Genie Energy Ltd (GNE) Q1 2021 Earnings Call Transcript

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Genie Energy Ltd (GNE -1.98%)
Q1 2021 Earnings Call
May 6, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Genie Energy's First Quarter 2021 Earnings Call. [Operator Instructions]

On this morning's call, Michael Stein, Genie Energy's Chief Executive Officer and Avi Goldin, Genie Energy's Chief Financial Officer will discuss operational and financial results for the three-month period ended March 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 each reporting segment is reconciled to its respective segments' income from operations for all periods presented. The Genie Energy's 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. [Operator Instructions] 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.

Michael Stein -- Chief Executive Officer of Genie Energy; Chief Executive Officer of Genie Retail Energy

Thank you, operator. Welcome to Genie Energy's first quarter 2021 earnings call. Today, we will discuss our operational and financial results for the three months ended March 31, 2021. Avi Goldin, our Chief Financial Officer will follow with a deeper dive into the quarter's financial results. Following Avi's remarks, we will be glad to take your questions.

As we discussed when we reported last quarter's earnings, the first quarter was impacted by unusually severe weather events that led to massive spikes in wholesale electricity prices in Texas and Japan. The severe winter storms in Texas and Japan had an aggregate negative impact on income from operations of approximately $15.5 million. In Texas, where the impact of the storm this quarter was approximately $13 million, our industry has borne a disproportionate share of the financial burden. We remain hopeful that perspective legislation and regulatory changes and/or litigation will provide material relief.

Because of our ongoing commitment to financial strength and liquidity, while avoiding debt, our balance sheet remains in good shape. Moreover, we have set ourselves the goal of finishing the year with a stronger balance sheet than we had at the start, despite the impact of the first quarter's weather events. Our underlying business remain very strong. On a consolidated basis, we achieved a record first quarter revenue and added to our meter and RCE counts, even though the first quarter is a historically slow quarter for customer acquisition. RCEs increased by 10,000 to 450,000 and meters increased by 7,000 to 572,000.

At Genie Retail, absent the Texas storms impact, our domestic business would likely have achieved record adjusted EBITDA despite the challenges of the pandemic environment. GRE's revenue reached a new high as consumption per meter again increased significantly compared to the year-ago quarter and churn remained subdued.

At GRE International, we ramped up our investment to expand our customer base in Sweden and dealt with wholesale price spikes, most notably in Japan, but to a lesser extent in Scandinavia. But to put that in perspective, across all of our international markets, our businesses are maturing. Adjusted for the storms impact in Japan and gross margins increasing, and we expect that the growth capital requirements for these businesses will decline significantly during the year.

With that in mind, we are continuing our strategic review of our International business, carefully balancing the advantages of near-term cash generation with the need for capital to optimize long-term growth. We expect to have more to say on that in the coming quarters.

Turning now to our former Genie Energy Services segment, we have renamed it Genie Renewables. The change reflects the increasing prominence of our solar-related businesses within the segment and the rapid growth of the renewables market. In the first quarter, even though Genie Renewables revenue decreased, gross margin improved significantly, while SG&A decreased materially. The improvements reflect our shift in focus toward our Renewables businesses with higher margins.

Looking ahead, we are working to expand the geographic footprint for our solar solutions businesses and are evaluating opportunities to increase the vertical integration of those solutions. This shift will enable us to capture more of the commercial solar value chain. We believe that the segment's results will be the beginning of a continued trend of growth and profitability.

Wrapping up, I want to emphasize that had it not been for two exceptionally challenging winter storms, this would have been a terrific quarter. Across the company, we are incredibly excited about the remainder of the year. Our underlying business remains strong. Our global customer base is at its all-time peak, our business is increasingly diversified and we are developing multiple promising growth opportunities with tremendous potential, while evaluating the best units in which to invest in continued growth.

Given our positive outlook, we were pleased to purchase nearly 147,000 shares in a private transaction following the quarter close. While we have paused our dividend, we will continue to consider alternative means to return value to our stockholders.

Now, I'll turn the call over to Avi to review the first quarter's 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 March 31, 2021.

