Q1 2023 Genie Energy Ltd Earnings Call

Participants

Avi Goldin; CFO; Genie Energy Ltd.

Michael M. Stein; CEO; Genie Energy Ltd.

Brian S. Siegel; MD; Hayden IR, LLC

Presentation

Operator

Good morning, and welcome to Genie Energy's First Quarter 2023 Earnings Call. (Operator Instructions) Please note, this event is being recorded. I will now turn the call over to Brian Siegel of Hayden IR.

Brian S. 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 their remarks, management makes 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 on 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 through the respective segment's income from operations for all periods presented.
I will now turn the conference over to Michael Stein, Genie's Chief Executive Officer.

Michael M. Stein

Thank you, Brian. Welcome to Genie Energy's first quarter earnings call. As those of you who have been following us know, in 2022, we achieved remarkable financial results. Those results were driven by our ability to be nimble with customer acquisition and renewals while our risk management team did an excellent job managing market volatility.
It was a banner year, but it came at a cost. Throughout 2021 and 2022, we saw the size of our customer base shrink as due to extraordinary volatility in the wholesale energy markets, we scaled back our customer acquisition efforts.
However, during that period, we repeatedly stated that when the volatility is subsided, we will be ready to return to growth. In the first quarter of 2023, we delivered on that promise. Allow me to elaborate.
In the first quarter, our REP business, GRE, increased its meter base by 63,000, an increase of 22% over last year. And the customer base grew by 92,000 RCEs, a 35% increase from last year.
With this increase in just 1 quarter, we were able to climb to within 3,000 RCEs of the highest domestic RCE count in the company's history. Meanwhile, our SG&A expense decreased compared to the year-ago quarter.
Financial results were also excellent. While not at the level of last year's Q1's extraordinary performance, we were able to deliver the next best Q1 bottom line results in GRE's history.
Looking ahead, we expect solid growth and strong financial results to continue in the second quarter. Genie Renewables, or GREW, increased revenue, reflecting our increased services to third-party customers.
Additionally, we expanded our resource investment to support our vertically integrated strategy to develop and own solar power generation projects, which led to negative adjusted EBITDA for the segment. Of note, we moved closer to notice to proceed, or NTP, with construction on several projects. And after the end of the quarter, we broke ground on our first project.
We are also moving towards gaining site control on more potential community solar and utility-scale solar projects. In this quarter's earnings release, we are disclosing our current development pipeline, which consists of approximately 78 megawatts across 10 projects at different stages of the development process.
We intend to continue updating that table on a quarterly basis as we continue to win new projects and move them forward through the development cycle. We are excited about this business opportunity and expect it to drive significant value in the future.
Transitioning to our 2023 outlook, we are on target to generate consolidated adjusted EBITDA in the $40 million to $50 million range, well above our pre-2022 normalized $25 million to $30 million range. In addition, we expect to continue to significantly grow our customer base organically.
Looking to the second quarter, with wholesale energy costs stabilized at lower levels relative to the past year, we continue to see an outstanding arbitrage opportunity versus the incumbent utilities. We will continue to exploit this by adding customers, albeit likely at a lower growth rate than we saw in the first quarter.
Looking to the full year for Group, we expect to complete construction on several Genie-owned projects while continuing to evaluate a large pipeline of potential opportunities. As a result, we intend for [GREW] to become a major national player in the solar generation and consultant of energy spaces in years to come.
In summary, we continue to deliver strong results in the first quarter and have taken several steps forward in our efforts to generate long-term growth in our emerging renewables businesses. And finally, we continue to fulfill our commitment to return capital to our shareholders.
Now I'll turn the call over to Avi for his discussion of our Q1 financial results.

