Good morning, and welcome to Genie Energy's Third Quarter 2022 Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I will now turn the call over to Brian Siegel of Hayden IR.
Thank you, operator. With me today are Michael Stein, Genie Energy's CEO Avi Golding, Genie Energy's CFO, who will discuss operational and financial results for the 3 month period ended September 30, 2022. 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
which the company anticipates.
These risks and uncertainties include, but are not limited to, the specific risks and uncertainties discussed in the reports that we file periodically with the Genie assumes no obligation to either 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 they forecast. During their 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 on the 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 Results were accounted for under discontinued operations during the Q3, and our historical results reported today and discussed on this call reflect this move.
I will now turn the call over to Michael Stein, Genie Energy's Chief Executive Officer.
Thank you, Brian. Welcome to Genie Energy's Q3 2022 earnings call. We achieved record Q3 margins and profits this quarter as energy prices remain high with increased volatility. We were well positioned from a risk management perspective In combination with our reduced customer acquisition efforts at GRE, we were able to generate significant year over year increases in gross profit, adjusted EBITDA, net income and Cash flow from operations. Looking at our segments, G and A Retail Energy or GRE generated a record Q3 gross profit of $43,000,000 And adjusted EBITDA nearly $28,000,000 Over the course of the Q3, we executed our plan to spend operations and are no longer servicing customers in the Scandinavian market.
As a result, GREI's results are now reflected in discontinued operations In our financial statements, Genie Renewables or GRU as we have taken to calling it, had an exciting quarter. First, we signed several new contracts to build solar arrays for commercial customers, which significantly grew our backlog for the existing business. Separately, we also made significant progress in our vertically integrated strategy, where we will build or acquire solar farms ourselves or through Sunlight Energy Investments. In the Q3, Gru secured the site rights on which to potentially build 64 Megawatts of Solar Generation in New York and Pennsylvania. We expect the first project to receive full approvals necessary for construction in the Q4.
Once construction begins, we expect Solar Care to be generating power as soon as the Q2 of 2023. This project, the community solar farm, will be wholly owned and operated by Groove, will leverage our vertically integrated business model and strong balance sheet. We will keep you apprised of our progress on this project as well as significant milestones achieved with our other projects as we advance through the Permian process. Also this quarter, we redeemed $1,000,000 in par value of preferred stock, while paying our regular $0.07 quarterly common dividend And the base dividend on the outstanding preferred stock for a total of approximately $3,250,000 in capital returns to stockholders during the quarter. After the quarter, we announced that we would redeem an additional $8,300,000 in stated value of our preferred stock on November 15, Leveraging our strong balance sheet to increase future cash flows available to common stockholders.
After the November 15th redemption, there will be a further 8.7 $4,000,000 worth of preferred stock outstanding. We intend to continue redeeming at least $1,000,000 of preferred stock on Now I'll provide a quick overview of our business and strategy. GRE operates retail energy providers Our reps that service a portfolio of retail customers in 18 of 28 deregulated states and Washington, D. C. We actively manage our reps and customer bases, both geographically and within geographies.
In response to evolving market conditions, we will invest in customer acquisition during some periods while reducing our growth investment or obligations to customers during other periods to drive higher margins as we have done this year. Underlying our strategy is our risk mitigation team, which among other things hedges our forward obligations to preserve margins during times of price volatility. In terms of customer acquisition, our programs seek to increase market share in existing territories, expand into new areas and offer additional products and services to our customer base. In light of current energy market conditions, we expect to generally continue our strategy of margin preservation over the near term. However, Despite the current volatility, we are seeing opportunities within certain areas to potentially be more aggressive in customer acquisition.
Our G and E Renewables segment seeks to generate outsized returns from multiple high growth potential opportunities related to solar energy generation. Our businesses currently provide services to 3rd party solar farm owners and operators ranging from a full suite of solar procurement And installation services to customer acquisition, billing and management services. As we move forward with our own projects, the strength of our vertical integration Strategy will become more evident as we also provide these services to Genie or Sunlight Energy owned and operated firms. On that note, Genie took several steps forward during and since the Q3 in furtherance on this strategy. We acquired the site rights to 64 megawatts of potential So with integration and we expect to break ground in one of these projects during the next two quarters.
