Genie Energy Ltd.

Good day, and welcome to Genie Energy's fourth quarter and full year 2021 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a 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 and 12-month periods ended December 31, 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 Genie Energy earnings release includes a reconciliation of consolidated adjusted EBITDA to its nearest comparable GAAP measures, consolidated net income, and income from operations for all periods presented. In addition, adjusted EBITDA for applicable segments are reconciled to their respective segments' income from operations for all periods presented. The GENIE Energy Earnings Release is posted on the Investor Relations page of the GENIE Corporation website, GENIE.com, 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 Genie Energy's fourth quarter and full year 2021 earnings call. Today, I will go through a brief overview of our business and opportunities, followed by a discussion of our fourth quarter results. Avi Golden, our Chief Financial Officer, will then provide a deeper dive into financial results, and then we will be glad to take your questions. During 2021, some portfolio management moves, as well as some weather anomalies, complicated our financial statements. These factors include the sale of our Japanese business and our orderly withdrawal from the UK market, which led to classifying our UK operations as discontinued, plus the impact of Winter Storm Jury last February. As a result, we will provide pro forma information in our investor presentation that will be posted on our website after the filing of our 10-K next week to give investors a view of how the existing businesses have performed historically, as well as for future comparisons. Despite these factors, we grew revenue by 2% during the year and gross margin expanded by 220 basis points to 28.8%. We also finished the year with our strongest balance sheet in many years. In the meantime, I'm going to quickly review our businesses before I go into our fourth quarter results and outlook for 2022. Genie Energy owns a portfolio of assets that offer attractive investment opportunity within the energy space, and our diversification, both as to our offerings and geographically, reduces our risk profile. while providing upside opportunities, as we saw in Q4. In the U.S., our asset-light Gini Retail Energy business, or GRE for short, has demonstrated a resilient ability to generate cash in a variety of market conditions. This business currently operates in 17 of 27 deregulated states plus Washington, D.C., and our mid- to long-term strategy is to opportunistically grow when market conditions warrant by taking share in existing states expanding into new states, and offering additional products and services to our installed base. We will also at times take steps to slow growth and protect margins over a shorter time horizon when market conditions are not as favorable, which is what we did in the fourth quarter. Our second business, Genie Retail Energy International, is an emerging growth business that has become profitable with improving margins. Currently, this business operates in Finland and Sweden. Longer term, this business affords the opportunity to expand into a handful of other European countries, bringing the potential total addressable market to more than 22 million meters over the next few years. Our Genie Renewables business provides entree into multiple opportunities that can lead to outsized growth. During 2021, to improve margins, we refocused our solar operations on projects, rather than panel manufacturing. Now, as we discussed last quarter, we are leveraging our strong balance sheet to pursue opportunities to move up the solar value chain through project finance. We believe this initiative will provide attractive financial returns, increase the win rate on new projects, and contribute more meaningfully to top line and adjusted EBITDA growth. Moving to our fourth quarter results, GRE was in a strong financial position, which led to mark-to-market gains on our commodity positions and allowing us to focus our sales and marketing operations on higher margin customers. As some of our low margin municipal aggregation customers came off contract, we saw a significant jump in gross margin, gross profit, and adjusted EBITDA despite revenue and total customers served being down as compared to the fourth quarter of 2020. GREI had a particularly strong quarter with 64% revenue growth and a 38% gross margin. Similar to our domestic business, we were favorably positioned relative to energy prices and were able to benefit from mark-to-market gains and focus our sales and marketing on higher margin customers. Additionally, given the volatility in energy prices, our strong financial position allowed us to take advantage of a small consolidation opportunity to increase our customer base. Genie Renewables grew revenue by 19%, gross profit by 26%, and generated a gross margin of 22%, all significant increases from the year-ago quarter. While these numbers were significant improvements year-over-year, we expect continued revenue and gross profit growth as solar projects are constructed and more of their revenues are realized. Looking to 2022, despite the continued volatility, high energy prices, and Russia's invasion of the Ukraine, our strong risk management keeps us confident that the first quarter will be strong. We continue to monitor the situation and tailor our risk management decisions for the short and midterm periods to the current political environment. The combination of our very strong balance sheet and financial positioning for the winter season will allow us to begin reinvesting in sales and marketing activities and grow our retail customer base in the US and Scandinavia. Genie Renewables is also in a strong position for growth. Currently, Genie Solar is under contract to install more than 10 megawatts in 2022, which, if constructed and completed, would generate approximately $15 million of revenue, a tremendous increase over our 2021 revenue. Beyond this contracted business, we have a strong pipeline of potential new contracts that we hope to win in 2022. In addition to building these systems, we have become involved in the financing of commercial scale and community solar projects. These activities have the potential to provide us with our own electricity generation assets that could yield attractive cash flows for years to come. We expect to have more to share about the progress of such projects in the coming quarters. In 2022, together with our diversity and Citicom solar businesses, the other two entities that comprise Genie Renewables, We think that overall revenue for the segment could