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Genie Energy Ltd (GNE) Q3 2019 Earnings Call Transcript

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Genie Energy Ltd (NYSE: GNE)
Q3 2019 Earnings Call
Nov 8, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Genie Energy's Third Quarter 2019 Earnings Call. [Operator Instructions]

In its presentation, Genie Energy's management team will discuss financial and operational results for the three month period ended September 30, 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 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 segment's 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.

After today's presentation by Genie Energy's management, there will be an opportunity to ask questions. [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.

Michael Stein -- Chief Executive Officer

Thank you, operator.

Welcome to Genie Energy's third quarter earnings call. Today, we will discuss our operational and financial results for the three-month period ended September 30, 2019. My 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.

Genie Energy continued its growth with a solid third quarter. As Avi will detail for you, we increased revenue and gross profit substantially compared to the strong year-ago quarter. This allowed us to ramp up our investment in growth opportunities while still generating sufficient cash to further strengthen our balance sheet and return value to our stockholders.

Across the board, I was very pleased with the quarter's results. In the US, Genie Retail Energy added 11,000 RCEs and 10,000 meters to reach 329,000 RCEs and 389,000 meters at September 30. Gross meter adds at GRE totaled 76,000, a significant increase from the 45,000 meters we added in the year ago quarter though below the pace of last quarter when we added 91,000 meters.

During the quarter we entered the largest deregulated electricity market in the US, Texas, with over 7 million addressable meters. Although we've just begun to acquire meters in the Lone Star State, I'm excited about the opportunity. As of today, we are already serving a few thousand RCEs there and we expect continued growth in the coming quarters.

Genie Retail Energy International continues to expand in all three of our overseas markets in the UK, Finland and Japan. We added an aggregate of 34,000 meters in these markets during the quarter to reach 103,000 meters at September 30, equivalent to 53,000 RCEs. We expect to continue to build our share in a disciplined fashion in each of these markets.

Within our Genie Energy Services division, Prism Solar continues to perform well under its preferred supplier agreement with JPMorgan Chase. During the quarter, Prism received new purchase orders from JP Morgan for panels generating 35 megawatts in aggregate. We expect these orders to impact the division's financial results in the first half of next year. Because of the breadth and sophistication of the JPMorgan solution, Prism is also well positioned to pursue additional clients with nationwide footprints and demanding design requirements.

Our strong balance sheet and disciplined approach to investing in growth initiatives enabled us to repurchase approximately 470,000 shares of our outstanding Class B common stock for $3.4 million over the past three months in response to market conditions. Through this repurchase and payment of preferred and common dividends, we've returned over $10 million to shareholders through the first three quarters of the year. Nevertheless, even with our significant investments in new customer acquisition in the US and overseas, we closed the books this quarter with stronger cash and working capital positions.

Looking ahead, we will continue to invest strategically in opportunities for growth throughout our business.

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

Avi Goldin -- Chief Financial Officer

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 30. Throughout my remarks, I compare the third quarter 2019 results to the third quarter of 2018. Focusing on the year-over-year rather than sequential comparison removes from consideration the seasonal factors that are characteristic of our retail energy business. The third quarter includes the peak cooling season and the highest levels of electricity consumption for the year.

Third quarter 2019 financial highlights include significant year-over-year top line growth, balanced by increased investment in customer acquisition costs that led to income from operations and adjusted EBITDA at levels comparable to the year ago quarter. EPS decreased slightly on an increased provision for income taxes. Cash generation was strong, funding the buyback Michael mentioned and adding additional working capital and liquidity to our balance sheet while continuing to support our quarterly preferred and common stock dividends.

Consolidated revenue in the third quarter increased to $85.7 million from $71.8 million as sales of electricity increased by $14.2 million to $81.5 million. Genie Retail Energy, our domestic energy supply business, contributed $81.6 million in revenue, an increase of $10.7 million compared to the year ago quarter. The increase largely reflects growth in our domestic electric customer base which grew by approximately 46,000 meters and 52,000 RCEs compared to the year ago quarter as well as modest increases in electricity consumption per meter and revenue per kilowatt hours sold.

At Genie Retail International, the acquisition of Lumo in January, its subsequent expansion and growth as Genie Japan, boosted revenue to $3 million in the quarter compared to nil in the year ago quarter. Our Genie Energy Services division, which includes Diversegy, our energy brokerage business, and Prism Solar, generated revenue of $1 million compared to $678,000 in the year ago quarter.

The growth in GRE's customer base and improved margins on domestic electricity sales helped Genie Energy to achieve its highest level of consolidated gross profit in at least three years, $26.4 million, an increase of $5.1 million from the prior year.

As Michael discussed, we invested in new meter additions in both our domestic and overseas retail energy businesses at higher rates than in the year ago quarter, driving an increase in SG&A expense to $19.4 million from $13.9 million as a result. Of the $5.5 million increase, $1.5 [Phonetic] million is explained by a reversal of an accrual for legal expenses that took place in the year ago quarter. The balance largely reflects higher customer acquisition expenses at GRE and to a lesser extent at GRE International, partially offset by a decrease in non-cash compensation expense at corporate.

Equity in the net loss of ventures, which is comprised of Orbit Energy and our minority stake in Atid was $238,000 compared to $860,000 in the third quarter of 2018. The decrease was primarily because we have not recorded any impact from Orbit during the quarter as we have fully valued our investment to date. As we provide additional cash to Orbit in the coming months, it will again impact our results.

