Genie Energy Ltd. (NYSE:GNE) Q3 2023 Earnings Call Transcript

Genie Energy Ltd. (NYSE:GNE) Q3 2023 Earnings Call Transcript November 6, 2023

Operator: Good morning and welcome to Genie Energy’s third quarter 2023 earnings call. Until the Q&A portion of the 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. After today’s presentation by Genie Energy’s management, there will be an opportunity to ask questions. Please note this event is being recorded. I will now turn the call over to Brian Siegel of Hayden IR.

Brian Siegel: Thank you Operator. With me today are Michael Stein, Genie Energy’s CEO, and Avi Goldin, Genie Energy’s CFO, who will discuss operational and financial results. Any forward-looking statements made during this conference call, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results to differ materially from those statements. These risks and uncertainties include but are not limited to those discussed in the reports that we file periodically with the SEC. Genie assumes no obligation to update any forward-looking statements that we have made or may make, or to update the factors that may cause actual results to differ materially from those that we forecast. During the remarks, management may make reference to adjusted EBITDA, a non-GAAP measure.

Management believes that its measure of adjusted EBITDA provides useful information to both management and investors that supplement our core operating results. Our earnings release, which is posted in the genie.com IR page, 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 in the earnings release, including the respective segments’ income from operations for all periods presented. I will now turn the conference over to Michael Stein, Genie’s Chief Executive Officer.

Michael Stein: Thank you Brian. Welcome to Genie Energy’s third quarter earnings call. Our momentum from the first half of the year continued into Q3 with record quarterly revenues and nearly $19 million in adjusted EBITDA, driven mainly by GRE’s investments in retail customer acquisition since early in the year. Additionally, Genie Renewables, our GREW continued to expand its pipeline of potential projects while moving forward in the construction process with two of its projects. At GRE, we added 60,000 gross new meters in the quarter, up 81% from Q3 of last year; however, we were less aggressive in adding customers compared to the first half of the year and therefore RCE and meters were essentially flat sequentially despite year-over-year growth of 49% and 42% respectively.

Our churn rate was down 30 basis points from last year at 4.4%. While we were not as aggressive as in the first half, we continued to capitalize on pockets of customer acquisition opportunities during the quarter. At GREW, we added two projects comprising 9 megawatts to our development pipeline during the quarter, while continuing to build out the two New York projects under construction. As a result of our strong performance year to date and overall 2023 outlook, we are increasing our previous consolidated adjusted EBITDA guidance range of $47 million to $55 million to $52 million to $57 million. This range increase reflects our strong third quarter and continued optimism about the business as we head into the winter. Remember, these results also represent a significant increase from our pre-2022 normalized EBITDA range of $25 million to $30 million, and these are consolidated figures even after allowing for our continued investment in GREW.

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Q&A Session

These higher expectations reflect our larger customer base, transition to operating exclusively in domestic retail markets, and our focus on continuously enhancing our analytical and operational capabilities. For the fourth quarter, we expect to continue to invest in new retail customer acquisition. With wholesale energy costs remaining at lower levels, we will continue to pursue targeted opportunities created by the higher legacy cost base rates of certain incumbent utilities. This organic targeted growth strategy should enable us to expand our meter base cost effectively, albeit at a lower growth rate than in the first half of the year. Looking to the fourth quarter for GREW, we are making solid progress toward completing our Perry, New York solar farm and are in the construction phase for our Lansing, New York project.

Of course, we will also continue looking for opportunities to expand our pipeline of potential projects. To wrap up, we delivered yet another quarter of strong operational and financial results while continuing to position ourselves to create incremental medium to long term value with our solar pipeline. Now I’ll turn the call over to Avi for his discussion of Q3 financial results.

Avi Goldin: Thank you Michael, and thanks to everyone on the call for joining us this morning. My remarks today focus on our financial results for the three months ended September 30, 2023. Throughout my remarks, I will primarily compare third quarter 2023 results to third quarter 2022 to remove from consideration seasonal factors that are characteristic of our retail energy business. The third quarter, which includes this year’s peak cooling season, is typically characterized by high levels of per-meter electricity consumption and low per-meter levels of gas usage. As Michael mentioned, our third quarter 2023 financial results were highlighted by record quarterly revenue and solid bottom line results. Consolidated revenue increased $44 million or 54% to $125 million, with strong contributions from both GRE and Genie Renewables.

At GRE, we increased quarterly revenue 51% to $120 million, driven by the significant investments we’ve made in customer acquisition this year. Sales of electricity increased 55% from the year ago quarter. A 57% increase in electric meters served coupled with a 13% increase in consumption per meter drove a 73% increase in total kilowatt hours sold. At Genie Renewables, revenue increased to $4.7 million on growth within solar, Diversegy, and CityCom. Our consolidated gross profit in third quarter was a very strong $31 million, yielding a gross margin of 33%. Our gross profit decreased $2 million or 5% from the year ago quarter, while our gross margin declined from 41% in the year ago quarter. It is important to note that margin in 2022 was positively impacted by our decision to reduce customer load in the face of volatile commodity prices.

In 2023, the margin environment has returned to historical levels and the company has successfully added profitable meters. Consolidated SG&A increased 20% to $23.2 million. At GRE, SG&A increased 19% to $18.8 million driven by increased customer acquisition expense. Genie Renewables SG&A increased 63% to $2.3 million as we continued to expand Genie Solar’s operational capabilities. Corporate SG&A decreased from $2.4 million to $2.1 million in the quarter. Consolidated income from operations was $17.9 million while adjusted EBITDA was $18.5 million. Both decreased 24% from their respective levels in the year ago quarter, reflecting both the reduction in gross profit and increased SG&A expense. GRE delivered $22 million in income from operations compared to $27.4 million a year ago.

Adjusted EBITDA was $22.3 million compared to $27.7 million a year earlier. At Genie Renewables, the loss from operations increased to $2.1 million from $1.5 million. Renewables was impacted by an $820,000 write-down in the value of our solar panel inventory. Diluted EPS from continuing operations, which excludes any impact from our discontinued international operations, decreased to $0.54 in the third quarter 2023 from $0.85 a year earlier. Genie’s third quarter diluted EPS was $0.53 on net income attributable to Genie common stockholders of $14.5 million compared to EPS of $0.70 on net income attributable to Genie common stockholders of $18.3 million in the year ago quarter. In the year ago quarter, we exited our remaining international businesses in Scandinavia and booked a $3.9 million loss from discontinued operations, compared to a loss from discontinued operations of $300,000 in this quarter.

Genie Energy’s balance sheet continued to strengthen during the quarter. Cash, restricted cash and marketable securities increased by $28.7 million sequentially to $143.8 million. Working capital was $164.4 million and non-current liabilities totaled just $2.5 million. Wrapping up, in the third quarter a year ago, we capitalized on the unprecedented market volatility to achieve exceptional margins in our retail business. This quarter’s results represent solid performance under more normalized market conditions. GRE benefited significantly from the investments we’ve made this year to build our customer base and is well positioned for a strong finish to 2023 and beyond. At Genie Renewables, we continue to advance our pipeline of utility-scale solar projects while building out our capabilities for commercial solar development.

From a financial standpoint, we are particularly well positioned for a high interest rate environment. With our strong business performance and unlevered balance sheet, we continue to put robust cash flows from our retail business to work to expand that business as market conditions permit while prudently investing in promising solar development projects that will accrete significantly to our bottom line results in the coming years, and accomplish this while continuing to return value to our stockholders. Now Operator, back to you for Q&A.

Operator:

Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.