Genie Energy Ltd (GNE) 2019 Q1 法說會逐字稿

Good morning, and welcome to Genie Energy's First Quarter 2019 Earnings Call.

(Operator Instructions)

In this presentation, Genie Energy's management team will discuss financial and operational results for the 3-month period ended March 31, 2019.

Any forward-looking statements made during this conference call, either in the prepared remarks or in the question-and-answer 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 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.

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 segments' core operating results.

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.

(Operator Instructions) Please note this event is being recorded.

I would now like to 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 first quarter earnings call.

Today, we will discuss our operational and financial results for the 3-month period ended March 31, 2019.

Our remarks today will focus on our business strategy and operational results.

Avi Goldin, our Chief Financial Officer, will follow with an overview of our financial results.

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

The first quarter was notable for strong operational progress across the enterprise.

At our core retail energy supply business, we significantly expanded and diversified our customer base.

In the U.S., we increased our meter base by 29,000 meters and 48,000 RCEs to 344,000 meters and 300,000 RCEs, respectively.

We saw similarly strong growth overseas where our meter and RCE counts increased by 47,000 and 29,000, respectively.

Our global meter count is now 399,000, and our global RCE count stand at 333,000.

The increase in our customer base was facilitated by the meters acquired through our purchase of a majority stake in the Finnish retail energy supplier, Lumo Energia, on which we closed in January; continued organic meter acquisition at Orbit Energy, our joint venture in the U.K.; and here in New Jersey, where we closed a municipal aggregation deal during the first quarter, which added approximately 35,000 meters.

We also benefited from strong execution in our domestic sales channels.

We expect the growth trend to continue this year.

Across our retail energy business, we have been focused on the acquisition of relatively higher consumption meters, especially here in the U.S. That effort has been paying off.

At March 31, 2018, we averaged 0.76 of RCE per meter.

A year later, we have increased that ratio to 0.83 of RCE per meter.

The increase has improved our return on investment and enhanced our unit economics.

Looking ahead to the second quarter, we expect that we'd be testing the retail market in Texas.

Texas is one of the country's largest and most dynamic retail energy markets with over 7 million residential and commercial electric meters.

We will start by launching a strong offering for friends and family very soon and then tailor our approach to specific localized geographies within the larger market as we roll out.

Overseas, our Orbit Energy JV and Lumo Energia continue their drives to add new meters, and Genie Japan is ramping up its customer acquisition engine.

Outside of our current footprint, we are exploring avenues to leverage our existing international operations to open new markets while minimizing our need for additional overhead investment.

Turning now to Genie Energy Services.

The acquisition of Prism Solar in the fourth quarter of last year drove a strong increase in the first quarter service revenue.

Prism Solar has a robust pipeline of solar projects from our key commercial customer and terrific potential to build on its early success by adding additional blue chip and other clients, who prefer domestically sourced solar solutions.

Powered by Prism's operations, GES generated over $5 million in revenue and turned EBITDA positive for the quarter, and I expect it will become a larger contributor to our top and bottom line as its business continues to grow.

Overall, our operational results in the first quarter were very strong while demonstrating fantastic growth across our retail and service businesses.

As Avi will detail for you, we accomplished all this by delivering increased levels of consolidated income from operations and adjusted EBITDA.

I'm very pleased with the start to 2019 and look forward to reporting continued progress throughout the year.

Now here is our Chief Financial Officer, Avi Goldin, to discuss the first quarter's 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 3 months ended March 31.

Please note that we have modified our segment disclosure this quarter following the acquisition of Lumo in Finland to better reflect how we manage our businesses.

We are reporting a new segment, GE Retail Energy International, or GRE International, which will consist of our overseas retail energy provider operations.

These businesses currently include our stake in the Orbit Energy venture, which operates in the U.K., Genie Japan and Lumo.

Our domestic retail energy provider business will continue to be reported within Genie Retail Energy, or GRE.