Avi Goldin

Thank you, Michael, and thanks to everyone on the call for joining us this morning. My remarks today cover our financial results for the 3 months ended March 31, 2023. Throughout my remarks, I'll primarily compare first quarter 2023 results to the first quarter of 2022 to remove from [consideration] the seasonal factors that are characteristic of our retail energy businesses.
The first quarter is typically characterized by seasonally elevated levels of per meter electricity and gas consumption, as it includes the year's peak heating months in most of our REP service areas. Genie's first quarter financial results reflected our retail businesses very strong underlying fundamentals and continued investment to build out our renewables platform.
Last year, under the elevated levels of volatility in global energy markets, we disclosed that we'll generate stronger than usual margins of GRE by moderating our customer acquisition engines to reduce consumption.
In addition to lowering our customer acquisition spend, this enabled us to monetize a portion of our forward commodity hedges and reduce our effective supply cost that also had the impact of reducing the size of our customer book.
We said at the time that we'd work to rebuild our customer base when market conditions warranted, and we were, as Michael discussed, remarkably successful in the first quarter, adding 92,000 RCEs. We'd accomplish this without increasing acquisition expense by aggressively pursuing lower-cost marketing channels.
From a balance sheet perspective, our strong operating results this quarter enabled us to further fortify our financial position, even as we continue to return value to stockholders through quarterly common stock dividends and redemption of our preferred stock.
Now let's look at the quarter's results in more detail. First quarter consolidated revenue increased 23% to $105 million from $86 million in the year ago quarter, driven by our retail businesses. At GRE, first quarter revenue increased by 21% to $101 million, led by a 25% increase in electricity sales to $74 million.
Average revenue per kilowatt sold decreased by 20%, reflecting higher market rates across virtually all of our retail electricity markets. Although the mild winter contributed to a 10% reduction in per meter electricity consumption, our meter growth helped boost overall kilowatt hours sold by 4.5% compared to the year-ago quarter.
Gas sales increased 10% to $27 million on 11% increase in revenue per therm sold.
At Renewables, our first quarter revenue increased to $3.9 million from $2 million, primarily reflecting increased revenue from our community solar marketing business, supplemented by sales growth at Diversegy, our energy brokerage business, but on a consolidated basis in the first quarter decreased 29% to $33 million from $47 million in the first quarter of 2022.
At GRE, gross profit decreased to $33 million from $47 million and gross margin decreased to 32% compared to 56%, reflecting the extraordinary nature of the year-ago quarter's environment that I discussed earlier.
Consolidated SG&A increased 9% to [$22 million] from $20 million. At GRE, SG&A decreased to $16.1 million from $16.4 million. Although we acquired 85,000 more meters this quarter than year-ago period, much of that growth was generated through lower cost acquisition channels.
We expect to continue to build our book as we head further into the year in a more stable and normalized market, and we expect our per meter acquisition expense will increase.
Corporate SG&A increased to $4 million from $2.7 million, primarily driven by nonroutine expenses incurred in the wind-down of our former international operations, with the residual impact of those operations now included within corporate.
Consolidated income from operations decreased to $11.3 million in the first quarter from $27 million, and consolidated adjusted EBITDA decreased to $12.4 million from $28 million, reflecting the outsized performance in the first quarter of 2022.
At Genie Retail, income from operations was $16.4 million and adjusted EBITDA was $16.8 million, which reflects a strong first quarter result, albeit below last year's records of $30.2 million and $30.5 million, respectively.
Genie Renewables income from operations and adjusted EBITDA were negative $1.1 million and negative $857,000 respectively, compared to negative $478,000 and negative $468,000 in the year-ago period. The change reflects the increase in SG&A as we invested to grow our renewables platform and expand our operational capabilities.
Genie's diluted EPS was $0.54 per share, a net income attributable to Genie common stockholders of $14.3 million compared to EPS of $0.67 and net income attributable to Genie common stockholders of $17.5 million in the year-ago quarter.
Net income in the quarter was positively impacted by onetime gains within discontinued operations and at corporate.
Turning now to our balance sheet. On March 31, cash, restricted cash and marketable equity securities totaled $113.7 million, an increase from $105.1 million at December 31 of last year. Working capital was $142.4 million, and noncurrent liabilities totaled just $2.6 million.
To wrap up, we kicked off 2023 with a strong first quarter, highlighted by the financial performance at GRE, including robust margins and impressive customer growth.
We expect to continue to leverage our strong balance sheet to build our retail book and pursue other growth opportunities in both our retail and renewables businesses in the coming quarters, while further strengthening our balance sheet and continuing to drive value to holders of our common stock.
Now operator, back to you for Q&A.

Operator

(Operator Instructions) This concludes our question-and-answer session and conference call. Thank you for attending today's presentation. You may now disconnect.