Genie Energy Ltd (GNE) 2019 Q4 法說會逐字稿

Good day, and welcome to Genie Energy's Fourth Quarter and Full Year 2019 Earnings Call.

(Operator Instructions) In its presentation, Genie Energy's management team will discuss financial and operational results for the 3- and 12-month periods ended December 31, 2019.

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 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 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 pro forma revenue and income loss from operations and to adjusted EBITDA, which are non-GAAP measures.

Management believes that Genie Energy's pro forma revenue, income, loss from operations and adjusted EBITDA provide useful information to both management and investors.

The Genie Energy earnings release, including a reconciliation of the pro forma results to their respective GAAP results and of adjusted EBITDA to net income, is available on the Investor Relations page of the Genie corporation website at 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 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 Earnings Call.

Today, we will discuss our operational and financial results for the 3-month and 12-month periods ended December 31, 2019.

Avi Goldin, our Chief Financial Officer, will follow my discussion with a deeper dive into the quarter and full year's financial results.

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

Results for the fourth quarter and the fiscal year 2019 reflected our commitment to grow our Retail Energy business to further diversify geographically across regulatory jurisdictions and energy markets and to return value to our shareholders.

I'm very pleased with the progress we made in each of those 3 areas, and believe we are well positioned for a strong 2020.

Those of you that have followed us for a while know that the first 3 quarters of the year were very strong from a newer acquisition perspective.

Although the fourth quarter is typically the most challenging from a gross meter acquisition standpoint because of the holidays and weather, we ended 2019 at 374,000 RCEs, an increase of 46% compared to a year earlier.

That's our highest RCE level ever at year-end.

Our full year 2019 year growth was even more impressive.

At year-end, we reached 497,000 meters, our highest level since 2012, and a 54% increase from the level a year earlier.

Our growth was balanced across the United States and international markets.

We added 56,000 net domestic RCEs and 61,000 overseas in 2019.

At December 31, we served 309,000 RCEs here in the U.S. and 65,000 RCEs between the U.K., Finland and Japan.

International RCEs comprised 17% of our global customer base at December 31.

This robust growth reflects our sustained investment in meter acquisition with an emphasis on new markets and focus on churn reduction.

At GRE, our domestic retail energy provider, gross meter adds in the fourth quarter were 56,000, an increase from 45,000 in the year-ago quarter.

Expected seasonal factors, including the holidays and colder weather drove a sequential decrease in gross meter adds from 76,000 in the third quarter.

Gross meter adds have picked up so far in the first quarter of 2020, and we are working to continue the trend.

We entered the very large and dynamic market in Texas in the second quarter of 2019, and our Southern Federal brand is beginning to pick up steam there.

Looking ahead, we expect to enter certain natural gas territories in Michigan early this year.

We'll also expand our brand presence in Connecticut, and we are exploring an opportunity in Georgia.

GRE's churn in the fourth quarter dropped to 6.1% compared to 7.1% a year earlier.

In the year-ago quarter, the churn rate included the impact of the expiration of a municipal aggregation deal.

Backing out the impact from the event, churn would have been constant year-over-year at 6.1%.

The fact that we added over 100,000 meters more gross in 2019 than we did in 2018 but were able to maintain comparable rates of churn indicates that we are making good progress in our effort to extend average customer tenure.

At GRE International, we again invested significantly to expand our customer base at Orbit Energy, our JV operating in the U.K. We are hoping that Orbit is now adequately capitalized to continue to grow and operate for the foreseeable future.

In Finland, Lumo Energia continued to successfully grow its book without requiring an additional cash infusion for the day-to-day operations.

In the fourth quarter, we increased our ownership from 80% to 90% of the business by buying out one of the company's founders.

As we have said before, we intend to leverage Lumo's infrastructure to address other countries in the Scandinavian market.

And in fact, we expect to acquire our first Scandinavian customers outside of Finland this month.

Genie Japan has just begun to ramp up its customer acquisition program.

And so far, we are very early in the process, still, has produced solid results.

In our Genie Energy Services, or GES business, our energy advisory service, Diversegy, achieved an important milestone becoming net income positive in the fourth quarter.

And we look for it to be net income positive on a go-forward basis.

Prism Solar, on the other hand, has not met its targets, and we have begun streamlining its operations in order to return it to profitability.

On a consolidated basis, we invested significantly to pursue growth opportunities and diversify our business in 2019, while still delivering strong financial results and returning value to our shareholders.

Our strong performance and liquid balance sheet enabled us to repurchase an additional 262,000 shares of our outstanding Class B common stock for $2.2 million during the fourth quarter.

During the full year 2019, we repurchased $5.6 million worth of stock or 2.7% of our common shares outstanding and paid an additional $9.6 million in dividends to our common and preferred stockholders.

We are proud of our record of returning value to our shareholders and look forward to continuing to produce significant growth and shareholder returns in 2020.

Now with more on the quarter's financial results, here is our Chief Financial Officer, Avi Goldin.

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- and 12-month periods ended December 31, 2019.

Throughout my remarks, I compare the fourth quarter 2019 results to the fourth quarter of 2018 and the full year 2019 results to full year 2018.

