GENIE ENERGY LTD.

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GENIE ENERGY LTD. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/09/2022 | 10:51am EDT
The following information should be read in conjunction with the accompanying
consolidated financial statements and the associated notes thereto of this
Quarterly Report, and the audited consolidated financial statements and the
notes thereto and our Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended December 31, 2021, as filed with the U.S. Securities and
Exchange Commission (or SEC).



As used below, unless the context otherwise requires, the terms "the Company," "Genie," "we," "us," and "our" refer to Genie Energy Ltd., a Delaware corporation, and its subsidiaries, collectively.



Forward-Looking Statements



This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements that contain the words
"believes," "anticipates," "expects," "plans," "intends," and similar words and
phrases. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from the results projected
in any forward-looking statement. In addition to the factors specifically noted
in the forward-looking statements, other important factors, risks and
uncertainties that could result in those differences include, but are not
limited to, those discussed below under Part II, Item IA and under Item 1A to
Part I "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2021. The forward-looking statements are made as of the date of
this report and we assume no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ from those
projected in the forward-looking statements. Investors should consult all of the
information set forth in this report and the other information set forth from
time to time in our reports filed with the SEC pursuant to the Securities Act of
1933 and the Securities Exchange Act of 1934, including our Annual Report on
Form 10-K for the year ended December 31, 2021.


Overview


We are comprised of Genie Retail Energy ("GRE"), Genie Retail Energy International ("GRE International") and Genie Renewables.



GRE owns and operates retail energy providers ("REPs"), including IDT Energy,
Residents Energy, Town Square Energy ("TSE"), Southern Federal and Mirabito
Natural Gas. GRE's REP businesses resell electricity and natural gas primarily
to residential and small business customers, with the majority of the customers
in the Eastern and Midwestern United States and Texas.


GRE International holds the Company's interest in REPs that serve
retail customers in Scandinavia. It holds 90.8% controlling interest in
Lumo Energia Oyj ("Lumo Finland"), a REP serving residential customers in
Finland and 97.7% interest in Lumo Energi AB ("Lumo Sweden"). GREI previously
held 98.8% in Genie Japan that was sold in May 2021. GRE International also
holds a 100% ownership of Orbit Energy, a REP operating in the U.K., which was
discontinued in November 2021 as discussed below.


Genie Renewables holds Genie Solar Energy, a rooftop solar system sales and
general contracting company, a 93.5% interest in CityCom Solar, a marketer of
community solar energy solutions, Diversegy LLC ("Diversegy"), an energy broker
for commercial, and a 60.0% controlling interest in Prism Solar, a solar
solutions company that is engaged in U.S. manufacturing of solar panels, solar
installation design and solar energy project management.


As part of our ongoing business development efforts, we seek out new
opportunities, which may include complementary operations or businesses that
reflect horizontal or vertical expansion from our current operations. Some of
these potential opportunities are considered briefly and others are examined in
further depth. In particular, we seek out acquisitions to expand the geographic
scope and size of our REP businesses.


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Discontinued Operations




In 2021, the natural gas and energy market in the United Kingdom deteriorated
which prompted us to suspend the spin-off and start the process of orderly
withdrawal from the United Kingdom market. In October 2021, as part of the
orderly exit process from the United Kingdom market, Orbit and Shell U.K.
Limited ("Shell") agreed to terminate the exclusive supply contract between
them. As part of the termination agreement, Orbit was required to unwind all
physical forward hedges with Shell which resulted in net cash proceeds after
settlement of all related liabilities with Shell. A portion of the net cash
proceeds was transferred to us (see Note 5, Discontinued Operations and
Divestiture, to our financial statements included elsewhere in this Quarterly
Report on Form 10-Q).


Following the termination of the contract with Shell, we filed a petition with
the High Court of Justice Business and Property of England and Wales (the
"Court") to declare Orbit insolvent based on the Insolvency Act of 1986. On
November 29, 2021, the Court declared Orbit insolvent based on the Insolvency
Act of 1986, revoked Orbit's license to supply electricity and natural gas in
the United Kingdom, ordered that Orbit's current customers be transferred to a
"supplier of last resort" and transferred the administration of Orbit to
Administrators effective December 1, 2021. All of the customers of Orbit were
transferred to a third-party supplier effective December 1, 2021 as ordered by
the Court. All assets and liabilities of Orbit, including cash and receivables
remain with Orbit, the management and control of which was transferred to
Administrators.


We determined that exiting the United Kingdom represented a strategic shift that
would have a major effect on our operations and accordingly, presented the
results of operations and related cash flows as discontinued operations for all
periods presented. The assets and liabilities of the discontinued operations
have been presented separately, and are reflected within assets and liabilities
from discontinued operations in the accompanying consolidated balance sheets as
of March 31, 2022 and December 31, 2021.


Coronavirus Disease (COVID 19)

Starting in the first quarter 2020, the world and the United States experienced the unprecedented impacts of the coronavirus disease 2019 (COVID-19) pandemic.



For the year ended December 31, 2021, the impacts of COVID-19 are evident in
several key aspects of our business operations and the corresponding financial
impact has been mixed. Our consolidated income from operations for the three
months ended March 31, 2022 increased by $29.9 million compared to the same
period in 2021.


Our customer base is predominantly residential, so we benefited from the
increased demand for electricity when customers are working from their homes. On
the other hand, like other retail energy providers, we suspended our
face-to-face customer acquisition programs in March 2020 as public health
measures were implemented to combat COVID-19, resulting in a decrease in gross
meter acquisitions and a decrease in U.S. domestic meters served. The reduction
in gross meter acquisitions decreased our customer acquisition expense in the
year ended December 31, 2021 and 2020 compared to the period before the
pandemic. Churn for three months ended March 31, 2022 and 2021, is below
historical levels, in part, due to our competitors reducing face to face
marketing programs.


We did not experience any significant changes in our workforce composition and
were able to implement our business continuity plans with no significant impact
to our ability to maintain our operations. We continue to maintain strong
physical and cybersecurity measures in order to both serve our operational needs
with a remote workforce and to ensure that we continue to provide services to
our customers. We face challenges due to the need to operate with a remote
workforce and are continuing to address those challenges so as to minimize the
impact on our ability to operate.


Beginning in 2021, public health restrictions were eased in most of our markets
which has allowed us to resume face-to-face sales and marketing. Looking ahead,
we expect to see a modest rebound in meter acquisition, however, any reversal of
the easing of restrictions would impact that expected rebound.


There are many uncertainties regarding the impacts of the COVID-19 pandemic, and
we are closely monitoring those impacts of on all aspects of its business,
including how it will impact our customers, employees, suppliers, vendors, and
business partners. We are currently unable to predict the impact that COVID-19
will have on our financial position and operating results due to the
complexities of the impacts and numerous uncertainties that are beyond the
Company's control. We expect to continue to assess the evolving impact of
COVID-19 on our business and assets and intend to make adjustments accordingly.


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Genie Retail Energy




GRE operates REPs that resell electricity and/or natural gas to residential and
small business customers in Connecticut, Delaware, Georgia, Illinois,
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio,
Pennsylvania, Florida, Texas, Rhode Island, and Washington, D.C. GRE's revenues
represented approximately 85.1% and 84.3% of our consolidated revenues in
the three months ended March 31, 2022 and 2021, respectively.


Seasonality and Weather; Climate Change




The weather and the seasons, among other things, affect GRE's REPs' revenues.
Weather conditions have a significant impact on the demand for natural gas used
for heating and electricity used for heating and cooling. Typically, colder
winters increase demand for natural gas and electricity, and hotter summers
increase demand for electricity. Milder winters and/or summers have the opposite
effects. Unseasonable temperatures in other periods may also impact demand
levels. Potential changes in global climate may produce, among other possible
conditions, unusual variations in temperature and weather patterns, resulting in
unusual weather conditions, more intense, frequent and extreme weather events
and other natural disasters. Some climatologists believe that these extreme
weather events will become more common and more extreme which will have a
greater impact on our operations. Natural gas revenues typically increase in the
first quarter due to increased heating demands and electricity revenues
typically increase in the third quarter due to increased air conditioning use.
Approximately 44.5% and 47.9% of GRE's natural gas revenues for the relevant
years were generated in the first quarter of 2021 and 2020, respectively, when
demand for heating was highest. Although the demand for electricity is not as
seasonal as natural gas (due, in part, to usage of electricity for both heating
and cooling), approximately 30.8% and 31.8% of GRE's electricity revenues
for 20212020, respectively, were generated in the third quarters of those years.
GRE's REP's revenues and operating income are subject to material seasonal
variations, and the interim financial results are not necessarily indicative of
the estimated financial results for the full year.


In addition to the direct physical impact that climate change may have on our
business, financial condition and results of operations because of the effect on
pricing, demand for our offerings and/or the energy supple markets, we may also
be adversely impacted by other environmental factors, including: (i)
technological advances designed to promote energy efficiency and limit
environmental impact; (ii) increased competition from alternative energy
sources; (iii) regulatory responses aimed at decreasing greenhouse gas
emissions; and (iv) litigation or regulatory actions that address the
environmental impact of our energy products and services.


Winter Storm in Texas



In February of 2021, the State of Texas experienced unprecedented cold weather
and snow, which was named Winter Storm Uri. With the grid overtaxed due to
demand and weather-related reduced supply and rolling blackouts being enforced,
by order of the Electricity Reliability Council of Texas ("ERCOT"), real-time
commodity prices during the crisis escalated significantly. Although GRE's
commitment for their customers in Texas was hedged for foreseen winter weather
conditions, the market conditions exposed the Company to significant unexpected
cost increases. In the year ended December 31, 2021, GRE recognized
approximately $13.0 million in additional costs related to the situation, which
were included in the cost of revenue in the consolidated statements of
operation.


In June 2021, the state legislature of the State of Texas passed House Bill 4492
("HB 4492") which includes certain provisions for financing certain costs
associated with electric markets caused by Winter Storm Uri. Pursuant to HB
4492, two categories of charges associated with Winter Storm Uri are to be
securitized and the proceeds of the securitization will be provided to the load
serving entities who originally incurred the charges. Under HB 4492, the Company
is entitled to recover a portion of the costs incurred from the effect of Winter
Storm Uri with a calculated range of $1.5 million to $2.6 million. In the second
quarter of 2021, the Company recorded a reduction in cost of revenues of $1.5
million.


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In September 2021, the Public Utility Commission of Texas ("PUC") approved the
Debt Obligation Order to grant ERCOT's application for a debt financing
mechanism to pay for certain costs associated with Winter Storm Uri. Under the
Debt Obligation Order, the amount that the Company is entitled to recover
increased to approximately $3.4 million. In the third quarter of 2021, the
Company recorded an additional reduction in the cost of revenues of $1.9 million
for an aggregate amount of $3.4 million for the year ended December 31, 2021.


Purchase of Receivables and Concentration of Credit Risk




Utility companies offer purchase of receivable, or POR, programs in most of the
service territories in which GRE operates. GRE's REPs reduce their customer
credit risk by participating in POR programs for a majority of their
receivables. In addition to providing billing and collection services, utility
companies purchase those REPs' receivables and assume all credit risk without
recourse to those REPs. GRE's REPs' primary credit risk is therefore nonpayment
by the utility companies. In the three months ended March 31, 2022 the
associated cost was approximately 1.2% of GRE's revenue. At March 31, 2022,
80.6% of GRE's net accounts receivables were under a POR program. Certain of the
utility companies represent significant portions of our consolidated revenues
and consolidated gross trade accounts receivable balance during certain periods,
and such concentrations increase our risk associated with nonpayment by those
utility companies.


For the three months ended March 31, 2022 and 2021 no single customer accounted for 10.0% or greater of our consolidated revenues.



The following table summarizes the percentage of consolidated trade receivable
by customers that equal or exceed 10.0% of consolidated net trade receivables
at March 31, 2022 and December 31, 2021 (no other single customer accounted for
10.0% or greater of our consolidated net trade receivable as March 31,
2022 or December 31, 2021):


             March 31, 2022      December 31, 2021
Customer A                12 %                   na %


na-less than 10.0% of consolidated revenue in the period

Legal Proceedings

Although GRE endeavors to maintain best sales and marketing practices, such practices have been the subject of certain class action lawsuits.

See Note 18, Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is incorporated by reference.



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Agency and Regulatory Proceedings



From time to time, the Company responds to inquiries or requests for information
or materials from public utility commissions or other governmental regulatory or
law enforcement agencies related to investigations under statutory or regulatory
schemes. The Company cannot predict whether any of those matters will lead to
claims or enforcement actions or whether the Company and the regulatory parties
will enter into settlements before a formal claim is made. See Notes 18,
Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is
incorporated by reference, for further detail on agency and regulatory
proceedings.



State of Connecticut Public Utilities Regulatory Authority


Town Square



On September 19, 2018, the State of Connecticut Public Utilities Regulatory
Authority ("PURA") commenced an investigation into Town Square following
customer complaints of allegedly misleading and deceptive sales practices on the
part of Town Square. The Connecticut Office of Consumer Counsel joined in the
investigation. On June 17, 2020, the PURA notified Town Square that it was
advancing it's investigation by assigning Prosecutorial ("PRO") staff for the
purpose of investigating Town Square's compliance with licensed electric
supplier billing, marketing, and licensing requirements, and, if appropriate,
facilitating settlement discussions among the parties.


Although Town Square denies any basis for those complaints and any wrongdoing on
its part, in May 2021, the parties reached a settlement in principle, subject to
finalization of a definitive settlement agreement, pursuant to which Town Square
paid $0.4 million. Town Square has also volunteered to refrain, from
door-to-door marketing activities in Connecticut for a period of 15 months.


As of March 31, 2022, Town Square's Connecticut customer base represented 6.9%
of GRE's total meters served and 8.1% of the total RCEs of GRE's customer base.
For three months ended March 31, 2022 and 2021, Town Square's gross revenues
from sales in Connecticut were $3.7 million and $9.4 million, respectively.


An RCE represents a natural gas customer with annual consumption of 100 mmbtu or
an electricity customer with annual consumption of 10 MWh. Because different
customers have different rates of energy consumption, RCEs are an industry
standard metric for evaluation the consumption profile of a given retail
customer base.



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Residents Energy



In August of 2020, Residents Energy began marketing retail energy services in
Connecticut. For the year ended December 31, 2021 Residents Energy's gross
revenues from sales in Connecticut was $0.2 million. During the fourth quarter
of 2020, the enforcement division of PURA contacted Residents Energy concerning
customer complaints received in connection with alleged door-to-door marketing
activities in violation of various rules and regulations. On March 12, 2021, the
enforcement division filed a motion against Resident Energy with the
adjudicating body of PURA, seeking the assessment of $1.5 million in penalties,
along with a suspension of license for eighteen months, auditing of marketing
practices upon reinstatement and an invitation for settlement discussions.


In May 2021, the parties reached a settlement, pursuant to which Residents will
pay $0.3 million. Residents Energy has also volunteered to withdraw from the
market in Connecticut for a period of 36 months.



Critical Accounting Policies



Our consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America, or U.S. GAAP. Our significant accounting policies are described in Note
1 to the consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2020. The preparation of financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses as well as the
disclosure of contingent assets and liabilities. Critical accounting policies
are those that require the application of management's most subjective or
complex judgments, often as a result of matters that are inherently uncertain
and may change in subsequent periods. Our critical accounting policies include
those related to revenue recognition, allowance for doubtful accounts,
acquisitions, goodwill, and income taxes. Management bases its estimates and
judgments on historical experience and other factors that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. For additional discussion
of our critical accounting policies, see our Management's Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report
on Form 10-K for the year ended December 31, 2021.


Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 20-Recently Issued Accounting Standards, to the current period's consolidated financial statements.




Results of Operations



We evaluate the performance of our operating business segments based primarily
on income (loss) from operations. Accordingly, the income and expense line items
below income (loss) from operations are only included in our discussion of the
consolidated results of operations.



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Three Months Ended March 31, 2022 and  Compared to Three Months Ended March 31,
2021



Genie Retail Energy Segment



                                             Three months ended March 31,               Change
(amounts in thousands)                         2022                2021            $              %
Revenues:
Electricity                              $       59,380         $   73,387     $  (14,007 )        (19.1 )%
Natural gas                                      24,504             17,280          7,224           41.8
Total revenues                                   83,884             90,667         (6,783 )         (7.5 )
Cost of revenues                                 37,301             75,701        (38,400 )        (50.7 )
Gross profit                                     46,583             14,966         31,617          211.3
Selling, general and administrative
expenses                                         16,407             13,762          2,645           19.2
       Income from operations            $       30,176         $    1,204     $   28,972       (2,406.3 )%



Revenues. Electricity revenues decreased by 19.1% in three months ended March
31, 2022 compared to the same period in 2021. The decrease is due to a
decline in electricity consumption partially offset by an increase in the
average price charged per kilowatt hour charged to customers in the three months
ended March 31, 2022 compared to the same period in 2021. Electricity
consumption by GRE's REPs' customers decreased by 36.7% in the three months
ended March 31, 2022, compared to the same period in 2021. The decrease in
electricity consumption reflected a 5.1% decrease in average consumption per
meter and a 33.3% decrease in the average number of meters served. The decrease
in per meter consumption reflects a decrease in residential
electricity consumption as many COVID-19 "stay-at-home" measures have been
lifted thus reversing prior year increased levels of consumption related to
those measures. The reduction in meters served was driven, in part, by the
decision to pause certain customer acquisitions efforts and allow certain lower
margin customers, including those acquired through municipal aggregation deals
to move to other suppliers. The average rate per kilowatt hour sold
increased 27.8% in the three months ended March 31, 2022 compared to the same
period in 2021. The increase is due to the increase in the wholesale price of
electricity in the three months ended March 31, 2022 compared to the same period
in 2021.


GRE's natural gas revenues increased by 41.8% in the three months ended March
31, 2022 compared to the same period in 2021.  The increase in natural gas
revenues in the three months ended March 31, 2022 compared to the same period in
2021 was a result of increases in natural gas consumption partially offset by a
decrease in average revenue per therm sold. Natural gas consumption
by GRE's REPs' customers increased by 20.0% in the three months ended March 31,
2022 compared to the same period in 2021, reflecting a 13.6% increase in average
consumption per meter partially and a 5.7% increase in average meters served in
the three months ended March 31, 2022 compared to the same period in 2021. The
average revenue per therm sold increased by 18.1% in the three months ended
March 31, 2022, compared to the same period in 2021.


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The customer base for GRE's REPs as measured by meters served consisted of the
following:



                               March        December 31,      September 30,
(in thousands)                31, 2022         2021                2021           June 30, 2021       March 31, 2021
Meters at end of quarter:
Electricity customers              209                210                289                 292                  308
Natural gas customers               77                 75                 72                  69                   65
Total meters                       286                285                361                 361                  373




Gross meter acquisitions in three months ended March 31, 2022, were
44,000 compared to 62,000 for the same period in 2021. The decrease in the gross
meter acquisitions for the three months ended March 31, 2022 compared to the
same period in 2021 was due to a "strategic pause" on certain customer
acquisition channels to protect margins due to unfavorable market conditions
that started in the fourth quarter 2021.


Meters served slightly increased by 1,000 meters or 0.4% from December 31, 2021
to March 31, 2022. The increase in the number of meters served at March 31, 2022
compared to December 31, 2021 was due to a decrease in average churn during the
period. In three months ended March 31, 2022, average monthly churn decreased to
4.5% compared to 4.9% for same period in 2021. Meters served
decreased by 87,000 meters or 25.1% from March 31, 2021 to March 31, 2022. The
decrease in the number of meters served at March 31, 2021 compared to March 31,
2021 was due to the "strategic pause" discussed above. GRE's REPs also returned
some customers to their underlying utility in certain markets in the fourth
quarter of 2021 to minimize the impact of expected higher prices on our margins.



The average rates of annualized energy consumption, as measured by RCEs, are presented in the chart below. An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.



                                                                         September 30,
(in thousands)                March 31, 2022      December 31, 2021           2021           June 30, 2021       March 31, 2021
RCEs at end of quarter:
Electricity customers                    182                     189                276                 272                  291
Natural gas customers                     78                      71                 60                  58                   56
Total RCEs                               260                     260                336                 330                  347




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RCEs decreased 25.1% at March 31, 2022 compared to March 31, 2021 primarily due
to the "strategic pause" on customer acquisitions and transfer of some customers
to their underlying utilities as discussed above.



Cost of Revenues and Gross Margin Percentage. GRE's cost of revenues and gross margin percentage were as follows:


                              Three months endedMarch 31,               Change
(amounts in thousands)       2022                        2021         $          %
Cost of revenues:
Electricity             $        25,197                $ 66,460   $ (41,263 )   (62.1 )%
Natural gas                      12,104                   9,241       2,863      31.0
Total cost of revenues  $        37,301                $ 75,701   $ (38,400 )   (50.7 )%




                                      Three months endedMarch 31,
(amounts in thousands)            2022                    2021    Change
Gross margin percentage:
Electricity                        57.6 %                 9.4 %    48.2 %
Natural gas                        50.6                  46.5       4.1
Total gross margin percentage      55.5 %                16.5 %    39.0 %



Cost of revenues for electricity decreased in the three months ended March 31,
2022 compared to the same period in 2021 primarily because of decreases in
electricity consumption by GRE's REPs' customers and the average unit cost of
electricity. The average unit cost of electricity decreased 40.1% in the three
months ended March 31, 2022 compared to the same period in 2021. A significant
portion of the decrease in the average cost of electricity resulted from the
favorable results of hedging activities for the three months ended March 31,
2022 compared to the same period in 2021 and the incremental cost incurred in
the three months ended March 31, 2021 as an effect of a major winter storm in
Texas as discussed above. Gross margin on electricity sales increased in
the three months ended March 31, 2022 compared to the same period in
2021 because the average rate charged to customers increased while the average
unit cost of electricity decreased.


Cost of revenues for natural gas increased in the three months ended March 31,
2022 compared to the same period in 2021 primarily because of increases in
natural gas consumption by GRE's REPs' customers and in average unit cost of
natural gas. The average unit cost of natural gas increased 9.1% in the three
months ended March 31, 2022 compared to the same period in 2021. Gross margin on
natural gas sales increased in the three months ended March 31, 2022 compared to
the same period in 2021 because the average rate charged to customers increased
more than the increase in the average unit cost of natural gas.



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Selling, General and Administrative. The increase in selling, general and
administrative expense in the three months ended March 31, 2022 compared to the
same period in 2021 was primarily due to increases in marketing and customer
acquisition costs and employee-related costs partially offset by a decrease in
legal settlement costs. Employee-related expenses increased by $1.1 million in
the three months ended March 31, 2022 compared to the same period
in 2021 primarily due to an increase in accrued bonuses as a result of improved
results of operations during the period. Marketing expenses increased by
$2.0 million in three months ended March 31, 2022 compared to the same period in
2021 as a result of expansion of marketing activities to offset the effect of
COVID-19 related to public health restrictions to traditional customer
acquisition methods. As a percentage of GRE's total revenues, selling, general
and administrative expense increased from 15.2% in the three months ended March
31, 2021 to 19.6% in the three months ended March 31, 2022.



GRE International Segment

GRE International holds our stakes in REPs outside of North America. These businesses currently include our controlling stakes in Lumo Finland and Lumo Sweden and included Genie Japan prior to its sale in May 2021. GRE International also holds our stake in Orbit, which discontinued operations at the end of November 2021.



In January 2021, weather volatility and the lack of adequate gas reserves drove
the prices on the Japan Electric Power Exchange to $2,390 per megawatt hour for
an extended period of time. Although our supply commitment for our customers in
Japan was hedged reasonably for expected winter weather conditions, the extreme
price spike exposed us to further unexpected cost increases. The impact on our
2021 consolidated result of operations was approximately $2.5 million.


On April 26, 2021, we entered into an Equity Purchase Agreement ("Purchase
Agreement") with Hanhwa Q Cells Japan Co., Ltd. ("Hanhwa"), pursuant to which,
we agreed to sell our interest in Genie Japan for ¥570.0 million (equivalent to
approximately $5.3 million at April 26, 2021) subject to certain terms and
conditions set forth in the Purchase Agreement. On May 11, 2021, upon the terms
and subject to the conditions of Purchase Agreement, we completed the
divestiture of Genie Japan for an aggregate cash consideration of ¥570.0 million
(equivalent to approximately $5.2 million at May 11, 2021). Hanhwa also assumed
the outstanding loans payable of Genie Japan. We paid $0.6 million of commission
to certain former employees of Genie Japan and recognized a pre-tax gain of
$4.2 million from the divestiture. For the three months ended March 31, 2021,
Genie Japan had revenues and cost of revenues of $3.2 million and $5.4 million,
respectively.


                                    Three Months Ended March 31,                 Change
(amounts in thousands)                 2022               2021              $               %
Revenues
   Electricity                    $        12,404      $    14,226     $    (1,822 )         (12.8 )%
   Others                                     199              109              90            82.6
Total revenues                    $        12,603      $    14,335     $    (1,732 )         (12.1 )
Cost of revenue                            14,168           17,765          (3,597 )         (20.2 )
Gross loss                                 (1,565 )         (3,430 )         1,865           (54.4 )
Selling, general and
administrative expenses                     1,243            2,121            (878 )         (41.4 )
Loss from operations              $        (2,808 )    $    (5,551 )   $    (2,743 )         (49.4 )%



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Meters served by GRE International's REPs decreased to 61,000 at March 31, 2022
from 67,000 at December 31, 2021 primarily a "strategic pause" on customer
acquisition to protect margins due to unfavorable market conditions that started
in the fourth quarter 2021.


RCEs of GRE International at March 31, 2022 decreased to 38,000 from 40,000 at December 31, 2021 primarily from the "strategic pause" as discussed above.



Revenues. GRE International's revenues decreased in the three months ended March
31, 2022 compared to the same period in 2021 primarily due to the sale of Genie
Japan in May 2021 partially offset by increases in revenues in Lumo Finland and
Lumo Sweden. Revenues from Genie Japan were $3.2 million for the three months
ended March 31, 2021. The increase in revenues from Lumo Finland and Lumo Sweden
from the three months ended March 31, 2022 compared to the same period in 2021
was due to an increase in the average price charged to customers which increased
by 138.0%, partially offset by the decrease in electricity consumption which
decreased by 39.5%. The increase in the average price charged to customers in
the three months ended March 31, 2022 compared to the same period in 2021 is due
to a significant increase in the price of electricity in the wholesale market.


Cost of Revenues. GRE International's cost of revenue decreased in three months
ended March 31, 2022 compared to the same period in primarily due to the sale of
Genie Japan in May 2021 partially offset by an increase in the cost of revenue
in Lumo Finland and Lumo Sweden. Cost of revenue from Genie Japan was
$5.4 million for the three months ended March 31, 2021. The increases in cost of
revenues from Lumo Finland and Lumo Sweden from the three months ended March 31,
2022 compared to the same period in 2021 was due to an increase in the average
cost of electricity which increased by 141.7%, partially offset by the decrease
in electricity consumption as discussed above.


Selling, General and Administrative Expenses. The decrease in selling, general
and administrative expenses in three months ended March 31, 2022 compared to the
same period in 2021 was primarily due to the sale of Genie Japan in May 2021.



Genie Renewables Segment



The Genie Renewables (formerly GES) segment is composed of Genie
Solar, CityCom Solar, Diversegy and Prism, in which we hold a 60.0% controlling
interest.


                                     Three Months Ended March 31,                  Change
(amounts in thousands)                  2022                2021              $               %
Revenues                           $         2,042       $     2,488     $      (446 )         (17.9 )%
Cost of revenue                              1,518             1,370             148            10.8
Gross profit                                   524             1,118            (594 )         (53.1 )
Selling, general and                         1,003               559             444            79.4
administrative expenses
(Loss) income from operations
                                   $          (479 )     $       559     $     1,038          (185.7 )%



40

--------------------------------------------------------------------------------


Revenue. Genie Renewables' revenues decreased in the three months ended March
31, 2022 compared to the same period in 2021. The decrease in revenues was the
result of a decrease in the activities of Genie Solar projects and commissions
from selling third-party products to customers by CityCom Solar. Revenues from
Diversegy include commissions, entry fees and other fees from our energy
brokerage and marketing services businesses.


Cost of Revenues. Cost of revenue increased in the three months ended March 31,
2022 compared to the same period in 2021. The increase in cost revenues was due
to an increase in commissions paid out by Diversegy.


Selling, General and Administrative. Selling, general and administrative expenses increased in the three months ended March 31, 2022 compared to the same period in 2021 primarily due to increases in headcount in Genie Solar and Diversegy and consulting fees at Genie Solar.


Corporate



Corporate does not generate any revenues, nor does it incur any cost of
revenues. Corporate costs include unallocated compensation, consulting fees,
legal fees, business development expense and other corporate-related general and
administrative expense.


(amounts in thousands)               Three months ended March 31,                 Change
                                           2022             2021              $               %
General and administrative
expenses and loss from
operations                         $          2,456     $     1,677     $       779            46.5 %




Corporate general and administrative expenses increased in three months ended
March 31, 2022 compared to the same period in 2021 primarily because of
increases in employee related cost and in stock-based compensation expense. As a
percentage of our consolidated revenues, Corporate general and administrative
expense increased to 2.5% in the three months ended March 31, 2022 from 1.6% in
the three months ended March 31, 2021.



41

--------------------------------------------------------------------------------

Consolidated




Selling, general and administrative expenses. Stock-based compensation expense
included in consolidated selling, general and administrative expense was $0.8
million and $0.6 million in the three months ended March 31, 2022 and 2021,
respectively. At March 31, 2022, aggregate unrecognized compensation cost
related to non-vested stock-based compensation was $5.9 million. The
unrecognized compensation cost is recognized over the expected service period.



The following is a discussion of our consolidated income and expense line items below income from operations:



                                       Three months ended
                                           March 31,                         Change
(amounts in thousands)                2022            2021              $               %
Income from operations            $     24,433     $   (5,465)     $    29,898           547.1 %
Interest income                             17              84             (67 )         (79.8 )
Interest expense                           (50 )          (182 )           132           (72.5 )
Other income (loss), net                  (498 )           407            (905 )        (222.4 )
Unrealized gain on marketable
equity securities and                     (652 )         4,107          (4,759 )            nm
investments
Provision for benefit from
income taxes                            (6,514 )          (535 )        (5,979 )       1,117.6
Net income (loss) from
discontinued operations                 16,736          (1,584 )        18,320         1,156.6
    Loss from discontinued                   -          (1,110 )         1,110           100.0
operations, net of tax
Net income (loss)                       16,736          (2,694 )        19,430           721.2
    Net (loss) income
attributable to noncontrolling
interests                               (1,153 )          (708 )          (445 )          62.9
Net income attributable to
Genie                             $     17,889     $    (1,986 )   $    19,875         1,000.8 %




nm-not meaningful

42

--------------------------------------------------------------------------------

Other Income (loss), net. Other income (loss), net in the three months ended March 31, 2022 and 2021 consisted primarily foreign currency transactions.




Provision for Income Taxes. The change in the reported tax rate for the three
months ended March 31, 2022 compared to the same period in 2021, is a result of
favorable results of operations in the U.S. and changes in the mix of
jurisdiction in which taxable income was earned which was not offset by income
tax benefit in some jurisdictions that had losses due to valuation allowances in
those jurisdictions.


Net Loss Attributable to Noncontrolling Interests. The increase in net loss
attributable to noncontrolling interests in the three months ended March 31,
2022 compared to the same period in 2021 was primarily due to an increase in the
share of noncontrolling interest in net losses of CCE.


Unrealized gain on marketable equity securities and investments. The unrealized
gain (loss) on marketable equity securities and investment for the three months
ended March 31, 2022 pertains to the appreciation of the Company's investments
in common stock of Rafael Holdings, Inc. ("Rafael") which the Company acquired
in December 2020.


Income from discontinued operations, net of tax. Income from discontinued operations, net of tax in the three months ended March 31, 2021 is mainly due to losses incurred from the operations of Orbit.

Liquidity and Capital Resources



General



We currently expect that our cash flow from operations and the $88.2 million
balance of unrestricted cash and cash equivalents that we held at March 31, 2022
will be sufficient to meet our currently anticipated cash requirements for at
least the period from April 1, 2022 to May 9, 2022.



At March 31, 2022, we had working capital (current assets less current liabilities) of $96.0 million.

© Edgar Online, source Glimpses

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