Genie Energy Ltd.

Good morning and welcome to Genie Energy's second quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. On this morning's call, Michael Stein, Genie Energy's chief executive officer, and Avi Golden, Genie Energy's chief financial officer, will discuss operational and financial results for the three-month period ended June 30th, 2021. 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 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, a non-GAAP measure. Management believes that Genie Energy's measure of adjusted EBITDA provides useful information to both management and investors that supplement Genie Energy's core operating results. The Gini Energy Earnings Release includes a reconciliation of consolidated adjusted EBITDA to its nearest comparable gap measures, consolidated net income and income from operations for all periods presented. In addition, adjusted EBITDA for each reporting segment is reconciled to its prospective segment's income from operations for all periods presented. The Gini Energy Earnings Release is posted on the Investor Relations page of the Gini Corporation website. and has been filed on a form 8-K with the SEC. After today's presentation by Genie Energy's management, there will be an opportunity to ask questions. To ask a 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 Gini Energy's second quarter 2021 earnings call. Today, we plan to start the call by educating investors about our current business and our growth strategy, followed by a discussion in the value proposition that we believe will drive business results and stockholder value going forward. I will also provide a review of our operational and high-level financial results for the three-month end of June 30th, 2021. Avi Golden, our Chief Financial Officer, will then provide a deeper dive into the quarter's financial results and then we'll be glad to take your questions. We believe Genie Energy offers a unique investment opportunity within the energy space. Genie operates into two core parts of the energy industry, retail and renewables. Our global retail energy businesses are asset light operations that market and resell electricity and natural gas to consumers and small enterprises in deregulating markets, while our renewables business sells services, and installs solar solutions. Currently, our U.S. retail business is the primary driver of our profits, but we believe the other segments have tremendous potential. Our current businesses are supported by our enterprise function, which is responsible for customer acquisition, risk management, and customer care. Our marketing and sales professionals leverage deep data analysis to identify market opportunities and efficiencies that our sales and marketing teams can then exploit through a variety of sales channels offering green or traditional options as well as fixed and variable rate plans. This data analysis also allows us to segment current and potential customers with specific payback periods based on product and customer type, while also enabling us to bring a higher level of customer care and retention and also offer customer reward programs. Finally, our risk management function acquires both green energy and carbon-based supply and utilizing hedging strategies to reduce commodity volatility risk. From the total enterprise viewpoint, we believe three key areas differentiate us from the competition and will allow us to create outside stockholder returns anytime. First, we have de-risked the company through market, product, and geographical diversification with retail energy operations across 16 U.S. jurisdictions, the U.K. and Scandinavia, and the rapidly growing solar energy business in the U.S. Second, we differentiate ourselves from the competition through our strong balance sheet with minimal to no debt and asset-light business model, which not only reduces our relative cost of capital, but allows us to self-fund and invest in growth opportunities, such as expanding our international retail energy and domestic solar businesses. It also provides us the flexibility to opportunistically grow our U.S. retail business through a disciplined approach to taking share in existing markets or entering new markets as conditions permit. Finally, we believe the operational excellence we have gained in deregulated markets in the U.S. will help drive growth and profits in our European business. Ultimately, we believe these factors provide us with competitive advantages and will help us drive higher returns than the competition. Moving into each of our businesses, we have three reporting segments. Two of these are emerging growth businesses, G.U. Utel International and G.U. Renewables, and the third, G.U. Utel USA, consistently generates cash in up or down markets on an annualized basis. Our retail energy business operates under several different names in both the U.S. and Europe. Our core business today, GE Retail U.S., is the largest and most mature of the three segments, generating the most revenue and highest margins in profits. It currently operates in 15 states and Washington, D.C., under a variety of names, reselling electricity from both carbon-based and green sources, as well as natural gas. This business has proven to be financially stable and has made money in a variety of marketing environments, which has allowed the company to remain principally debt-free and make disciplined investments in growth. The competitive environment is fragmented with few large players and many independent small players. We believe our competitive advantages, including our ability to sell fund expansion without borrowing, our strong risk management and trading programs that reduce commodity volatility, strong data and analytics capabilities, and depth and breadth of experience in our various sales channels. Our current U.S. strategy revolves around opportunistically taking incremental share in our existing 16 markets. We also plan to leverage our installed base and marketing prowess to add new products and services. Bottom line, we believe we have market-leading capabilities that will allow us to take share, introduce and upsell new products, and successfully expand into new states as conditions warrant. With respect to our current growth investments, We've been investing in and generating customer growth with expanding margins at Union ETL International through an established presence in unregulated markets in the UK and Scandinavia. We believe this opportunity is comparable to the US opportunity, with a few differentiators that we believe bode well for value creation. Between the UK and Scandinavia, there are roughly 60 million energy meters installed, with about 80% of them in the UK. We initially penetrated the UK, which has shown strong growth, expanding margins, and is now nearly capable of self-funding into new growth. In Scandinavia, we initially acquired our way into Finland in 2019, which, similar to the UK, is starting to mature and will soon have the ability to self-fund future growth in Finland while also expanding into new markets, such as our recent expansion into Sweden. Our Scandinavian strategy is to centralize our enterprise functions to efficiently manage operations, and create significant operating leverage as we continue to gain scale and, in years to come, move into other markets such as Denmark, Norway, and possibly others. Finally, moving to GE renewables, our strategy here today is to leverage our existing geographic footprint and sales channels in the U.S. to offer a range of residential and commercial solar solutions. We aspire to capture a larger part of the solar value chain to both drive growth and higher margins. While we are not ready to talk in full detail publicly about these plans, we have a robust pipeline of solar installations and projects that we expect will generate meaningful revenue and profits. We believe our renewable segment has excellent potential and we will provide more details as appropriate. Today, we exempted from diversification both at the state level and with our international operations in solar business. However, we realized that with three business segments, each of which is in a different stage of maturity, we have to prioritize growth investments and therefore can't always take advantage of opportunities on a business-by-business basis. Additionally, we believe