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Genie Retail Energy Reports Continued Acceleration In Customer Growth

Genie Retail Parent Names New CEO

November 2, 2017

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Copyright 2010-17
Reporting by Paul Ring •

Genie Retail Energy (GRE), the parent of IDT Energy and other retail energy brands, continued to see accelerated customer growth during the three months ended September 30, 2017

Genie Retail Energy was serving 446,000 meters as of September 30, 2017, versus 430,000 as of June 30, 2017 and 383,000 a year ago.

The net growth of 16,000 meters from June 30, 2017 to September 30, 2017 is higher than the new growth of 12,000 meters from March 31, 2017 to June 30, 2017, and net growth of 6,000 meters from December 31, 2016 to March 31, 2017

Although, as previously reported, Genie Retail Energy acquired Mirabito Natural Gas during the third quarter of 2017, as Mirabito's book consisted of C&I customers, it only contributed 900 natural gas meters to Genie Retail's customer growth during the third quarter, and Genie Retail saw organic growth accelerate independent of the Mirabito acquisition.

At September 30, 2017, Genie Retail was serving 330,000 electricity meters and 116,000 natural gas meters.

In terms of RCEs, Genie Retail was serving 325,000 RCEs as of September 30, 2017, versus 289,000 as of June 30, 2017, and 241,000 a year ago. The Mirabito Natural Gas acquisition contributed 12,800 RCEs to the third quarter 2017 total

Gross meter acquisitions in 3Q17 increased to 111,000 from 58,000 in the year ago quarter.

Meters enrolled in offerings with fixed rate characteristics constituted approximately 36% of GRE's load during September 2017 compared to 13% of GRE's load during September 2016.

GRE's average monthly customer churn increased to 6.9% in 3Q17 from 6.0% in the year ago quarter, and from 6.3% in 2Q17. The increase reflects the higher rate of gross customer additions in recent quarters, as newly acquired customers tend to have higher rates of churn than longer term customers.

Genie announced that the Board of Directors of Genie Energy Ltd. has appointed Michael Stein as Chief Executive Officer effective immediately. Stein succeeds Howard Jonas, who continues to serve as Chairman of the Board.

Stein had been serving as CEO of Genie Retail Energy, as well as COO of the parent Genie Energy Ltd.

Genie Retail Energy's gross profit in 3Q17 increased to $21.8 million from $20.2 million in 3Q16. The gross profit on electricity sales increased to $20.9 million from $20.0 million primarily reflecting the increase in electricity consumption from the larger customer base which more than offset the decrease in gross margin percentage on electricity sales.

GRE's revenue increased to $69.5 million in 3Q17 from $57.2 million in 3Q16.

During the current quarter, the company accrued $1.5 million related to a pending regulatory matter in New Jersey. The accrual reduced revenue by $1.3 million with the remaining 200 thousand dollars being recorded to selling, general and administrative expense.

GRE's income from operations decreased to $4.8 million and Adjusted EBITDA decreased to $5.4 million in 3Q17, from $7.9 million and $8.0 million, respectively, in the year ago quarter, primarily as a result of an increase in customer acquisition costs.

GRE's SG&A expense increased to $16.8 million from $12.3 million in 3Q16 primarily due to an increase in customer acquisition costs as a result of the 53,000 additional gross meter acquisitions in 3Q17 compared to 3Q16.

Genie Energy reported that it identified an error in its reported financial statements for 1Q17 and 2Q17. The error impacted revenue by $2.0 million, gross profit, income (loss) from operations and Adjusted EBITDA by $1.2 million and net income by $1.1 million. The error caused an understatement by those amounts in 1Q17, and an overstatement by the same amounts in 2Q17, resulting in no impact for the six-month period ended June 30, 2017.

In an SEC filing, Genie Energy stated, "The errors described above will result in the restatement of the Company’s financial statements for the Prior Periods. Management has concluded that there are material weaknesses in internal control over financial reporting, as the Company did not maintain effective controls over the application of accounting principles generally accepted in the United States ('GAAP') related to the estimation of weather impact on the Company’s estimated unbilled revenue. This estimation process is performed in an effort to allocate billings to a calendar period using historical consumption data of the customer base of the retail energy providers operated by the Company and applying a weather factor to estimated unbilled amounts. The weather adjustment was erroneous, causing understated amounts of estimated unbilled commodity consumption, resulting in under estimates of revenues and cost of revenues to be included in the quarter ended March 31, 2017. The nature of the estimation processes is reversing, as actual billings representing the unbilled estimates manifest in the following period, in this case, in April 2017. The reversal of this estimate resulted in commodity consumption and the associated revenues and cost of revenues to be overstated in the quarter ended June 30, 2017. The cumulative operational results for the six months ended June 30, 2017 were unaffected."

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