Regarding our quarterly results, focusing on the year-over-year rather than the sequential comparison, removes from consideration the seasonal factors characteristic of our Retail Energy business.

The fourth quarter is a shoulder quarter, with relatively modest levels of per meter consumption falling between the peak cooling season in the third quarter and the peak heating season in the first quarter.

Picking up where Michael left off.

The fourth quarter's financial highlights included a record level of revenue, significant year-over-year revenue and gross profit increases and increased investment in customer acquisition costs, especially in our international markets.

Income from operations and adjusted EBITDA improved substantially from the year-ago quarter.

EPS decreased slightly on an increased provision for income taxes.

Our continued performance allowed for the additional fourth quarter buyback that Michael mentioned and enabled us to continue our quarterly preferred and common stock dividends.

Consolidated revenue in the fourth quarter increased $19.2 million year-over-year to $82 million, the highest level of revenue we have generated in any fourth quarter in our history.

The increase is primarily a result of growth in our domestic meter base and a shift to higher consumption meters as well as the meter growth at Genie Retail International.

Full year revenue increased by $35 million to $315.3 million in 2019, reflecting increased revenue at both GRE International and Genie Retail Energy.

In the fourth quarter, Genie Retail Energy, our domestic energy supply business, contributed $74 million of revenue, an increase of $15.2 million compared to the year-ago quarter, reflecting growth in our meter base and a shift toward higher consumption meters.

At Genie Retail International, the acquisition of Lumo in January, subsequent expansion in growth at Genie Japan, enabled us to achieve revenue in the fourth quarter of $5.8 million and full year revenue of $16.6 million.

GRE International had no revenue in 2018.

As discussed in our earnings release, we account for the results of Orbit Energy, our joint venture operating in the U.K. using the equity method, and its results of operations are not consolidated in our revenue, gross profit and SG&A.

Our Genie Energy Services division generated revenue of $2.1 million compared to $4 million in the year-ago quarter.

The decrease reflects the timing of delivery of solar panels within the Prism Solar business.

Consolidated gross profit in the fourth quarter increased $7.2 million to $22 million, substantially all of it generated at Genie Retail Energy as a result of increased electricity consumption and decreased electricity supply costs.

For the full year 2019, gross profit increased $6.4 million to $82.9 million primarily because of increased per meter electricity consumption in Genie Retail Energy, driven by the shift to higher consumption meters.

In the fourth quarter, increased rates of customer acquisition at both GRE and GRE International drove a $4 million increase in consolidated SG&A expense to $19.2 million.

The full year increase in SG&A expense was $10.9 million to $72.5 million.

Equity in the net loss in equity method investees, which is comprised of Orbit Energy and our minority stake in Atid, increased to $2.7 million for the fourth quarter from $1.3 million in the fourth quarter of 2018.

The increase reflects the timing of additional capital we provided to finance Orbit Energy's meter acquisition program.

The full year net loss increased $1.4 million to $4.8 million.

We are hopeful that Orbit Energy now has sufficient capital to conduct its meter acquisition program during 2020.

Our consolidated income from operations was $2.3 million compared to a loss from operations of $458,000 in the year-ago quarter.

The increase in gross profit generated by Genie Retail Energy was only partially offset by increases in GRE's customer acquisition expense and the increased loss from equity of equity method investees.

The full year 2019 income from operations was $9.8 million, a year-over-year decrease of $2.2 million.

Adjusted EBITDA for the quarter was $815,000, an increase of $1.3 million compared to the year-ago quarter.

Full year adjusted EBITDA decreased $7.8 million to $10.1 million, primarily as a result of increased customer acquisition expense at GRE and GRE International.

We recorded no net income in the fourth quarter compared to EPS of $0.47 in the year-ago quarter, when we recorded a onetime $14.1 million benefit from income taxes.

The tax benefit was also the main driver behind historically high EPS of $0.83 per share in 2018.

EPS in 2019 was $0.10 per fully diluted share.

Our balance sheet remains strong.

At December 31, we reported $156.2 million in total assets, including $38.6 million of cash, cash equivalents and restricted cash.

Liabilities totaled $75.3 million, of which just $3.2 million were noncurrent, and working capital totaled $40.8 million.

The strength of our balance sheet and underlying performance enabled us to again repurchase shares in the fourth quarter.

For the full year, we bought back 2.7% of our outstanding common stock for $5.6 million and paid an additional $9.6 million in dividends to holders of our common and preferred stock.

And speaking of dividends, our Board of Directors again declared a quarterly dividend on our common stock of $0.075 a share.

To wrap up, fourth quarter revenue was the highest for this shoulder quarter in the company's history and a significant increase from the year ago, largely because of our investments in meter-based growth, new markets and higher consumption meters.

Gross profit was robust, but its impact is balanced by significantly higher rates of new customer acquisition.

Nevertheless, income from operations and adjusted EBITDA improved significantly compared to the year-ago quarter.

This capped off at 2019, where we successfully balanced meter growth with underlying financial performance that was in line with expectations.

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

(Operator Instructions) And our first question will come from Aaron Shafter with Great Mountain Capital.

