Genie Energy Ltd.

Good day and welcome to Genie Energy's third quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. In this presentation, Genie Energy's management team will discuss operational and financial results for the three-month period ended September 30, 2020. 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 FCC. 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 and pro forma revenue and pro forma income from operations for its Gini Retail Energy International segment, Both are non-GAAP measures. Management believes that Genie Energy's measure of adjusted EBITDA and Genie Retail Energy International's pro forma results provide useful information to both management and investors that supplement Genie Energy and the Genie Energy Retail International segment's core operating results. The Genie Energy earnings release includes a reconciliation of adjusted EBITDA to net income and of the pro forma Genie Retail Energy International results to their nearest comparable gap measures. The earnings release is posted on the investor relations page of the Genie Corporation website, www.genie.com, and has been filed on a form 8K with the SEC. After today's presentation by Genie Energy's management, there will be an opportunity to ask questions. To ask the question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. 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 third quarter 2020 earnings call. Today we will discuss our operational and financial results for the three months ended September 30th, 2020. As in prior quarters, my remarks will focus on our operational results and key performance indicators. Avi Golden, our Chief Financial Officer, will follow the deeper dive into the quarter's financial results. Following Avi's remarks, we will be glad to take your questions. Genie Energy added 21,000 net RCEs and 22,000 net meters during the quarter. Inclusive of Orbit Energy, we ended the third quarter with the largest global customer base in our history, 442,000 RCEs and 558,000 meters. Our continued expansion has been driven by our long-term investment in customer acquisition and geographic diversification across our REP business. This quarter, we again delivered growth in our global customer base while returning cash to our stockholders and reporting improved bottom line results. Let's start with our domestic retail supply business, Genie Retail Energy. GRE added 7,000 net RCEs and 1,000 net meters during the quarter. GRE's gross domestic meter ads in the third quarter totaled 44,000, a 4,000-meter increase from the previous quarter, but still a 32,000-meter decrease from the pre-COVID-19 level we achieved in the third quarter of last year. The relaxation of some public health measures over the summer enables us to resume modest levels of in-person customer acquisition programs in some markets. We should be able to return to more robust growth in upcoming quarters as we begin marketing in a few new utility territories, provided that governments continue to relax COVID-related selling restrictions. Monthly average churn fell to 3.7% from 3.9% last quarter and from 5.3% in the year-ago quarter. The decreases reflect our internal efforts to enhance customer retention, the slower pace of gross meter ads since COVID-19, the pandemic-related reductions in customer acquisition efforts by our competitors, and the migration of our books toward fixed rate plans, which typically experience lower churn rates than variable rate plans. GRE's third quarter financial results were keyed by a surge in average electricity consumption per meter, which more than offset modest margin declines. This summer's warm weather and the transition to stay at home during the pandemic both significantly boosted residential demand. At Genie International, we again delivered strong customer base expansion despite the challenges of the COVID-19 impacted environment. We added 14,000 net RCEs and 21,000 net meters during the quarter. At September 30th, our international book held 92,000 RCEs and 182,000 meters, contributing a fifth of our global RCEs and a third of our global meters. International growth was led by our businesses in Scandinavia and the UK, while pandemic restrictions severely constrained our ability to market in Japan. Lumo Energia, our Helsinki-based supply business, delivered an especially strong quarter and entered a significant new market in Sweden. In the UK, where we operate through our Orbit Energy joint venture, our meter and RCE counts both increased more than 70% compared to the third quarter a year ago and generated revenue at an annual rate of more than $50 million. In light of Orbit's rapid growth and promising potential, we bought out our JV Partners interest for $1.7 million last month, and beginning in the fourth quarter, we will consolidate Orbit's results as a wholly owned subsidiary. Given the vast size of the UK market, the capable local management team in place, and the favorable return on investment we've experienced to date, Orbit is on track to become EBITDA accretive within the next two years and to be a significant contributor to Genie's growth for many years to come. At Genie Oil and Gas, we were able to begin our testing at Afek Ness 10 drilling site in Israel's Golan Heights last week. The wells' initial results were ambiguous, and it is the last site in GOGAS's exploratory program where we can still find clear-cut evidence of a commercially viable resource. We could have test results this month, and if there's material news to share, we will share it. Before turning the call over to Avi to review our financial results, I again want to express my deep thanks to our employees who continue to do a fantastic job working primarily from home. Our continued progress would not be possible without their dedication and flexibility. Take it away, Avi.

