Holiday did adjusted EBITDA increased 35, 2% to $24 $5 million this quarter too.

Through the first three quarters of the year, we have generated $64 7 million in adjusted EBITDA compared to $20 4 million in the same period in 2021.

Net income attributable to Genie energy increased to $18 8 million compared to a loss of $2 3 million in the third quarter of 2021 and earnings per diluted share in the third quarter jumped to 70 from a loss per share of 10 cents and the year ago quarter, turning now to our balance sheet on September 30, cash restricted cash and marketable.

<unk> Securities totaled 87 7 million. This figure does not include an additional $5 5 million held within discontinued operations net working capital was $128 5 million.

Looking ahead genius positioned for a strong fourth quarter GRE, while we continue to invest in building our solar project portfolio at Genie renewables.

Looking ahead to 2023, our balance sheet provides ample flexibility to ramp up customer acquisition efforts to Jeremy when market conditions warrant.

New renewables, we remain very excited about the range and depth of opportunities to do that.

Utility and commercial scale solar projects and related businesses and we are working to ensure that they will generate attractive long term returns for our 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 from Aaron Shafter, Great Mountain cap Aaron Your line is live.

Alright, Thanks, operator, guys congratulations on another very solid quarter.

Really like the.

The improvement in the bottom line and what Youre doing.

On gross margins.

So you noted.

And both the release and today.

You bought back a lot of preferred shares you've basically a recently have the amount of preferred shares.

And your your plan is I guess to to redeem a correct me if I'm wrong, another $1 million each quarter, if you'd do that within less than two years Youll have no preferred shares left saw my corrected that's the projected game plan.

Higher and thanks for the warm wishes.

Yes as of now.

Lord is only authorized and ongoing.

No 1 million a quarter that obviously is subject.

To change at any time.

But that is the current plan, yes, if that would be done.

Would be the preferred to be gone in two years.

Okay, and I see didn't I didn't notice any buybacks or any of the common shares.

If you take this this latest quarter and you put it together you're trailing P is really really low.

The shares look to be a bargain I'm looking at it and because of the amount despite the buybacks and the preferred you've really increased your cash on hand.

If we can expect to see.

Any common share buybacks.

You can share anything on that.

Again, it's something that we always look at.

We do have authority.

Up to a decent amount from from the board to do so and as we've always said, we tried to do pretty opportunistic with our buybacks.

Bye bye as low as possible so sometimes.

We missed some windows here and there.

But that's pretty much what I can say about that.

Okay and.

The solar field that you've.

<unk> talked about that you're about to start.

Building on that.

I'm curious one.

How bad will be financed.

If you have any projected cost and when you see it are eventually adding to the bottom line.

Yes, so most likely it will be financed.

With a combination of equity.

Our equity and.

I get it.

The debt would be would only have recourse to the projected wouldn't be parent level debt.

It wouldn't be encumber any of our other.

Our other profitability.

It would purely be on the project itself.

<unk>.

In terms of when it could start slowing off profitability.

I think we're going to get the approvals this quarter and if we get approval this quarter it could potentially be fully built.

Call it first or second quarter.

And that's when it starts generating revenues as soon as it gets turned on.

So that's the general timeline in terms of the size of the projects I think we will.

We will probably share that at a later date.

Okay.

And you mentioned that.

You've totally exited the Scandinavian market.

I guess before up until this point it had just been Finland, because you've gotten out of Sweden and.

What were your thoughts on deciding to exit that market.

When will we see the two as.

One operation remember, we were operating both entities out of one headquarters.

We just felt like where we are today.

And what what you needed to.

Wind down the businesses. It made sense to continue are considered discontinued operations that doesn't mean that in the six months or nine months. If there is an opportunity for us to start marketing again.

That that we would end, but since we don't have that in the immediate short term.

Plans.

It was.

The accountants.

<unk> position that we should consider with discontinued.

Okay, and finally getting back to your cash on hand.

Any chance of seeing a dividend increase.

Again those are those are.

Topics of conversation, along with buybacks schon that and on the common and the preferred that we have periodically.

At the last board meeting, we did not increase the dividend.

I can't say for sure what's going happen in future quarters.

Alright, thanks, very much I'm correct, congratulations account on another strong quarter.

Thank you.

Your next question for today is coming from Brett Rush at Centennial management.

Hey, guys.

Quick question on the.

Solar business.

We're able to say kind of what you expect in terms of profit margins and then.

Just kind of targeted stabilized cash on cash returns for the solar projects.

Yes, I mean, each solar project is is different and has a different return profile.

Different margin. So I think it's gonna be hard hard to say and also.

The to the extent that we use debt to help finance these projects.

What the interest rates will be at the time, when we're ready to actually take out that loan.

This can be very relevant to <unk>.

Determining the exact financials.

But typically when when we do these these calculations and we look at projects that are interesting to us.

We try to target projects that have IRR is in the high high teens.

Or low 20 so.

<unk>.

We'll see if that comes to fruition.

Each project is a little different.

But that's that's what we're targeting.

Got you and so the IRR is that when you know when you're targeting these high teens IRR.

Is the majority of that IRR coming from.

Current cash or is there some sort of terminal value, that's driving a high percentage of that IRR.

However, you want to take that one.

Yes, sure. So so it's a little bit of a mix.

Part of the reason that these projects are so exciting and can really yield those kinds of returns to the equity is because there's a lot of upfront.

That comes in through the monetization of the tax incentives and various other programs depending on the location, which are orders that come in in the form of.

Actual some are tax and some are just through.

Cashback through two other programs. So it's the ability to find the right capital stacks to minimize the amount of equities that's required to get that cash back on the front end to refinance and then there's some form of a tail and all the projects as well so.

Talking a little bit abstract, but thats that.

The way, we're aggressively approaching it and why we're able to target those.

Active returns.

Got it okay. Thanks, guys.

Sure.

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