We will also continue to report as segments Genie Energy Services, or GES, which holds our solar businesses and Diversegy brokerage business; and Genie Oil and Gas, which holds Afek, our currently suspended oil and gas exploration project in Northern Israel and our minority position in Atid, a drilling services company also located in Israel.

Throughout my remarks, I will compare the first quarter 2019 results to the first quarter of 2018 focusing on the year-over-year rather than sequential comparison removes some consideration of seasonal factors that are characteristic of our retail energy business.

Typically, the first quarter captures most of the winter's peak heating season, generating strong consumption for both natural gas and electricity.

Consolidated revenue in the first quarter decreased to $86.6 million from $89.3 million.

The decrease largely reflects a $12.2 million decline in GRE revenue, primarily reflecting a decline in the average number of domestic meters served.

The decrease was offset by $4.8 million in revenue contributed by GRE International following the Lumo acquisition early in January; and by GES, where the Prism acquisition in the fourth quarter last year helped to drive an increase of revenue to $5.3 million in the quarter.

Consolidated gross profit in the first quarter increased slightly to $25.6 million from $24.5 million.

Stronger gross margins on domestic natural gas and electricity sales more than overcame the impact of the revenue decline to boost GRE's gross profit by $500,000, while the gross profit contribution of GES increased by $650,000.

Consolidated SG&A expense decreased to $15.8 million from $17.1 million.

The decrease was driven by reductions in GRE's customer acquisition expense, GOGAS overhead expense and lower corporate stock-based compensation.

For the third consecutive quarter, oil and gas operations expense was $0 as Afek suspended operations pending the issuance of permits for the final well testing plan to conduct.

That compared to $227,000 of exploration expense in the year ago quarter.

Equity in the net loss of interest in which we use the equity method to report results, including Orbit Energy and our minority stake in Atid, was $797,000 compared to $506,000 in the first quarter of 2018.

We are continuing to invest in Orbit Energy as it builds its customer base in the U.K.

Our consolidated income from operations increased to $9.8 million from $7.1 million in the year ago quarter, while adjusted EBITDA increased to $10.4 million from $8.6 million.

The increases reflect in part the factors I mentioned earlier: reduced domestic customer acquisition expense, stronger domestic retail gross margins and decreased corporate-level stock-based compensation, all of which more than offset the impact of our continued investment in new meter acquisitions overseas.

GRE contributed income from operations of $13.5 million, an increase of $2.5 million compared to the year ago quarter and contributed $10.4 million in adjusted EBITDA, a year-over-year increase of $1.8 million.

EPS for the quarter was $0.21 compared to $0.24 in the year ago quarter as our provision for income taxes increased to $2.9 million from $799,000 in the quarter -- in the first quarter of 2019 due in large part to the adjustment to the allowance on the deferred tax asset.

Our balance sheet remains strong.

At March 31, we reported $154.2 million in total assets, including $44.5 million in cash, cash equivalents from restricted cash.

Liabilities totaled $55.9 million.

Working capital, current assets less current liabilities, was a robust $51.7 million.

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

To wrap up, although we invested significantly to grow our global customer base in the first quarter, as Michael discussed in his remarks, we achieved strong financial results headlined by robust year-over-year increases in income from operations and adjusted EBITDA.

Looking ahead, our growing meter base, diversified operations and strong liquid balance sheet gives us plenty of flexibility to continue to pursue the abundant growth opportunities ahead.

Now I'll turn the call back to the operator for Q&A.

(Operator Instructions) And our first question comes from Mike Heim of NOBLE Financial.

Great quarter.

Good to see the growth there.

As I kind of look at the revenue lines, real strong growth in the electric, a little bit of a drop in the gas.

Can you tell me the New Jersey acquisition?

Did that tend to be more electric-related and electrically related?

And the gas drop, can that just be attributed to a drop in gas prices and milder temperatures?

Or just a little more color on the retail energy by category.

Sure.

This is Avi.

So the aggregation deal that you're referring to in New Jersey was -- is primarily more on the electric side, so the mix there is as you mentioned.