As we work to advance the remainder of these projects through the permitting process, We continue to hunt for additional opportunities to own and or operate with Genie's balance sheet or with Sunlight Energy Investments To evaluate additional opportunities, we currently have over 50 megawatts of projects either under exclusive due diligence or in active negotiations With well over 1 gigawatt of projects in our valuation pipeline, these projects are in various stages and range from early site rights and more mature cash flow producing assets. Looking for the Q4 at GRE, we currently expect adjusted EBITDA to remain strong and to exceed historical In addition, we expect that Ginnie Renewables will contribute strong revenue in the remainder of the year, And we expect to continue to generate another strong year over year increase in consolidated adjusted EBITDA in the 4th quarter. We have also 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 Now I'll turn over the call to Avi for his discussion of our Q3 financial results. 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 September 30, 2022. Throughout my remarks, I will compare the Q3 of 2022 to the Q3 of 2021. Focusing on the year over year rather than sequential comparisons Remove seasonal factors characteristic of our Retail Energy business. The 3rd quarter is typically characterized by the highest levels of per meter electricity consumption Associated with the peak cooling season and the lowest levels of per meter gas consumption, which is highly dependent on heating usage. Our financial results this quarter reflect the exit from our Scandinavian RET businesses during the quarter.
Results for these businesses are reported as discontinued operations for this and all prior periods. The continued results for the year ago quarter also include results from operations in the UK, which will just continue in the Q3 of 2021. Genie posted an exceptionally strong Q3, building on the positive momentum from the first half of the year. Our results continue to be positively impacted by our decision in late 2021 to optimize the value of our forward hedge book Reducing customer load and response to volatility in wholesale electricity prices in the United States. As a result, our consolidated results include record levels of 3rd quarter Profit, adjusted EBITDA and net income.
As Michael noted, we also continue to return capital to our shareholders through dividends and redemptions of our preferred stock. Turning now to our Q3 P and L. Consolidated revenue decreased 7.3 percent to 81,300,000 At GRE, sales fell 7.4 percent to $79,900,000 primarily reflecting reduction in electricity sales from our lower electric meter count, Substantially offset by a combination of higher electricity rates and increased gas sales. As I noted last quarter, gas prices have risen substantially over the past year. In addition, we're selling more gas after entering the gas only markets during the year.
In these markets, we targeted relatively high average consumption gas meters, thus increasing average gas consumption per meter and putting us in stronger position for the higher gas consumption quarters coming up. Revenue at Genie Renewables increased 2.2 percent to 1,400,000. Consolidated gross profit increased 24.7 percent to 43,100,000 and gross margin improved to 53.1%. GRE's gross profit increased 26.6 percent to 43,200,000 And gross margin increased to 54.1%. The increases largely reflect the authorization of our risk management portfolio prior to the onset of the high energy price environment.
Gross loss in G renewables was $86,000 compared to gross profit of $455,000 a year ago. The results were driven by our ongoing investment to develop the solar generation projects that Michael highlighted in his remarks. Consolidated SG and A expense, including corporate overnight, 14.3 percent to $19,600,000 partly reflecting increased project development activities as we grow our junior renewables. Consolidated income from operations increased 34.8 percent to $23,500,000 driven by the strong margins at GRE. At GRE, income from operations increased 39.1 percent to $27,400,000 While at Genie Renewables, the loss from operations increased to 1,500,000 From a loss of $204,000 a year earlier, reflecting our initial investments in our promising solar generation projects.
Consolidated adjusted EBITDA increased 35.2 percent to $24,500,000 this quarter. For the 1st 3 quarters of the year, we generated $64,700,000 in adjusted EBITDA compared to $20,400,000 in the same period of 2021. Net income attributable to Genie Energy increased to $18,800,000 compared to a loss of $2,300,000 in the Q3 of 2021 And earnings per diluted share in the 3rd quarter jumped to $0.70 from a loss per share of $0.10 in the year ago quarter. Turning now to our balance sheet. On September 30, cash, restricted cash and marketable equity securities totaled 87,700,000 This figure does not include an additional $5,500,000 held within discontinued operations.
Net working capital was 128,500,000 Looking ahead, Genius positioned for a strong 4th quarter at GRE, while we continue to invest in building our solar project portfolio at Genius Renewables. Looking ahead to 2023, our balance sheet provides ample flexibility to ramp up customer acquisition efforts in GRE when market conditions warrant. At TD Renewables, we remain very excited about the range and depth of opportunities to develop utility and commercial scale solar projects and related businesses. We are working to ensure that they will generate attractive long term returns for our shareholders. Now, operator, back to you for Q and A.
We will now begin the question and answer session. Your first question for today is from Aaron Shafter at Great Mountain Capital. Aaron, your line is live.