approach $20 million, approximately triple its 2021 revenue. In summary, we finished the year on a high note with a strong cash position. We have fully recovered from winter storm fury and repositioned our business portfolio to continue to generate both growth and cash. As a result of this strength in operations and balance sheet, we recently resumed our common stock dividend, which is currently yielding nearly 5%. We also announced an authorization to buy back our preferred stock over time, which we anticipate will begin during the second quarter. Thank you for your time today, and I look forward to sharing our results for Q1 in early May. Now, over to Avi Golden for his discussion of our Q4 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 three and 12 months ended December 31, 2021, with a focus on the fourth quarter's results. When discussing the quarterly results, I compare the fourth quarter of 2021 to the fourth quarter of 2020 to remove from consideration the seasonal factors that are characteristic of our retail energy business. During the fourth quarter, we completed our withdrawal from the United Kingdom's retail energy market. Operating results, assets, and liabilities of Orbit Energy are reflected discontinued operations for all current and historical periods presented in our filings and in our remarks. Our fourth quarter and full year 2021 consolidated financial results were both strong, highlighted by increased revenue, gross profit, adjusted EBITDA, and earnings per share compared to the year-ago quarter and prior year, respectively. The gains reflect our decision, driven by volatility in energy markets and other factors, to focus on near-term profitability and cash generation, as well as the inherent strength of our business model, which enabled us to pivot to changes in the marketplace while maintaining prudent risk-managed strategies. Fourth quarter consolidated revenue increased 5.3% to $84.7 million. This revenue growth was generated primarily by Gini Retail Energy International, where sales increased 64.3% to $15.5 million, reflecting the continued growth of our customer base and an increase in power prices compared to the year-over-quarter. At GRE, revenue decreased 2.9% to $67.9 million. The decline in electric meter serve that Michael referred to and a slight decrease in electric consumption per meter more than offset a strong increase in revenue per kilowatt hour sold. Revenue for renewables business increased by 19% to $1.3 million from $1.1 million. Full year 2021 consolidated revenue climbed 1.9% to $363.7 million, led by a 62.8% increase in GREI revenue to $44.4 million. GRE revenue increased 2.4% to $311.8 million as increased per meter electricity consumption and revenue per kilowatt hour sold were partially offset by a decline in the average number of electric meters served. Gini Renewables' revenue decline has refocused the business towards higher margin services and away from low margin panel sales. Consolidated gross profit in the fourth quarter increased 53% to $29.6 million as both GRE and GREI delivered strong margin performance as well as increased mark-to-market valuations of our forward supply hedges reflecting of the rising commodity price environment. At GRE, gross profit increased 31.3% to $23.4 million, gross profit benefited from an increased value of our hedges as well as reducing exposure to certain customer segments. Gross profit at GREI climbed 223% to $5.9 million, reflecting growth in our customer base and mark-to-market gains associated with certain of our forward supply hedges, while at Genie Renewables, gross profit increased to $288,000. Full-year consolidated gross profit increased 10.3% to $104.9 million, led by GREI, where full-year gross profit increased 147.3% to $11.2 million. At GRE, exceptionally strong margins in the second half of the year drove a 2.9% increase in gross profit to $90.9 million. Genie Renewables' gross profit increased 26% to $2.8 million. Consolidated SG&A expense in the fourth quarter increased 4.4% to $18.9 million. At GRE, SG&A expense increased 21% to $15.3 million, primarily driven by increased customer acquisition spending. At GREI, SG&A expense decreased 51.8% to $1.1 million, primarily as a result of the sale of Genie Japan in May of 2021. Full-year consolidated SG&A expense decreased 1.9% to $71.7 million, primarily reflecting the sale of Genie Japan, which took place early in the second quarter. Our consolidated income from operations increased by $9.4 million to $10.7 million in the fourth quarter, while adjusted EBITDA quadrupled to $12.5 million, At GRE, fourth quarter income from operations and adjusted EBITDA climbed to $8.3 million and $8.8 million respectively, propelled by the strong gross profit margins on electricity sales. At GREI, income from operations increased to $4.7 million from a loss from operations of $547,000 a year ago quarter, and adjusted EBITDA increased to $4.9 million from $46,000. The gains reflected the sale of Genie Japan and the mark-to-market valuations of our forward electricity hedges. Renewables continued toward profitability, trimming its loss from operations to $439,000 from $1.2 million the year-ago quarter, while increasing its top-line contribution. For the full year, consolidated income from operations totaled $33.1 million and adjusted EBITDA was $37.7 million. Note, that figure includes the $10 million net impact of winter storm Yuri in Texas, $3.4 million in losses incurred by Genie Japan prior to its sale in May of 2021, and approximately $150,000 of shutdown-related expenses incurred by Gini Oil and Gas during the year. Absent those items, adjusted EBITDA for the year would have been $51.3 million. Diluted EPS from continued operations were $0.90 in 2021 compared to $0.41 in 2020. Discontinued operations contributed an additional $0.21 compared to $0.03 a year earlier. Turning out of the balance sheet, At December 31st, cash, restricted cash, and marketable securities totaled $103.5 million. Working capital was $86.1 million, and non-current liabilities totaled just $2.4 million. Subsequent to the end of the quarter, cash and current liabilities were both reduced by $21.1 million related to the orderly exit from the U.K. market. This will be reflected in our first quarter balance sheet. To wrap up, the fourth quarter's robust margins, reflecting our careful approach to risk management and focused scope of operations, drove strong results in the second half of 2021, and we expect to build on that progress in the year ahead. Our balance sheet has never been stronger, and our cash balance and no debt provides strategic flexibility to expand our business and return value to shareholders. Now, operator, back to you for Q&A.