that our evaluation doesn't reflect the individual prospects and performance of each business, as there are different value propositions for investors due to the higher growth in international energy operations and moderate growth in cash flow generation of the U.S. retail business. Given these factors, we have been conducting a strategic review of our businesses and are currently evaluating opportunities to unlock shareholder value by separating our international operations from the U.S. business, potentially through a spinoff to existing genie stockholders of a new publicly traded entity, as we don't believe the combined company is being valued appropriately by investors. We believe doing so accomplishes several goals, and the rationale here is typical for companies carving out operations. First, with a dedicated management team, the international operations can be solely focused on aggressive expansion in current and new markets through both organic and inorganic mechanisms without diluting GME Energy stockholders. With less internal competition for resources, it will also allow GME to grow more aggressively in its U.S. retail business through market share gains in existing markets, as well as potential expansion into new states, as well as provide additional capital to expand our renewables operations as discussed earlier. We are currently still in the evaluation process and will continue to provide updates on any material progress. Now I'll talk briefly about our second quarter business trends and results, as well as provide some insight into third and fourth quarter expectations. Q2 was a strong quarter despite ongoing restrictions related to COVID-19. We did have some moving parts in the financials due to the sale of our Japanese business and in Texas as the governor signed the new legislation into law, which is expected to provide a minimum of $1.5 million of relief. We hope and expect the relief amount to grow as the legislature in Texas continues to discuss fair outcomes from the February storm. In the U.S., our door-to-door marketing efforts are still not back to full strength due to government restrictions, but they are growing again. That growth, of course, continues to be dependent on what happens with COVID. In the meantime, our U.S. retail business contributed strong profitability, even as the second quarter is usually the seasonally weakest part of our year. International operations revenue and gross profits increased as we continue to and the Finland business recorded material profitability. The renewable division, while still small, executed on another profitable quarter and is poised for both revenue and gross profit growth in the future. We are excited about our potential and look forward to updating you further on the potential spinoff and other initiatives. Now over to Avi Golden for his discussion on our Q2 financial results. Thank you, Michael, and thanks to everyone on the call for joining us this morning. My remarks today cover financial results for the three months ended June 30th, 2021. Throughout my remarks, I compare second quarter 2020 results to the second quarter of 2020, focusing on the year-over-year rather than sequential comparisons and moves from consideration the seasonal factors that are characteristic of our retail energy business. I do want to point out, however, that the second quarter, like our fourth, is characterized by low commodity consumption relative to peak heating and cooling seasons during the first and third quarters, respectively. I'd also like to point out that there are some moving parts this quarter that make an apples-to-apples comparison somewhat challenging. For example, we acquired the part of Orbit Energy that we didn't already own in the fourth quarter of 2020, so our second quarter 2020 results were not fully consolidated into our financials as they are in the second quarter of 2021 under Gini Retail Energy International. On the other side, we sold our Japanese operations in early Q21, which generated a gain, but we recorded minimal revenue during the quarter, while in Q2 2020, A full quarter of Genie Japan revenue was recorded under Genie Retail Energy International. That said, results this quarter were strong and comparable to the outstanding second quarter results reported a year ago. Consolidated revenue increased 28% to 98 million, the highest level for any second quarter in our history. The top line increase was generated predominantly by Genie Retail Energy International, where revenue increased to 28 million from 5 million a year ago quarter. Results from Orbit Energy in the UK were not consolidated until we purchased the outstanding stake in the fourth quarter. In the year-go-quarter, Orbit generated $15 million in revenue. Setting aside the impact of consolidating Orbit revenue in the current period, the international business increased revenue by $8 million year-over-year, driven by the robust growth of our business in the UK and Scandinavia. Revenue achieving retail energy, our domestic retail business, increased 1% to $67 million. Electricity and natural gas consumption per meter Both increased compared to the year-go quarter, which suggests that the boost in per-meter consumption we've seen since the shift to work-from-home could have an enduring impact. Increased consumption was augmented by higher average sales per commodity unit and partially offset by a decrease in overall meters served. The net meter count decreased in the quarter as churn outpaced sales. Both churn and sales are below historical levels as the industry continues to be limited in access to face-to-face marketing channels that traditionally drive growth. Revenue for renewables business was 2.3 million, a decrease from 4.6 million a year ago quarter, when we delivered the remainder of a large solar panel manufacturing order that had very low margins. As Michael mentioned, we are excited about the potential of this segment as we continue to expand into higher margin renewables-focused businesses, including our community solar installations and community solar projects. Consolidated growth profit increased 22%, 24 million, a very strong second quarter result, reporting segments. Consolidated SG&A increased to $22.4 million from $16 million. The increases occurred primarily at GRE International and reflects the consolidation of Orbit Energy, including Orbit's customer acquisition expense, but also at GE Retail Energy, driven by the partial resumption in door-to-door sales channel, as well as other marketing spending. Our consolidated income from operations totaled $1.4 million compared to $2.7 million a year ago quarter. The key driver here was, again, the consolidation of Orbit Energy. which while it is nearing the ability to sell funds, is still losing money as we continue to invest in customer acquisition. Adjusted EBITDA was $3.1 million compared to $3.5 million in the year-ago quarter. Although the scale is small, we're noting that our renewables business achieved positive income from operations and adjusted EBITDA for the second straight quarter. GD Energy's income per diluted share was $0.19 compared to $0.06 in the year-ago quarter. Our bottom line benefited from a $4.2 million gain on the sale of GD Japan and an unrealized gain of $2.9 million on marketable equity investments, predominantly our investment in Raphael Holdings, that are marked to market. Turning now to the balance sheet, at quarter end, cash, restricted cash, and marketable equity securities totaled $15.9 million on June 30th, a strong increase from $41.7 million three months earlier, and our highest levels in recent years. From a working capital perspective, we have more than fully recovered from the impact of Winchester and Erie in the first quarter. To wrap up, our operating results were strong even compared to outstanding year-ago quarter, and our bottom line results are positively impacted by the non-return gains I mentioned earlier. Our balance sheet is in very good shape and provides us the flexibility to invest in the growth programs that Michael discussed. Now, operator, I'll turn it back to you for Q&A.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 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. And our first question today is coming from Aaron Shafter of Great Mountain Capital Management. Your line is live. You may begin.