Thanks, operator. Guys, congratulations on another very solid quarter. Really like The improvement in the bottom line and what you're doing on gross margins. So you noted In both the release and today that you bought back a lot of preferred shares You basically recently have the amount of preferred shares and your plan is, I guess, to To redeem, correct me if I'm wrong, another $1,000,000 each quarter. If you do that within less than 2 years, You have no preferred shares left.
So am I correct that that's the projected game plan?
Hi, Aaron. Thanks for the warm wishes. Yes, as of now, The Board has only authorized an ongoing $1,000,000 a quarter. That obviously is subject to change at any time, But that is the current plan. I guess, if that would be done, then would be the preferred to be done in 2 years.
Okay. And I see you didn't notice any buybacks of any of the common shares. If you take this latest quarter and you Put it together, your trailing PE is really, really low and the shares look to be a bargain on the looking And because of the amount despite the buybacks in the preferred, you've really increased your cash on hand. I'm wondering if we can expect to see any common share buybacks. You can share anything on that.
Again, it's something that we always look at. We do have authority up to a decent amount from the Board to do so. And as we've always said, we try to be pretty opportunistic with our buybacks, Buy as low as possible. So sometimes, maybe we miss some windows here and there. That's pretty much what I can say about that.
Okay. And the solar field that you've Talked about that you're about to start building on that. I'm curious, 1, how that will be financed? If you have any projected costs and when you see it eventually adding to the bottom line.
Yes. So most likely, they'll be financed with a combination of equity, Our equity and debt, the debt would be would only have recourse to the project. It wouldn't be parent level debt. They wouldn't encumber any of our other profitability. They would purely be on the project It's Seth.
In terms of when it could start throwing off profitability, I think we're going to get the approvals this quarter. And if we get approval this quarter, it could potentially be fully built, Call it 1st or second quarter, and that's when it starts generating revenues as soon as it gets turned on. So that's the general timeline. In terms of the size of the project, I think we'll probably share that at a later date. Okay.
And you mentioned that you've Totally exited the Scandinavian market. I guess, before up until this 20, they've just been Finland because you've gotten Out of Sweden, and what were your thoughts on deciding to exit that market?
When we really see the 2 as one operation, remember we were Operating both entities out of one headquarters. We just felt like where we are today And what's needed to wind down the businesses, it makes sense to Consider discontinued operations. That doesn't mean that in 6 months or 9 months, if there's an opportunity for us To start marketing again, that we wouldn't. But since we don't have that in the immediate short term Plans, it was the accounts and our auditors' position that we should consider it discontinued.
Okay. And finally, getting back to your cash on hand, any chance of seeing a dividend increase?
Again, those are topics of conversation along with buybacks on that and on the common and preferred that So we have periodically. At the last board meeting, we did not increase the dividend. I can't say for sure what's going to happen in future quarters.
Okay. All right. Thanks very much and congratulations again on another strong
Your next question for today is coming from Brett Rush at Centennial Management.
Hey, guys. Quick question on the Solar Business, are you guys able to say kind of what you expect in terms of profit margins and then Just kind of targeted stabilized cash on cash returns for these solar projects?
Yes. I mean each solar project is different and has a different return profile, And margin, so I think it's going to be hard to say. And also, To the extent that we use debt to help finance these projects, what the interest rates will be at The time when we're ready to actually take out that loan, it's going to be very relevant to determining The exact financials, but typically when we do these calculations And we look at projects that are interesting to us. We try to target projects That have IRRs in the high teens or low 20s. So We'll see if that comes to fruition and each project is a little bit different, but that's what we're targeting.
Got you. And so the IRRs that when you're targeting these high teens IRRs, Is the majority of that IRR coming from current cash? Or is there some sort of terminal value that's driving a high percentage of that IRR?
Tom, do you want to take that one? Yes, sure. So it's a little bit of a mix. Part of the reason that these projects are so exciting and can really yield those kinds of returns to the equity is because there's a lot of Upfront value that comes in through the monetization of the tax incentives and various other programs Depending on the location in which you are that come in in the form of the national not some are tax and some are just through Cash back through other programs. So it's the ability to find the right capital stack To minimize the amount of equities that's required, get that cash back on the front end to refinance, and then there's some form of a tail in all the projects as well.
So, I know I'm talking a little bit abstract, but that's the way we're aggressively approaching it and why we're able to target those attractive Got it. Okay. Thanks, guys. Sure.
This concludes our question and answer session and conference call. Thank you for attending today's presentation. You may now disconnect.