Throughout my remarks, I compare first quarter 2021 to the results for the first quarter of 2020. Focusing on the year-over-year, rather than the sequential comparisons, removes some consideration of the seasonal factors that are characteristic of our retail energy business.

As Michael mentioned, our revenue in this quarter was the highest in our history. Bottom line results would have been similarly strong had it not been for the losses incurred as a result of the winter storm Uri in Texas and extreme weather in Japan. Nevertheless, our careful forward hedging and demand management programs, the diversification of our business operations and a strong balance sheet enable us to not only manage through the volatility, but to finish the quarter with sufficient capital and liquidity to finance and prioritize our growth initiatives.

Consolidated revenue increased 30% to $135 million. Revenue at Genie Retail Energy increased 15% to $91 million. Electricity and natural gas consumption per meter increased, boosted by the shift to work-from-home as a result of COVID-19 pandemic, as well as colder winter weather, including the impact of winter storm Uri. These factors more than compensated for decreased per unit average revenue on sales in both electricity and natural gas.

At Genie Retail Energy International, revenue increased to $42 million from $7 million in the year-ago quarter. The $35 million increase predominantly reflects our purchase of the outstanding stake in our Orbit joint venture in the U.K. during the fourth quarter of 2020 and the consolidation of its results. For comparison purposes, Orbit Energy generated $19.6 million in revenue in the year-ago quarter. Additionally, expansion of our customer bases in Scandinavia and the U.K. also contributed meaningfully to the revenue increase.

Genie Renewables revenue was $2.5 million, a decrease from $18 million in the year-ago quarter when Prism Solar delivered the bulk of a large solar panel order. Consolidated gross profit decreased $11.4 million to $17.5 million. We estimate that the winter storms in Texas and Japan together impacted gross profit by approximately $15.5 million and, except for their impact, the quarter's results would have been very strong.

Consolidated SG&A increased to $24.1 million from $19.5 million. The increase was entirely incurred at GRE International and reflects the consolidation of Orbit Energy, including Orbit's customer acquisition expense. Consolidated loss from operations totaled $6.6 million compared to income from operations of $9.2 million in the year-ago quarter, a decrease of $15.8 million.

Adjusted EBITDA was negative $4.5 million compared to positive $10.3 million in the year-ago quarter, a decrease of $14.9 million, primarily due to the Texas and Japan weather and the consolidation of Orbit Energy. At GRE, income from operations decreased to $1.2 million from $13 million. Adjusted EBITDA decreased to $1.5 million from $13.3 million. Absent the impact of winter storm Uri in Texas, GRE's adjusted EBITDA would have been approximately $14.5 million, a record for a domestic supply business. The first quarter results again benefited from the increased consumption per meter we've seen since the pandemic as a result of the shift to work-from-home.

At GRE International, loss from operations was $6.7 million compared to $2.5 million in the year-ago quarter. For comparison purposes, Orbit Energy's loss from operations in the first quarter of 2020 was $3 million. The winter storm in Japan contributed approximately $2.5 million, a $4.1 million decrease. The balance primarily reflected increased supply costs at Lumo.

Genie Renewables income from operations increased to $559,000 from $342,000 a year earlier. In the year-ago quarter, our gross margin was 9% primarily generated by the Prism Solar panel deliveries. As Michael mentioned, we are now focusing on higher margin opportunities within Genie Renewables. The first quarter 2021 results suggest there's some early success as our gross margin increased to 45%. Genie Energy's loss per diluted share was $0.09 compared to earnings per share of $0.20 in the year-ago quarter.

Turning now to the balance sheet. At quarter end, cash, restricted cash and marketable equity securities totaled $41.7 million. Working capital was $35.4 million and non-current liabilities were $3.5 million.

That concludes my discussion of our financial results. All in all, our financial standing is in good order and our underlying business is very strong. In the balance of 2021, we expect to accelerate cash generation, strengthen our balance sheet and invest prudently in growth opportunities.

Now, operator, back to you for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we seem to have no questions at this time. [Operator Closing Remarks]

Duration: 12 minutes

Call participants:

Michael Stein -- Chief Executive Officer of Genie Energy; Chief Executive Officer of Genie Retail Energy

Avi Goldin -- Chief Financial Officer

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