Congratulations, gentlemen, on a quarter of good solid customer acquisition and a great year of strong customer growth.

I'm wondering if -- everyone is talking about coronavirus, if you can tell us if there's any impact, if any, of coronavirus on Genie's operations and earnings.

Aaron, thanks for the -- for calling in, and thanks for the question.

We have not yet seen any material impact from the coronavirus on our activities so far this year, 2020.

Obviously, that could change.

We have included a few business-related risks due to coronavirus in our 10-K.

And one of them would be potentially seeing a slowdown in door-to-door sales.

Other than that, I can't think of anything.

But like I said, to date, we haven't seen a slowdown in sales.

Okay.

And the coronavirus has caused a lot of fear in the market to sell-off in the stocks in general.

I attribute at least the sell-off in Genie to that type of fear.

You mentioned -- you talked about the stock buyback program.

I'm wondering if you can tell us anything about future stock buybacks, if any are planned, and how you see the decline in stock as an opportunity to purchase shares back cheaply?

So we do have the authority from the Board to continue our buyback program, and we'll continue to assess as things go on in the market.

Yes, as you know, we did buy back a lot in the year of 2019.

And one of the goals of 2020 is to build back our cash hoard, put it on the upward trajectory again.

So I would say there's always a possibility that we're doing buybacks.

But today, as of this time, we are not doing one right now.

Right.

And finally, I'm wondering if you can share anything, tell us anything more about Afek.

The press release really doesn't say much, except it's expected in the first half of 2020.

On the last call, you had explained that the drill that was being used by Atid had been -- had some problem, and that was why the program really couldn't begin to -- the testing program.

I'm wondering if you can tell us anything more?

Yes.

So that's true.

The drill was experiencing some delays, and the well test was pushed off as a result.

But we do still believe that we're going to get the well test done before the first half ends, meaning in the second quarter.

And you can't be -- give us any more than just that?

Or is that -- are you just being -- you want to be cautious?

Yes.

I am hesitant to just because we've experienced all these delays.

And we were hoping to get this done a long time ago.

And a number of factors, permitting, scheduling with some of the people who use the land during the -- throughout the year, namely the army and the rig, the rig having some trouble.

I'm just hesitant to put anything definitive, but we really do believe that it's -- that we should get it done in the second quarter.

(Operator Instructions) And our next question comes from Mike Heim with NOBLE Financial.

Michael, you made some comments about how the churn rate was perhaps a little abnormally large this time.

And I didn't quite catch the reasoning behind that.

Could you repeat that?

So I think I was -- I think I mentioned that last year, it was abnormally high.

Last year was abnormally high because of a regulatory requirement to drop some customers.

Sorry, not as -- that wasn't the regulatory requirement.

We -- our churn was abnormally high last year because we had an aggregation deal.

An aggregation deal is when an entire municipality opts in to take service from us, and it's a fixed time period that we serve them for.

And when that time period ends, they all drop at once.

So when you normalize for them, meaning when you exclude them, our churn rate in the fourth quarter of 2018 and our churn rate in the fourth quarter of 2019 was just about even.

Okay.

And then there was a small impairment of goodwill, not a big number, but can you just kind of explain what that was?

Sure.

So that was within the -- within Prism Solar, from the acquisition.

As Michael referenced, the business, while it's something that we're excited about, hasn't been performing as expected.

And we're working on some future planning that required a small goodwill impairment.

Yes.

You -- as long as we're talking about Prism, you mentioned streamlining operations.

Can you expand upon what that exactly means?

Sure.

We've -- we essentially just tried to cut some expenses.

We parted ways with the CEO, trying to bring in a different vision for the business.

So on a go-forward basis, the expenses should be lower.

And hopefully, we'll focus on the bread and butter of sales.

Okay.

And then finally, just want to kind of gauge your comfort level on the losses that the JV -- it's certainly understandable as you expand into new areas, but how do you see those turning to gains?

Is it a question of onetime costs as you enter new areas or brand recognition needs to be established per year?

Or is it more a case that you expect them to be slow gradual gains towards profitability?

So the international businesses, I guess, I'll speak to them as a unit, not just the JV, if that's okay.

The international businesses generated on a pro forma basis, meaning when you -- if you were to consolidate Orbit in the U.K. business, into Genie International, the business did just north of $47 million of revenue, basically, more or less from a standstill at the beginning of 2019.

So we're pretty excited about the potential and the rapid growth that we've been able to achieve there.

In the -- in our business, the retail supply business, acquiring customers is expensive.

And you need a critical mass of customers in each jurisdiction to help offset, not just the G&A costs but the additional acquisition costs you do as you try to grow the business.

So of the 3 international projects that we have, they're all different -- they're all at different -- they're kind of operating at different paces.

I would say the U.K. business and the Scandinavian business have some critical mass that will help them achieve profitability a little bit faster.

We are hoping that in the U.K., we turn the corner toward profitability towards the end of the year.

We expect the Scandinavian market to be profitable this year.

And Japan, we expect to continue investing.

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

Thank you for attending today's presentation.

You may now disconnect.