But what we saw in this quarter was a little bit of a shift in mix from the electric side to the gas side as you're seeing in the meter base, also lower consumption, just given -- driven by some weather factors and also a somewhat smaller natural gas meter base than we had in the same period last year.

Okay.

And then as we look at the addition of Prism, help me understand that business a little bit.

Is there any seasonality with that?

Or is the $5 million in revenue kind of a good fully estimate to be grown by some of these new pipeline?

What's in the pipeline that you described?

This is Michael Stein.

Thanks for the question.

So there's no seasonality effect on the Prism business.

We're not ready to give guidance on what to expect on a consistent basis.

We are excited by the pipeline.

We are excited by the business, but since it's pretty new, and we're still integrating it into our general business, we're just not ready to give the guidance.

Okay.

That's fair.

I'm not necessarily looking for guidance.

But can you just talk a little bit more when you say new stuff in the pipeline?

What exactly that means?

Yes.

It just means more large commercial customers.

Okay.

All right.

And then as we talk about Texas, you talked about the second launch and some of the new friends and family.

What -- can you add a little more color on what the next stage would be?

What the next state would be?

Was that the question?

No.

Next stage in terms of helping kind of roll out?

And when we can start to see some data on customers being added, et cetera?

Yes, sure.

So typically, whenever we go into a new market where the offering and the structure of the offering is different than other markets we've been in, we do a soft launch with friends and family.

Usually, that lasts a month or 2 just to make sure that we've kicked the tires on our systems and ironed out any of the kinks.

And then we go out and we market intensely.

Our next question comes from Aaron Shafter of Great Mountain Capital Management.

Congrats on another very strong quarter.

If I heard correctly, there was a decrease in meters domestically.

Is that correct?

No.

I think Avi was referencing that where we were the -- in, let's say, the previous year, Q1 2018, to where we are today, there may be a smaller meter base on the gas side.

But in general, quarter-over-quarter, we saw a very, very significant increase in our meter base.

Okay.

All right.

Because that didn't make sense to me.

Bad hearing, I guess.

My question -- I've a question about Texas.

In the press release, you said you expect it to launch in the second quarter.

We're up 40-some percent into the second quarter.

I'm wondering if you can be any more definitive than that.

We still expect to take on those first customers in the first -- in the second quarter.

Okay.

You don't -- do you have any planned launch date?

Or is it just -- are you just saying the second quarter?

No.

We expect to bring on our first customers this month.

Okay.

And then as far as Afek and the project in the Golan, at the last -- during the last kind of earnings call, you said that you expected, if I recall correctly, permitting and testing to be done in the first half of the year.

We're getting closer to that.

And I'm wondering if you can give any update on how the permitting process is going.

And when you -- if you have any expected -- when do you expect to get that and complete -- be able to complete the testing?

I think we are, from permitting perspective, we expect to be able to do our test in short order.

We've gotten clearance.

The stage that we're at right now, which we've ordered some of the long-lead item pieces of equipment that we need to run the test.

Obviously, as we've said in past quarters, we don't expect this test to be a significant material expense, but it is something we want to do to make sure that we've done a completely thorough analysis on our findings there.

So first half of the year completing the test, I'm -- we might -- that might slip a little bit, but everything else we've said is -- we expect to happen.

Okay.

So you've gotten the permits, and now you're waiting on the equipment to conduct the test.

Is that correct?

Yes.

(Operator Instructions) Our next question comes from [Kevin Schneider], of -- a private investor.

Gentlemen, could you explain the mechanics of the municipal aggregation agreement?

How exactly does that work?

Are you bidding against other companies for customers?

Yes.

Typically, the municipal aggregations, we bid against other customers, and they are for a fixed period of time.

And we have found an ability to renew those aggregation deals when the expiration has come due because the municipality and the company that was brokering the deal is comfortable with us.

But yes, generally speaking, it's a competitive bid.

This concludes our question-and-answer session and the conference call.

Thank you for attending today's presentation.

You may now disconnect.