Genie Energy Ltd (GNE) 2018 Q2 法說會逐字稿

Good morning, and welcome to Genie Energy's Second Quarter 2018 Earnings Call.

(Operator Instructions)

In its presentation, Genie Energy's management team will discuss financial and operational results for the 3-month period ended June 30, 2018.

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 report that Genie Energy files periodically with the SEC.

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 they forecast.

During their remarks, management may make reference to adjusted EBITDA, which is a non-GAAP measure.

Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position and cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.

Management believes that Genie Energy's adjusted EBITDA provides useful information to both management and investors by excluding certain expenses that may not be indicative of Genie Energy's or the relevant segment's core operating results.

Adjusted EBITDA should be considered in addition to, not as a substitute for or superior to, gross profit, income or loss from operations, cash flow from operating activities, net income or loss, basic and diluted earnings or loss per share or other measures of liquidity and financial performance prepared in accordance with GAAP.

The Genie Energy earnings release, including a reconciliation of adjusted EBITDA to net income, is available on the Investor Relations page of the Genie Corporation website, www.genie.com.

The earnings release has also been filed on a Form 8-K with the SEC.

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 second quarter 2018 earnings call.

Today, we will review our operational and financial results for the 3-month period ended June 30, 2018.

I'll provide a brief overview of our strategic and operational progress.

And then Avi Goldin, our Chief Financial Officer, will discuss the quarter's financial results.

Following Avi's remarks, we will be glad to take your questions.

Now turning to our operational results.

At a high level, we continue to make good progress, realizing the tremendous potential of our Retail Energy Provider, or REP business, while working to complete our oil and gas exploration program.

At Genie Retail Energy, the second quarter is typically characterized by the lowest levels of commodity consumption of any quarter.

With improved margins on both electricity and gas sales and a relatively low spend rate on customer acquisition, we again delivered solid financial results, as Avi will detail to you shortly.

Operationally, gross meter acquisitions by Genie Retail Energy in the U.S. during the second quarter increased from 55,000 meters added in the first quarter to 57,000 in the second quarter, though that total was below the 98,000 meters we acquired in the year-ago quarter.

Over the past several quarters, we have pulled back our customer acquisition program in certain states, particularly New York, to mitigate regulatory risk and, overall, have focused more selectively on relatively higher-consumption customers.

I expect that we will continue to see a gradual increase in our rate of gross meter adds during the second half of the year and that these new customers will yield greater lifetime value than our historical average.

Our targeted meter add programs are helping to diversify our U.S. customer base geographically.

As a result, we are less concentrated in the states where we first launched our business, New York, Pennsylvania, New Jersey, than we have been historically.

The lower rate of U.S. customer acquisitions in recent periods helped us to reduce the average monthly customer churn during the quarter to 5.7%, since newly acquired customers tend to have higher rates of churn than those with longer tenures.

The 5.7% rate is a significant decrease from the 7.6% rate in the prior quarter when we relinquished low-income customers in New York to comply with the New York Public Utility Commission's order.

It's also significantly lower than the 6.3% rate we recorded in the year-ago quarter.

In fact, this is the first quarter we have achieved an average monthly churn rate for a quarter of under 6% in a couple of years, and I believe we can do even better.

Later this year, we will implement new customer retention programs that I expect will further dampen churn and increase average customer tenure.

At June 30, our U.S. meter customer count was 363,000, a decrease of 10,000 meters from the count at March 31.

However, our focus on high-value customers resulted in a much slighter reduction in our RCEs, which decreased by just 2,000 to 283,000.

Partly, as a result of this transition, we saw average electric and gas meter consumption increase by double digits compared to the year-ago quarter.

Those of you who have been following the company will recall that we are carefully working to expand our operations overseas when we identify significant growth opportunities.

In Great Britain, we are working with our JV partners to ramp up customer acquisitions and, so far, that is going pretty well.

We also expect to enter an additional international market in the second half of the year.

Turning now to our oil and gas exploration operations.

During the second quarter, we obtained the extension of the exploration license necessary to complete testing in the Northern portion of our former licensed area proximate to our completed Ness 10 well.

We are working to obtain the requisite permits and other regulatory approvals.

While we continue to focus our business on Genie Retail Energy, we are taking prudent steps to follow up on the intriguing Ness 10 results, while keeping a close eye on the result and expenditures.

