GENIE ENERGY LTD. 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 endedDecember 31, 2018 , as filed with theU.S. Securities and Exchange Commission (orSEC ).
As used below, unless the context otherwise requires, the terms "the Company,"
"Genie," "we," "us," and "our" refer to
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 endedDecember 31, 2019 . 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 theSEC 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 endedDecember 31, 2019 .
Coronavirus Disease (COVID 19)
During the first quarter 2020, the world and
For the three and six months endedJune 30, 2020 , 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 revenues for the three months endedJune 30, 2020 , compared to the same period in 2019, increased by$15.1 million equivalent to 24.7%. Our consolidated revenues for the three months endedJune 30, 2020 , compared to the same period in 2019, increased by$32.5 million equivalent to 22.0%. 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 providers, we suspended our face-to-face customer acquisition programs inMarch 2020 as public health measures were implemented to combat COVID-19, resulting in a decrease in gross meter acquisitions. The reduction in gross meter acquisitions decreased our customer acquisition expense in the second quarter of 2020. Churn for the second quarter of 2020 decreased as our competitors suspended their 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. Looking ahead, we expect to see a modest rebound in meter acquisition beginning the third quarter, specially at GRE. Public health restrictions have begun to ease in some of our markets which allow us to resume face-to-face sales and marketing. 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. Overview
We are comprised of
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 United States .
GRE International holds the Company's 77.0% interest in its joint venture that
serves retail customers in the United Kingdom ("U.K."), our wholly-owned venture
in Japan , its 92.5% controlling interest in Lumo Energia Oyj ("Lumo"), a REP
serving residential customers in Finland , and 100% of Lumo Energi AB , which
serves retail customers in Sweden .
GES holds Diversegy, a retail energy advisory and brokerage company that serves
commercial and industrial customers throughout U.S. , manages our 60.0%
controlling interest in Prism and 100% interest in Genie Solar Energy. Prism is
a solar solutions company that is engaged in U.S. based manufacturing of solar
panels, solar installation design and solar energy project management. Genie
Solar Energy sells rooftop solar system to commercial and industrial clients.
We also operate (and own 97.0% of the equity of) GOGAS, an oil and gas
exploration company and owns a minority interest in a contracted drilling
services company ("Atid 613"). GOGAS' four exploration projects are inactive.
GOGAS holds 86.1% interest in Afek Oil and Gas ("Afek"), an oil and gas
exploration project in the Golan Heights in Northern Israel . GOGAS also holds
a 37.5% interest in a contracted drilling services company in Israel
("Atid 613").
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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GRE operates REPs that resell electricity and/or natural gas to residential and small business customers inConnecticut ,Delaware ,Georgia ,Illinois ,Maryland ,Massachusetts ,New Hampshire ,New Jersey , NewYork, Ohio ,Pennsylvania ,Florida ,Texas ,Rhode Island , andWashington, D.C. GRE's revenues represented approximately 87.4% and 89.2% of our consolidated revenues in the three months endedJune 30, 2020 and 2019, respectively, and 80.8% and 88.7% in the six months endedJune 30, 2020 and 2019, respectively. Seasonality and Weather 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 or summers have the opposite effects. Unseasonable temperatures in other periods may also impact demand levels. 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 46.9% and 50.3% of GRE's natural gas revenues for the relevant years were generated in the first quarter of 2019 and 2018, 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 31.8% and 29.5% of GRE's electricity revenues for 2019 and 2018, 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. Purchase of Receivables Utility companies offer purchase of receivable, or POR, programs in most of the service territories in which we operate. 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 and six months endedJune 30, 2020 the associated cost was approximately 1.3% and 1.2% of GRE's revenue, respectively. In both the three and six months endedJune 30, 2019 the associated cost was approximately 1.1% of GRE's revenue. AtJune 30, 2020 , 87.9% of GRE's net accounts receivables were under a POR program.
Class Action Lawsuits
Although GRE endeavors to maintain best sales and marketing practices, such practices have been the subject of certain class action lawsuits.