Thanks, operator. Congratulations on a solid quarter. The growth internationally was very impressive. You mentioned the sale of operations in Japan and adding to your bottom line. About how many cents per share did that add to the quarter's gain? So the sale of the Japan business, the proceeds were about $4.2 million. I don't know when you factored in tax, how many cents per share that is. Avi, do you know offhand? You know, I don't have a number, and I can follow up with you afterwards on a flow through. Sure. Okay. So, and you mentioned that you're exploring the splitting operations and spinoffs, and I'm wondering if you have any kind of timetable for that. We're hoping that the market will get an update in the next few weeks on our timing. We're hoping that we could potentially do the spin-off before year-end, but it largely depends on the next few weeks. Okay, so you've done a nice job expanding internationally. I saw that meters really were pretty much flat in the U.S., and I'm wondering if there's any new markets that you're going to be going into in the U.S. So no new brand new markets that we're going into this quarter, but we are starting with some of our stronger sales channels in two of the markets that we have not yet used as marketing channels. You know, in Georgia, we expect to be starting telemarketing pretty soon. Okay. And you just mentioned near the end of the call that the situation with your financial assets was basically at an all-time high. I'm wondering, after the the crazy once in a hundred years weather event in Texas where you decided to suspend the dividend and suspend buybacks when or not you feel that you're in a position to start paying dividends again in order to buy back shares. So we didn't suspend buybacks. Actually, we bought back in this quarter 392,000 shares this quarter. The last quarter also brought back some stock. So our buyback program continues in an opportunistic way. And we continue to have that authority from the board to continue that program as we see the opportunity arise. In terms of the dividend, we are still keeping the dividend on hold. We believe that Right now, our money is better spent on growth in the company. That is subject to change as we continue to assess in future quarters. But now we're trying to focus on growth.