Also in Israel, following the quarter close, we believe that we are close to reaching an agreement to restructure Atid, our drilling services startup.

Under the proposed terms, we would significantly reduce our anticipated residual cash expenses, while retaining access to its expertise and capabilities.

To wrap up, the first half of 2018 was extremely productive, as we continue to narrow our strategic focus to Genie Retail Energy.

Second quarter results were solid and consistent with seasonal consumption patterns, and we are well positioned for a strong second half of the year.

Now here is Avi Goldin to discuss our 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 second quarter of 2018, the 3-month period ended June 30.

Throughout my remarks, I'll be comparing this quarter's results to the second quarter of 2017.

Focusing on the year-over-year rather than the sequential comparisons removes from consideration the seasonal factors that are characteristic of our retail energy business.

Typically, the second and fourth quarters are characterized by significantly lower levels of electricity consumption than the first and third quarters, and gas consumption peaks in the first quarter, with corresponding impacts on our top and bottom line.

The second quarter of 2018 was a solid quarter financially for Genie Energy's core operations and in line with our expectations.

Two quick notes before I present the results in more detail.

First, in the second quarter of 2017, Genie Retail Energy accrued $9 million related to the settlement of certain class action lawsuits, which reduced GRE's revenue by $3.6 million, $3.1 million in electricity revenue and $500,000 in cash revenue, to reflect expected customer refunds, while increasing SG&A by $5.4 million for legal expenses.

This should be kept in mind when evaluating year-over-year comparisons.

Second, the decision to explore strategic options for our Atid drilling subsidiary resulted in the consideration of the asset as held for sale, which triggered an impairment charge of $2.3 million in our GOGAS segment during the second quarter.

As Michael mentioned, we have entered into a agreement in principle to restructure Atid.

Revenue increased to $56.4 million from $50.2 million, reflecting both the revenue reduction in the year-ago quarter for legal settlements of $3.6 million and increased revenue per unit sold electricity and on a much smaller volume of natural gas.

The volumes of commodity sold were relatively constant.

Kilowatt hours sold increased 0.10%, while therms sold decreased to 2.5%.

Gross profit increased to $16.1 million from $12.1 million, driven by strong electricity and gas margins.

Consolidated SG&A expense decreased to $15.4 million from $24.7 million.

As mentioned earlier, the 2 most significant factors in the decrease were the $5.4 million accrual for legal expense in the year-ago quarter and the reduced customer acquisition expense.

Exploration expense decreased $934,000 compared to the year-ago quarter to just $17,000 in the second quarter of 2018.

We anticipate that exploration expense could increase if we are able to secure the permits for the testing at the Ness 10 site that Michael referred to in his remarks.

Our loss in the equity of our JV operating in Great Britain increased to $716,000 from 0 in the year-ago quarter, as we began to ramp up customer acquisitions there.

Our consolidated loss from operations was $2.3 million in the second quarter compared to $13.6 million in the year-ago quarter.

Our loss from operations included the impact of a $2.3 million impairment resulting from the write-down of our drilling assets that I mentioned earlier.

Consolidated adjusted EBITDA was positive $1.8 million compared to negative adjusted EBITDA of $11.9 million in the second quarter of 2017.

Genie Retail Energy contributed $3.8 million of adjusted EBITDA in the second quarter, bringing its total contribution for the first half of the year to $14.7 million.

In the second quarter a year ago, the legal settlements and related accrual, combined with aggressive acquisition of new meters and significant exploration expense, all were factors in the loss per share of $0.55.

This quarter, we significantly improved our bottom line results with the loss per basic and diluted share of $0.09, including our investment in the Great Britain joint venture and the impairment resulting from the write-down of our drilling assets.

Our steady financial performance in the recent quarters and the $6 million invested by Howard Jonas and another investor this quarter helped strengthen our balance sheet.

A year ago, we reported cash, cash equivalents and restricted cash of $35.2 million and working capital of $39.6 million.

At June 30 of this year, we reported $44.4 million in cash, cash equivalents, restricted cash and working capital of $45 million.

To sum it up, while the second quarter's low consumption levels are always challenging, Genie Energy delivered a solid quarter financially and its balance sheet, already very strong, continues to improve.

Based on our financial and operating results this quarter, our Board of Directors again declared a quarterly dividend of our common stock of $0.075 a share.