OnOctober 5, 2018 , two named plaintiffs filed a putative class action complaint againstIDT Energy alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. §227 et seq. in connection with its telemarketing practices.IDT Energy denies the allegations in the complaint, which it believes to be meritless and is vigorously defending this action. OnOctober 31, 2019 , the court grantedIDT Energy's motion to bifurcate individual from class claims to expedite discovery and dispositive motions related to the named plaintiffs. OnJanuary 9, 2020 , the Court grantedIDT Energy's motion for summary judgment to dismiss one of the named plaintiffs for lack of personal jurisdiction. The remaining named plaintiff filed a motion to compel class discovery whichIDT Energy has opposed. OnJuly 14, 2020 ,IDT Energy filed a motion for summary judgment to dismiss the remaining named plaintiff. Based upon the Company's assessment of this matter, a loss based on the merits is not considered probable, nor is the amount of loss, if any, estimable as ofJune 30, 2020 . OnFebruary 18, 2020 , named PlaintiffDanelle Davis filed a putative class action complaint against Residents Energy and GRE in United States District ofNew Jersey alleging violations of the Telephone Consumer Protection Act, 47 U.S.C §227 et seq. IDT energy denies allegations in the complaint which it to be meritless and plans to vigorously defend this action. Based upon the Company's preliminary assessment of this matter, a loss is not considered probable, nor is the amount of loss, nor is the amount of loss if any, estimable.
See Notes 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.
New York Public Service Commission Proceedings
InDecember 2017 , theNew York Public Service Commission ("PSC") held an evidentiary hearing to assess the retail energy market inNew York . OnDecember 12, 2019 , following the completion of post-hearing briefings in the proceedings, the PSC issued an order adopting changes to theNew York retail energy market, effectiveOctober 9, 2020 ("2020 Order"). The 2020 Order limits the types of services energy retailer marketers may offer new customers or renewals, in terms of pricing for non-renewable commodities, and renewable product offerings. Although the Company is working to ensure that its products and services are fully compatible with the 2020 Order, such compliance may adversely impact customer acquisition and renewal revenue and profitability. The Company is evaluating its options, both by itself and in tandem with other industry participants, to challenge or petition for additional clarity and changes to the 2020 Order. There is insufficient basis to deem any loss probable or to assess the amount of any possible loss based on the changes instituted by the 2020 Order. As ofJune 30, 2020 ,New York represented 20.6% of GRE's total meters served and 15.6% of the total residential customer equivalents ("RCEs") of GRE's customer base. For the three and six months endedJune 30, 2020 ,New York gross revenues were$11.4 million and$28.8 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 evaluating the consumption profile of a given retail customer base. 28
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OnSeptember 19, 2018 , theState of Connecticut Public Utilities Regulatory Authority ("PURA") commenced an investigation intoTown Square following customer complaints of allegedly misleading and deceptive sales practices on the part ofTown Square .The Connecticut Office of Consumer Counsel has joined in the investigation. AlthoughTown Square denies any basis for those complaints and any wrongdoing on its part, it is cooperating with the investigation and responding to subpoenas for discovery. OnJune 17, 2020 , thePublic Utilities Regulatory Authority (PURA or Authority) notifiedTown Square that it was advancing it's investigation by assigning Prosecutorial (PRO) staff for the purpose of investigatingTown Square's compliance with licensed electric supplier billing, marketing, and licensing requirements, and, if appropriate, facilitating settlement discussions among the parties that contains, but is not limited to, an appropriate civil penalty, extensive retraining of the supplier's third-party agents, and retention of all sales calls with continued auditing. If a settlement is not achieved and PRO staff believe the Authority should take further action regarding alleged non-compliance, the Authority requests that PRO staff petition the Authority setting forth its recommendations citing to supporting facts and law. As ofJune 30, 2020 ,Town Square's Connecticut customer base represented 13.1% of GRE's total meters served and 14.2% of the total RCEs of GRE's customer base. For three and six months endedJune 30, 2020 ,Town Square's gross revenues from sales inConnecticut were$9.5 million and$17.1 million , respectively. As ofJune 30, 2020 , no claims or demands have been made againstTown Square by either agency, and there is insufficient basis to deem the loss probable or to assess the amount of any possible loss.