Our consolidated income from operations was $6.9 million, the same as in the year ago quarter, as the increase in gross profit was offset by higher SG&A expense. Likewise, adjusted EBITDA was unchanged for the year-ago period at $8 million. Our net income per share was $0.18 compared to $0.21 in the year ago period as the provision for income tax increased by $1.2 million or $0.04 per diluted share.

Our balance sheet continues to reflect the strength of our businesses. At September 30 we reported $150.2 million in total assets, including $45.3 million in cash, cash equivalents and restricted cash. Liabilities totaled $62.4 million and working capital totaled $46.5 million. The strength of our balance sheet and cash flows enabled us to use $3.4 million during the quarter to repurchase over 470,000 shares, 1.7% of our outstanding share base.

When we reported results for the second quarter we described how the weaker than expected period was largely resulting from factors not reflective of the underlying strength of our businesses. That assessment has been borne out this quarter. We delivered solid results while investing significantly in growth and returning value to stockholders.

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

To wrap up, the third quarter was characterized by strong revenue growth and improved margins, balanced by the increased investment in domestic and international meter acquisitions. We paid $2.4 million in dividends to holders of our common and preferred stock and effectively returned an initial [Phonetic] $3.4 million through share repurchases, all while increasing working capital and liquidity.

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

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Aaron Shafter with Great Mountain. Please go ahead.

Aaron Shafter -- Great Mountain -- Analyst

Great quarter. I think it's clear after this quarter that the last quarter was an aberration and to one-time costs. You mentioned in the release that you are entering the Texas market. And I'm wondering if you can give any more information on how things are going in Texas so far.

Michael Stein -- Chief Executive Officer

Yeah. Thanks, Aaron. So 100% agree with you. Last quarter was certainly an aberration from our perspective as well. As you pointed out, we demonstrated that very clearly this quarter. In terms of Texas, I mentioned in my remarks that we already have a few thousand RCEs as of today. Going forward, we're just going to talk about the meters and RCEs of the entire Company and just include Texas in those counts. But we're happy with where it is right now and the trajectory we see for it going forward.

Aaron Shafter -- Great Mountain -- Analyst

Okay. And you went over the buyback a little bit quickly and I missed some things in my notes. And I was wondering if you could go over that in a little bit more detail, a little bit slower.

Michael Stein -- Chief Executive Officer

Yes. So we bought back 470,147 shares of the Class B common stock and we paid a total of $3.4 million for those shares.

Aaron Shafter -- Great Mountain -- Analyst

Okay. And did I hear -- you mentioned originally something about preferred as well?

Michael Stein -- Chief Executive Officer

No. We did not buy any of the preferred. I think what you're referring to is, we just mentioned that we paid out the preferred dividends and the common dividends, and along with the buyback, we returned so far about $10 million worth of cash back to shareholders.

Aaron Shafter -- Great Mountain -- Analyst

Okay. Got it. And finally, I'm wondering if you can give some guidance about what's going on with Afek in Golan. And back in the March call, you had originally expected that the equipment and the testing would be -- hopefully done by the end of the second quarter, and that got pushed back because of permitting. And then you expected sometime in the following quarter, but -- and then in the call in August, the expectation was sometime in the middle of the fourth quarter. And now it said, in your release, something about happening in the next two quarters. Do you have the permit? Have you gotten the testing equipment? Has that been received yet at all? And if not, what's the delay? And what more can you tell us on that?

Michael Stein -- Chief Executive Officer

Yeah, fair questions. It's been a little bit frustrating for us as well. So just to recap and recall, so, as of -- we're not really spending any additional money while we wait to be able to do that test, just to clarify. Any ongoing operations -- any ongoing expenditures that we've been spending until this point, during the delayed part of the process, has not been a result of the delay. It's money we would have spent even if we did it on time because we have certain contracts and agreements to employees and some vendors that we have to pay out regardless. So that's point number one.

On the permitting, absolutely right. We've got the permitting. We have everything we need from a regulatory perspective to do that final test. In terms of the equipment, we have almost all of the equipment in country as well. The thing that's holding us up is, there was a little bit of a problem with the rig. The rig had experienced some issues which has delayed the ability -- right now, that rig is working for other -- doing drilling on a contract basis for other companies, for water companies in Israel. And as a result of the problem with the rig, the breakdown in the rig, the work they're doing for other companies has delayed our ability to use that rig for our purposes. But again, that is not our problem. That's -- that problem belongs to Atid Drilling, which we still have a minority share of, but it's not something that affects us significantly.

There is, I would call maybe a 50-50 chance that we'll still be able to do the well test by the end of this year. We just -- we've been in this position before as you pointed out, where we said we think it's going to happen this quarter, we think it's going to happen next quarter and it didn't happen. So we're trying to be a little bit more conservative on our -- on the timelines that we give, and that's why we said the next couple of quarters.

Aaron Shafter -- Great Mountain -- Analyst

Okay. Great.

Operator

[Operator Closing Remarks]

Duration: 17 minutes

Call participants:

Michael Stein -- Chief Executive Officer

Avi Goldin -- Chief Financial Officer

Aaron Shafter -- Great Mountain -- Analyst

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