That concludes my remarks on the second quarter's financial results.

I will now turn the call back to the operator for Q&A.

(Operator Instructions) Our first question comes from Aaron Shafter of Great Mountain Capital Management.

The first question is do you have any per share figure, excluding the onetime charges for this quarter?

Sorry, the onetime charge on the rig impairment?

The rig impairment, the legal settlement, the other things that seem to be onetime charges.

So the legal settlement did not impact this quarter.

We presented that because it was in the year-ago quarter, so the only onetime charge affecting this quarter was the rig impairment.

Okay, for Atid.

Okay.

And do you have any figure on that exactly, what that would mean per share?

On a per share basis?

Yes.

So the rig impairment was $2.3 million.

So it should be around negative $0.01, if I'm not mistaken.

Okay.

And related to the permits and for Afek, your -- it says that you're in the process of securing the permits and other regulatory approvals.

Maybe just go on to the testing.

Can you expand on that at all?

How long do you expect that to take?

When do you expect to be able to get to the testing?

Anything more that you can share?

Yes, it's hard to know exactly when -- when exactly we might get that permit.

As you recall, there's a license that the government of Israel gives out for the exploration.

That's the license from the Energy Ministry, which we have.

We got that renewal.

And then there's a local permitting authority in the Northern region that decides whether or not we can do the work and how we can do the work, et cetera.

We are expecting some kind of guidance from them, I think in the next few weeks.

But I think it's too early to tell when we might actually get started.

And anything more that you could share on what testing that you plan to do once -- assuming that you get the permits and approvals?

Not specifically.

What we've been able to discuss with shareholders is that this is going to be a much smaller level of testing than what we've done in the past when we've -- when we're doing to -- looking to do testing and that is something that we don't expect to sort of reach the materiality levels that we've seen before.

But we don't have the specifics on the work plan to discuss.

Yes.

One of the reasons why we mentioned the restructuring in mine and Avi's remarks of Atid drilling is what we're trying to do is minimize any ongoing cash expenses between now and when we actually get to do the work.

So that once we get to do the work, whether it's in a month from now, whether it's in 3 months from now, in the meantime, we won't be spending any cash and we won't have to worry about finding the resources to get it done.

That is the purpose of the restructuring.

Our next question comes from [Anthony Marchese], a private investor.

Could you shed a little bit more light on your entrance into a new electricity market?

Is it domestic?

Is it overseas?

Have you incurred any expenses, thus far?

Or will we see any expense ramp-up when you do enter that market?

Yes, so when we enter a new market domestically, a new state, in most cases, there's very little capital costs associated with entering those new markets, except for just actual marketing, which is just dollars spent on acquiring customers, which should be no different in that new market than it is in the current market.

That's not always the case.

But in our -- the 14 states that we're in and most of the states that we plan to enter, that is the case.

There are states, though, that require slight -- some upgrades to our operational -- our operations in our back office, but we don't expect those to be huge expenses.

Internationally, I think things are very different because you got to start an operation from scratch.

So in this quarter, we spent $700,000 in our JV in the U.K. We expect to continue to invest mostly at this point in customer acquisition.

The operation's already there.

The personnel are already there.

We already have a few thousand meters in that -- in England, and we expect that to grow.

That's true about any international market, unless we're using the U.K. operation as our base, which is not what we're thinking in the foreseeable future.

It will be a little bit difficult to do that for a whole number of reasons.

Okay.

So is your new market domestic or international?

We have -- we did enter an international -- we did enter an international market.

We acquired a shell with a license in Japan, and we expect to start marketing there by the end of the quarter -- by the end of the year, sorry.

Okay.

And is it -- I realize -- is the new market, in your minds, a comparable to England?

Larger or smaller?

In terms of market size, it's much larger.

I see.

Okay, great.

And final question, I know you guys have a buyback program.

Have you purchased any stock or are you just focusing on conserving capital for your business expansion?

So we have not purchased any stock under the buyback program to date.

As you correctly pointed out, we have a lot of exciting opportunities, as Mike pointed out, internationally and also domestically as we look to grow the business.

And so for right now, we've been looking to conserve capital.

(Operator Instructions) This concludes our question-and-answer session and the conference call.

Thank you for attending today's presentation.

You may now disconnect.