State of
In response to complaints thatIDT Energy enrolled consumers without their express consent and misrepresented the amount of savings those consumers would receive, theOffice of the Attorney General of the State of Illinois ("IL AG ") has been investigating the marketing practices ofIDT Energy and has alleged violations of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. and the Illinois Telephone Solicitations Act, 815 ILCS 413/1 et seq. Shortly thereafter, theIllinois Commerce Commission ("IL ICC") commenced a similar investigation. AlthoughIDT Energy denies any wrongdoing in connection with those allegations, the parties (including the IL ICC) settled the matter pursuant to a court approved consent decree that includes restitution payments in the amount of$3.0 million , temporary suspension of all marking activities directed at new customers throughDecember 1, 2020 , and implementation of various compliance and reporting procedures. In third quarter of 2018, the Company recorded a liability of$3.0 million recorded as a reduction of electricity revenues in the consolidated statements of operations. As ofJune 30, 2020 ,IDT Energy inIllinois represented 3.1% of GRE's total meters served and 1.5% of the total RCEs of GRE's customer base. For the six months endedJune 30, 2020 and 2019,IDT Energy's gross revenues from sales inIllinois were$1.6 million and$3.4 million , respectively. Critical Accounting Policies Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted inthe United States of America , orU.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 endedDecember 31, 2019 . 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 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, 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 endedDecember 31, 2019 .
Recently Issued Accounting Standards
Information regarding new accounting pronouncements is included in Note 19-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. 29
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Three and Six Months Ended
Genie Retail Energy Segment
Three months ended Six months ended
June 30, Change June 30, Change
(amounts in
thousands) 2020 2019 $ % 2020 2019 $ %
Revenues:
Electricity $ 61,076 $ 49,237 $ 11,839 24.0 % $ 124,150 $ 107,049 $ 17,101 16.0 %
Natural gas 5,396 5,194 202 3.9 21,467 23,900 (2,433) (10.2)
Total revenues 66,472 54,431 12,041 22.1 145,617 130,949 14,668 11.2 Cost of revenues 49,420
46,188 3,232 7.0 100,963 98,027 2,936 3.0 Gross profit
17,052 8,243 8,809 106.9 44,654 32,922 11,732 35.6
Selling, general
and administrative
expenses 11,095 13,661 (2,566) (18.8) 25,680 24,837 843 3.4
Income
(loss) from
operations $ 5,957 $ (5,418) $ 11,375 209.9 % $ 18,974 $ 8,085 $ 10,889 134.7 %
Revenues. Electricity revenues increased by 24.0% in three months ended June 30,
2020 compared to the same period in 2019. The increase is due to an increase in
electricity consumption partially offset by a decrease in the average rate per
kilowatt hour sold in the three months ended June 30, 2020 compared to the same
period in 2019. Electricity consumption by GRE's REPs' customers increased
by 35.0% in the three months ended June 30, 2020 , compared to the same period
in 2019. The increase in electricity consumption reflected a 7.4% increase
in the average number of meters served and a 25.7% increase in average
consumption per meter. The increase in consumption reflects a sustained focus on
the acquisition of higher consumption meters, warmer weather in the 2020 period
compared to 2019 and increased residential electricity consumption resulting
from COVID-19 "stay-at-home" orders. The average rate per kilowatt hour sold
decreased 8.1% in the three months ended June 30, 2020 compared to the same
period in 2019.
Electricity revenues increased by 16.0% in six months ended June 30, 2020
compared to the same period in 2019. The increase is due to an increase in
electricity consumption partially offset by a decrease in the average rate per
kilowatt hour sold in the six months ended June 30, 2020 compared to the same
period in 2019. Electricity consumption by GRE's REPs' customers increased 25.4%
in the six months ended June 30, 2020 , compared to the same period in 2019. The
increase in electricity consumption reflected an increase in the average number
of meters served which increased by 12.3% and in the average consumption per
meter which increased by 11.6% in the six months ended June 30, 2020 compared to
the same period in 2019. The average rate per kilowatt hour sold decreased 7.5%
in the six months ended June 30, 2020 compared to the same period in 2019.
GRE's natural gas revenues increased by 3.9% in the three months ended June 30,
2020 compared to the same period in 2019. Natural gas consumption
by GRE's REPs' customers increased by 14.1% in the three months ended June 30,
2020 compared to the same period in 2019 reflecting a 14.9% increase in average
consumption per meter in the three months ended June 30, 2020 compared to the
same period in 2019 partially offset by a decrease of 0.7% in average meters
served in the three months ended June 30, 2020 compared to the same period
in 2019. The increase was also partially offset by a decrease in average rate
per therm sold which decreased by 8.9% in the three months ended June 30, 2020 ,
compared to the same period in 2019.