Okay.

And getting back to international and new markets, the previous Israeli government announced that it was going to be allowing competition in the electricity market. And just a couple of months ago, even less than two months ago, Celcom Energy, a sister company of the Telecom company, announced that it was beginning to compete in the Israeli electricity market, and I'm wondering if that's something that the company has explored. We had some exploratory conversations about it already two or three years ago. My guess is we'll have more exploratory conversations about it, and we put it on hold at the time. And I imagine we'll have some more exploratory conversations now that the market is officially open. I was thinking at the time that the market is a bit small, given that knowing how things go in Israel, players like the telecom businesses have just such a tremendous advantage on first-mover advantage. We thought at the time that it would be very difficult for us to get involved and really make profits. That is absolutely something that we expect we'll be looking at in the next few months, next year. And also, in regards to Israel, I never got a chance in the last two calls, unfortunately, to ask about... We announced that the Nest 10 well was a bust, but can you say exactly... what you found at the Nest 10 well? What we were looking for in the Nest 10 well was signs of liquid hydrocarbons, of oil that flows freely into the well. And that's just not what we found. We continue to believe that- Was it just more bitumen? Nothing really was flowing into the well. Nothing that could possibly be commercially viable was flowing into the well. We believe there's organic matter there. We have not been able to find it. And we've decided at this point in time, we just don't have the bandwidth and the right team to try to find it and give them kind of where oil and gas is going. We just don't think it's the right play right now. Okay. And also near the end of the call, you mentioned the $1.5 million in relief that Governor Abbott had signed in Texas and the possibility of more to come. And I'm wondering if you've got any kind of idea about how much more relief the company will see from the overpriced energy that you were forced to buy. So the 1.5 is our kind of minimum estimate for how much we should be able to get from the relief bill that was signed by the governor in the beginning of June. There is some question in the legislation as to who gets bids on some of that money. And our contention is that that If the money is divided in the way we believe it should be, our portion of that money could go up to $2.5 million just on that bill alone, but we've only accrued for the very minimum that we should see from the pool of money that was approved by Congress. In terms of what else might be coming down the pike, The Lieutenant Governor in the last congressional session did commit to trying to put together a special session in the next few months to address some of the other items that came out of the February storm that were unfair to our industry. Some of those items could be bigger tickets for us, but until they get the session together and until there's a bill on the table, we don't have much more to say about it other than we will be actively fighting to get a bill on the table and get it passed by Congress so we get the maximum relief we can. Okay, great. Thanks very much. Thank you.

Thank you. Our next question today is coming from Kevin Kinnear, a private investor. Your line is live. You may begin.

Your previous caller asked about the impact net income that was attributable to Japan and the effect on the cents per share. And you did refer to it that it was $4.2 million. So that would be, the press release says there was $5 million of net income. We already have $800,000 in of net income, which would probably be about $0.03 per common share. Am I looking at that correct? Do you want to take it? Yeah, I'm not 100% clear on some of the math that you're doing there. But remember, between sort of the operating income and the net income line would be both the activities in Japan and also some mark-to-market on marketable securities. So those would all account for the difference net of taxes between those two lines. So I'm not 100% clear on the math. But like Michael said, the gain on the sale was about $4.2 million. Okay. Anyway, I'm going to be very honest about something here. I'm a retail investor in your stock, and you're a utility that doesn't pay a dividend And I guess you cut your dividend probably on the March 11th when you reported the previous quarter. And the stock went from like, I guess it was like 730 down to 590. I think the reason why is because you don't pay a dividend, okay? I just throw that out there. Because now you're talking about trying to increase shareholder value by splitting the company in parts. I see two wasting assets coming out of that. That is my opinion. You are free to run this company as you want, and I'm free to sell. And you look more like a sell today than you did yesterday. Thank you for your time.

Appreciate your comments. Thank you. Once again, if you have a question, please press star, then one.

This concludes our question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect.