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Genie Energy Ltd (NYSE:GNE)
Q2 2020 Earnings Call
Aug 6, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good evening and welcome to Genie Energy's Second Quarter 2020 Earnings Call. [Operator Instructions] In this presentation, Genie Energy's management team will discuss operational and financial results for the three-month period ended June 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 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 and pro forma revenue and pro forma income from operations for its Genie 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's and the Genie Retail Energy 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's results to the nearest comparable GAAP 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 8-K with the SEC.

[Operator Instructions]

I will now turn the conference over to Mr. 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 second quarter 2020 earnings call. Today we will discuss our operational and financial results for the three months ended June 30, 2020. As in prior quarters, my remarks will focus on our operational results and key performance indicators. Avi Goldin, our Chief Financial Officer will follow with a deep dive into the quarter's financial results. Following Avi's remarks, we will be glad to take your questions.

Genie Energy generated the highest level of adjusted EBITDA of any second quarter in the Company's history and much improved financial results compared to the difficult year-ago quarter. Operationally, our businesses also performed very well despite the challenges of the COVID-19 impacted environment. Globally, our retail energy provider businesses which generated 94% of our revenue added 64,000 RCEs year-over-year and 20,000 sequentially to reach 421,000 RCEs with solid growth in both our domestic and international markets. Global meters served increased by 88,000 year-over-year and 4,000 sequentially to 536,000.

The increases in meters served were driven by expansion at Genie Retail International, including those of our Orbit Energy joint venture in the UK. Here in the US, Genie Retail Energy added 25,000 RCEs year-over-year and 13,000 sequentially to reach 343,000 RCEs. Domestic meters served declined by 4,000 year-over-year and 10,000 sequentially to 374,000. The robust increase year-over-year in domestic RCEs relative to the decrease in meters served reflect our sustained focus on acquiring higher consumption meters, warmer than average weather in the second half of the quarter and the COVID-19 driven shift to work from home. These factors combined to increase electric per meter consumption by 26% compared to the year-ago quarter.

The COVID-19 pandemic has impacted several key aspects of GRE's business operations with a mixed financial impact. Our customer base is predominantly residential. So, we benefited from the increased demand for electricity as customers work from their homes rather than offices. On the other hand, like other retail providers, we suspended our face to face customer acquisition programs in March as public health measures were implemented to combat COVID-19. As a result, gross meter adds decreased to 40,000 this quarter from 69,000 in the prior quarter and from 91,000 in the year-ago quarter.

While we are in tenth [Phonetic] on growing GRE's meter base over the long term, the decline in meter adds has two positive short-term impacts, both customer acquisition expense and customer churn rates have decreased significantly. GRE's churn rate decreased to 3.9% in the second quarter from 4.7% in the first quarter. That's partly because new customers tend to have higher rates of churn than longer tenured customers. So we would expect to see churn rates fall after the pace of gross meter addition slows. But also COVID-19 halted not just our own face to face customer acquisition programs, but also our competitors' programs.

This effectively eliminate the key churn driver. Looking ahead at GRE, we expect to see a modest rebound in meter acquisition beginning in the third quarter. Public health restrictions have begun to ease in some of our markets, which allows us to resume face to face sales and marketing. We'll also be entering some new utility territories.

Turning now to Genie Retail Energy International. RCEs increased 40,000 year-over-year and 7,000 sequentially to 79,000. Meters served increased by 93,000 year-over-year and 14,000 sequentially to 161,000 meters. We generated solid year-over-year growth in each of our overseas markets, the UK, Scandinavia and Japan. At June 30, GRE International held 30% of our global meters served and nearly 18% of our global RCEs. I'm very pleased by the progress we made to diversify our customer base. Also this quarter, we successfully leveraged Lumo's expertise and platform to enter the Swedish retail supply market and began acquiring customers there.

At Genie Energy Services, Genie Solar had a record quarter generating positive adjusted EBITDA for the first time, while Diversegy is close to breakeven. As I mentioned last quarter, we are refining Prism Solar's business model to more closely align with the current business environment. GES recorded an impairment of $800,000 in the second quarter related to the writedown of an asset impacting income from operations but not adjusted EBITDA. At GOGAS, we have had to again postpone the final well tests at OPEC [Indecipherable] drilling site. Because of COVID-19 restriction in the central member of our technical team and not being able to get a visa.

I'm reluctant to offer a new timeframe for completion of the test, when the execution depends on factors outside of our span of control, but I will provide an update for you when we discuss our third quarter results. Before turning the call to Avi, I want to highlight that given our continued favorable outlook and strong cash generation in recent quarters and after raising our dividend last quarter, we resumed repurchasing our shares in the second quarter while continuing to pay the dividend at the increased rate. And also a big shout out to the Genie team that again an outstanding job of growing our business and significantly enhancing our bottom line results, although working from home. A big thank you then.

Now, here is Genie's CFO, Avi Goldin to discuss our financial results.

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 June 30, 2020. Throughout my remarks I will compare second quarter 2020 results to the second quarter of 2019, focusing on the year-over-year rather than sequential comparison removes from consideration to seasonal factors that impact our retail energy business. Keep in mind that the second quarter is typically characterized by relatively low energy consumption. After the peak heating season in first quarter and before the third quarter's peak air conditioning months in July and August.

Results are driven by the electric side of the business with minimal gas consumption. The second quarter's financial results were strong, particularly in comparison to the year-ago quarter. As you may recall, the second quarter of last year was heavily impacted by mild weather and a mark-to-market within our hedge book. We express confidence that the business would rebound in our performance since then has justified that contents. In the trailing 12-month period, the Company has achieved its highest level of consolidated operating income and adjusted EBITDA. As Michael discussed, the COVID-19 pandemic has resulted in mixed operating impacts increasing electricity consumption while decreasing churn and slowing the pace of gross meter additions.

In addition, the decline in overall commercial industrial power consumption in our markets has helped mitigate price volatility. Despite the increase in residential consumption. As we have noted before, predictable commodity price environments tend to favor our business model. Consolidated revenue in the second quarter increased by $15.1 million to $76.1 million. The increase was powered by higher per meter electricity consumption resulting from the general acquisition of higher consumption meters, warmer weather than the year-ago quarter and increased residential electricity consumption from residential customers as part of the transition to work from home during COVID-19.

At Genie Retail Energy, revenue increased by $12 million to $66.5 million. Electricity sales accounted for nearly all of the increase. Electricity consumption increased 35% from the year-ago quarter, more than offsetting a modest decrease in revenue per kilowatt hours sold. Overseas, at Genie Retail Energy International, revenue increased by $2.2 million dollars to $5 million reflecting meter base growth at Lumo and Scandinavia and Genie Japan. As discussed in our earnings release, we account for the results of Orbit Energy, our joint venture operating in the UK using the equity method and its results of operations are not consolidated in our revenue or gross profit.

During the quarter, we provided Orbit with an additional $1.5 million of capital, resulting in a net loss of Orbit Energy of that amount compared to a net loss of $867,000 a year ago quarter. Our Genie Energy Services division increased revenue by $859,000 to $4.6 million. Consolidated gross profit in the second quarter, more than doubled from the year-ago quarter increasing by $10.5 million to $19.5 million. As I noted in my opening, we had a difficult quarter a year ago. The operating environment was weak on lower consumption and mark-to-market loss on our forward hedge book. This quarter we benefited from the strong consumption levels at Genie Retail Energy, and our consolidated gross margin rebounded to 25.6% from 14.7% in the year-ago quarter.

The decrease in meter acquisition expense of GRE helped us to reduce consolidated SG&A expense by $2.3 million to $16 million. The rebound in GRE's margin and reduced customer acquisition spend helped drive a $12 month dollar improvement in our consolidated income from operations, which is $2.7 million compared to a loss from operations of $9.3 million in the year-ago quarter. Adjusted EBITDA reflects the equity net loss of equity method investees of $1.2 million was positive $3.5 million, compared to negative $9.1 million a year ago.