GRE's natural gas revenues decreased in the six months ended June 30, 2020
compared to the same period in 2019. The decrease is due to decreases in
natural gas consumption by GRE's REPs' customers and average rate per therm sold
in the six months ended June 30, 2020 , compared to the same period in
2019. Natural gas consumption by GRE's REPs' customers decreased 4.1% in the six
months ended June 30, 2020 compared to the same period in 2019 reflecting a 7.0%
decrease in average consumption per meter in the six months ended June 30, 2020
compared to the same period in 2019 partially offset by an increase of 3.2% in
average meters served in the six months ended June 30, 2020 compared to the same
period in 2019. Average rate per therm sold decreased by 6.4% in the six months
ended June 30, 2020 , compared to the same period in 2019.
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The customer base for GRE's REPs as measured by meters served consisted of the
following:
September 30,
(in thousands) June 30, 2020 March 31, 2020 December 31, 2019 2019 June 30, 2019
Meters at end of quarter:
Electricity customers 310 313 297 314 307
Natural gas customers 64 71 73 74 71
Total meters 374 384 370 388 378
Gross meter acquisitions in three months ended June 30, 2020 , were
40,000 compared to 91,000 for the same period in 2019. Gross meter acquisitions
in six months ended June 30, 2020 , were 109,000 compared to 176,000 for the same
period in 2019. The decreases reflect reduced sales activity in the second
quarter of 2020 as a result of COVID-19 related public health restrictions on
certain sales channels. Gross meter acquisition in six months ended June 30,
2019 includes the impact of a municipal aggregation deal in New Jersey which
added approximately 35,000 meters.
Meters served decreased by 10,000 or 2.6% from March 31, 2020 to June 30, 2020 .
Meters served increased by 4,000 or 1.1% from December 31, 2019 to June 30,
2020 . In three months ended June 30, 2020 , average monthly churn decreased to
3.9% compared to 4.4% for same period in 2019. In six months ended June 30,
2020 , average monthly churn decreased to 4.3% compared to 4.8% for the same
period in 2019. The reduction in churn reflects the impact of a shift in our
customer mix related to channel, product and geography. The reduction in churn
also reflects decreased sales activity by competitors as a result of COVID-19
related restrictions.
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) June 30, 2020 March 31, 2020 December 30, 2019 2019 June 30, 2019
RCEs at end of quarter:
Electricity customers 288 272 248 266 259
Natural gas customers 55 58 61 61 59
Total RCEs 343 330 309 327 318
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RCEs increased 7.9% at
Cost of Revenues and Gross Margin Percentage. GRE's cost of revenues and gross margin percentage were as follows:
Three months ended Six months ended
June 30, Change June 30, Change
(amounts in
thousands) 2020 2019 $ % 2020 2019 $ %
Cost of
revenues:
Electricity $ 46,181 $ 41,309 $ 4,872 11.8 % $ 89,253 $ 81,909 $ 7,344 9.0 %
Natural gas 3,239 4,879 (1,640) (33.6) 11,710 16,118 (4,408 ) (27.3 ) Total cost of revenues
$ 49,420 $ 46,188 $ 3,232 7.0 %$ 100,963 $ 98,027 $ 2,936 3.0 % Three months ended Six months ended June 30 June 30, (amounts in thousands) 2020 2019 Change 2020 2019 Change Gross margin percentage: Electricity 24.4 % 16.1 % 8.3 % 28.1 % 23.5 % 4.6 % Natural gas 40.0 6.1 33.9 45.5
32.6 12.9 Total gross margin percentage 25.7 % 15.1 % 10.5 % 30.7 % 25.1 % 5.6 %
Cost of revenues for electricity increased in the three months endedJune 30, 2020 compared to the same period in 2019 primarily because of an increase in electricity consumption by GRE's REPs' customers partially offset by a decrease in the average unit cost of electricity. The average unit cost of electricity decreased 17.2% in the three months endedJune 30, 2020 compared to the same period in 2019. Gross margin on electricity sales increased in the three months endedJune 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased less than the decrease in the average unit cost of electricity. Cost of revenues for electricity increased in the six months endedJune 30, 2020 compared to the same period in 2019 primarily because of an increase in electricity consumption by GRE's REPs' customers partially offset by a decrease in the average unit cost of electricity. The average unit cost of electricity decreased 13.1% in the six months endedJune 30, 2020 compared to the same period in 2019. Gross margin on electricity sales increased in the six months endedJune 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased less than the decrease in the average unit cost of electricity. Cost of revenues for natural gas decreased in the three months endedJune 30, 2020 compared to the same period in 2019 primarily because of a decrease in the average unit cost of natural gas partially offset by increase in natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 42.1% in the three months endedJune 30, 2020 compared to the same period in 2019. Gross margin on natural gas sales increased in the three months endedJune 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased less than the decrease in the average unit cost of natural gas. Cost of revenues for natural gas decreased in the six months endedJune 30, 2020 compared to the same period in 2019 primarily because of decreases in both the average unit cost of natural gas and natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 24.4% in the six months endedJune 30, 2020 compared to the same period in 2019. Gross margin on natural gas sales increased in the six months endedJune 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased less than the decrease in the average unit cost of natural gas.