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 30th, 2020. Throughout my remarks, I compared the third quarter of 2020 results to the third quarter of 2019. Focusing on the year-over-year rather than the sequential comparisons removed some consideration to seasonable factors that are characteristic of our retail energy business. Results this quarter were again very strong. We delivered significant top and bottom line improvements from the year-ago quarter, primarily due to strong domestic electricity demand and growth in our international markets. By the end of the quarter, we enjoyed a significantly fortified balance sheet with enhanced liquidity. Consolidated revenue increased in the third quarter of 2020 by 12% to $96 million. Revenue at Genie Retail Energy, or GRE, our domestic REP segment, increased 10% to $89 million on the significant increase in average per meter electricity consumption that Michael mentioned. Strong electricity demand more than compensated for decrease in profit per kilowatt hour sold. At Genie Retail Energy International, the segment that comprises our REP operations outside of the U.S., revenue increased 92% to $5.8 million on meter growth and higher average revenue per meter. Consolidated gross profit predominantly generated by GRE increased 4% to $27 million as the increase in kilowatt hours sold offset a decrease in gross profit per kilowatt hour sold. Gross margin decreased 240 basis points to 28.4% on the decrease in gross profit per kilowatt hour sold to GRE. Our consolidated SG&A spend decreased 3% to $19 million as domestic restrictions on face-to-face customer acquisition programs during the pandemic slowed the pace of gross meter ads, which was only partially offset by higher spending on Customer Acquisition International. Equity and the net loss in equity method investees was $146,000 this quarter compared to $238,000 in the year-ago quarter, reflecting our share of the results at Atid in Israel. We did not put additional cash into our UK joint venture in the quarter, nor in the year-ago quarter. As Michael mentioned, following quarter end, we acquired our partner stake in the UK venture for $1.7 million. As a result, we will be reporting our UK financials as part of our consolidated results going forward. Consolidated income from operations increased 22% to $8.5 million, while adjusted EBITDA increased 19% to $9.5 million. The increases resulted primarily from higher average consumption per meter and decreased domestic customer acquisition spend. At GRE, income from operations increased 14% to $12.3 million, and adjusted EBITDA increased 13% to $12.6 million. The loss from operations at Gini International was $1.6 million, and adjusted EBITDA loss came in at $1 million, both unchanged from levels of the year-ago quarter. Consolidated earnings per diluted share increased to $0.24 from $0.18 in the year-ago quarter. For those of you who are interested, our earnings release provides pro forma revenue and income from operations, Virginia International, inclusive of our UK businesses results. Cash generated by GRE further strengthened our balance sheet. Cash, cash equivalents, and restricted cash increased to $49 million at September 30, 2020, from $42 million at the close of the second quarter, while working capital increased to $55 million from $49 million. To wrap up, Jeannie delivered another very strong quarter and remains well positioned to continue delivering on its plan. That concludes my discussion of our financial results. Now, operator, back to you for Q&A.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Aaron Schachter with Great Mountain Capital Management. Please go ahead.

Hi, gentlemen. Congratulations on yet another great quarter, especially the record customer numbers. Regarding your acquisition of your partner's stake in Orbit, Did I get it here correctly that you believe it will be accretive to earnings within two years?

Yes. We believe that the overall losses in 2021 will be significantly lower than they have been in the past and we'll still be able to grow the business. But yeah, profitability within the next two years.

Good. And I noticed that natural gas meters have not been increasing anywhere like your electricity meters. I realize they're a small fraction of your overall business and your revenues, and I'm wondering if you've ever given any thought to leaving that segment to focus your resources and your energies elsewhere.

Yeah, great question. Yeah, the natural gas business is definitely a little bit of a harder business, a little less profitable on a per meter basis than the electricity business. But we do believe that it provides an important bundling opportunity for both customers and our salespeople who want to have more to sell either at the door or on the phone or wherever else they might contact customers. we certainly do not have any intention of, you know, leaving that business, you know, anytime soon.

Okay. And as far as AFIC is concerned, you said you started the latest well test, and the initial, did you say the initial information was unclear, and you expect to get results soon? possibly by the end of this month? When is the latest that you'd expect to get anything defended as?

Unless there is some kind of significant delay, which would be related to something completely out of our control, which, of course, is possible these days. It could be later, but we are actively, even today, working on the sites. Well, actually not today because it's Sabbath in Israel, but, you know, by now. But, you know, starting back up again on Sunday. But we were, you know, yesterday, the day before, we are actively working on it. And we're not planning to send information to a lab to, you know, to tell us what the results were. We are expecting to either see it or not see it with our own eyes. And that will determine our next steps.

Okay. Also, you're producing a lot of cash and enlarging your cash on hand and working capital, and I'm wondering if we should expect any more buybacks or a raise in the dividend.

Yeah, so we did a very small amount of buybacks. I guess we set the limit price on our 10B5 uh, a little bit lower than, uh, you know, maybe we, we could have, we try to be very opportunistic, uh, with our, uh, you know, with our buybacks. Um, and, you know, we did just raise the dividend only two quarters ago. So, you know, everything is always on the table, but, um, you know, no, no immediate plans right now.

And finally, um, you mentioned that, uh, you were planning to go into some, uh, new territories domestically. Uh, um, if the, uh, There isn't a problem with COVID-19 regulations. Can you tell us which of those territories they are?

Yeah, George, there are a few new utility territories within the states that we operate because every utility has a starting process that we need to get through in order to start marketing there. But above and beyond some of those individual utility territories within the states that we're already marketing, beyond those, we're looking at starting in Georgia and Michigan, you know, any day now. You know, I would say they'll be additive, but I don't expect, like, a fundamental, you know, tremendous lift, you know, from them. But they certainly will be additive.

Right, it's just been starting. All right, thanks, and wishing you guys continued success.

Thanks.

Again, if you'd like to ask a question, please press star, then 1 at this time. Showing no further questions, this concludes our question and answer session and the conference call. Thank you for attending today's presentation. You may now disconnect.