Earnings per share was $0.06 per diluted per share compared to a net loss of $0.29 per share in the year-ago quarter. Our balance sheet continues to provide us with strategic flexibility. At June 30, we had $51.8 million dollars in cash, cash equivalents and restricted cash and working capital of $49.1 million. Cash provided by operating activities in the second quarter was $16.4 million compared to cash used in operating activities of $3.1 million in the second quarter of 2019. The swing is attributable in large part to the change in year-over-year income as well as the unwind of cash collateral that was posted in the first quarter of 2020. That was returned in the second quarter in support of the HELOC.

As Michael mentioned, we continue to be diligent about returning value to our shareholders. This quarter, we repurchased over 200,000 shares of Genie Class B common stock for $1.5 million. To wrap up, we met the various challenges of the COVID-19 environment, posted a strong second quarter, significantly improving on the financial results of the same period a year-ago, strong consumption per electricity meter and reduction in customer acquisition spend keyed substantial year-over-year improvement in our bottom line results.

This concludes my discussion of our financial results. Now operator, back to you for Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Aaron Shafter from Great Mountain Capital Management. Please go ahead.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

Hi. Congratulations on yet another strong quarter. Not only was it a vast improvement over Q2 of 2019, Q1 of this year, decent record for the Company. So, now that you've gone year showing strong results from the few bad quarter last year, do you expect the market to recognize the Genie stock is on priced?

Michael Stein -- Chief Executive Officer

Hi, Aaron, thanks. So it is good to hear from you, again. We don't really know what's going to happen, if we should get a little bit of a boost, but we'll wait and see how the market reacts and you know as we've discussed in previous quarters were, and as we did this quarter will be diligent in repurchasing if the opportunity comes our way.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

Okay. So you did repurchase more than 200,000 shares. And you see opportunity, we can expect to more repurchases.

Michael Stein -- Chief Executive Officer

Yeah. We tried to be strategic about it. So it all depends on the price and where we think we are in the quarter.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

Okay. And during the call, I was mentioned that you're going to go into some entering some new territory. Can you specify which new territories you're going to be entering?

Michael Stein -- Chief Executive Officer

I prefer not to specify pretty close, but we have mentioned in the past, we -- we have been licensed in Michigan and Georgia and those are among the two states where we're going to start operating and then there are a bunch of utility you territories within the states that we already operate and where we get had customers and to get could go in there, too.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

Okay. And then finally [Technical Issues] last 10 wells. I just -- that we won't another update on solar, you reporting third quarter results.

Michael Stein -- Chief Executive Officer

Yeah, I'm hoping we'll have an update before then. I just want to set expectations. We're really close. We thought we were going to be able to test this past this quarter. We had all visas in place. So we were about to get all visas in place. So, we're about to get all the visas in place, and we're missing one approval, and that's all because of the COVID. The COVID environment, we weren't able to Visa for residential worker and as soon as we get that, we should be able to do. He has got a quarantine in Israel for a few weeks and then we should able to keep growing. We -- we just wait until we get the approval.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

Okay. So we're just waiting on the Visa for one worker and he gets the two weeks in quarantine and then he should be ready to go. Is that what I understand, correctly.

Michael Stein -- Chief Executive Officer

Yeah, that's what we're hoping that's what we've been told.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

Okay. So the new Corona Zohr [Phonetic] whatever they're calling them and Israel announced that he wants to open up the country to at least from certain countries air travel by in the next week or two. So I guess we can help. All right.

Michael Stein -- Chief Executive Officer

We can only hope.

Aaron Shafter -- Great Mountain Capital Management -- Analyst

All right. That's it. Thanks again for answering my questions and congratulations again on another great quarter.

Michael Stein -- Chief Executive Officer

All right. Take care. Thanks a lot.

Operator

[Operator Closing Remarks]

Duration: 17 minutes

Call participants:

Michael Stein -- Chief Executive Officer

Avi Goldin -- Chief Financial Officer

Aaron Shafter -- Great Mountain Capital Management -- Analyst

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