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Selling, General and Administrative. The decrease in selling, general and administrative expense in the three months endedJune 30, 2020 compared to the same period in 2019 was primarily due to a decrease in marketing and customer acquisition costs partially offset by increases in employee-related costs, provision for doubtful accounts and costs related to POR programs. Marketing and customer acquisition expenses decreased by$3.5 million in the three months endedJune 30, 2020 , compared to the same period in 2019 due to reduced pace of customer acquisition activities related to COVID-19 related public health restrictions. Employee-related expenses increased by$0.2 million in the three months endedJune 30, 2020 compared to the same period in 2019 primarily due to an increase in accrued bonuses resulting from improved results of operations. Provision for doubtful accounts and costs related to POR program increased by$0.7 million in three months endedJune 30, 2020 compared to the same period in 2019 as a result of entrance to non-POR markets (which led to an increase in the provision for doubtful accounts) and increase in revenue. As a percentage of GRE's total revenues, selling, general and administrative expense decreased from 25.1% in the three months endedJune 30, 2019 to 16.7% in the three months endedJune 30, 2020 . The increase in selling, general and administrative expense in the six months endedJune 30, 2020 compared to the same period in 2019 was primarily due to increases in employee-related costs, provision for doubtful accounts expense and costs related to POR programs partially offset by decrease in marketing and customer acquisition costs. Employee-related expenses increased by$0.6 million in the six months endedJune 30, 2020 compared to the same period in 2019 primarily due to an increase in accrued bonuses resulting from improved results of operations. Provision for doubtful accounts and costs related to POR program increase by$1.2 million in six months endedJune 30, 2020 compared to the same period in 2019. Marketing and customer acquisition expenses decreased by$1.0 million in the six months endedJune 30, 2020 , compared to the same period in 2019. As a percentage of GRE's total revenues, selling, general and administrative expense slightly decreased from 25.1% in the six months endedJune 30, 2019 to 16.7% in the six months endedJune 30, 2020 . GRE International Segment Three Months Ended Six Months Ended June 30, Change June 30, Change (amounts in thousands) 2020 2019 $ % 2020 2019 $ % Revenues$ 5,037 $ 2,870 $ 2,167 75.5 %$ 11,990 $ 7,713 $ 4,277 55.5 % Cost of revenue 3,122 2,629 493 18.8 10,363 7,491 2,872 38.3 Gross profit 1,915 241 1,674
694.6 1,627 222 1,405 632.9 Selling, general and administrative expenses 2,522
1,848 674 36.5 4,754 3,572 1,182 33.1
Loss from operations
$ (607) $ (1,607) $ (1,000) (62.2) % $ (3,127) $ (3,350 ) $ (223) (6.7) %
Equity in net loss of
Shoreditch $ 1,502 $ 867 $ 635 73.2 % $ 1,502 $ 1,938 $ (436) (22.5) %
GRE International holds our stakes in REPs outside of North America . These
businesses currently include our stake in Shoreditch, which operates as Orbit
Energy in the U.K. , Genie Japan , and our controlling stake in Lumo, which
operates in certain portions of Scandinavia. In the second quarter of 2020, we
started commercial operations in Sweden .
We account for our investments in Shoreditch under the equity method of accounting. Under this method, we record our share in the net income or loss of Shoreditch. Therefore, revenue generated, and expenses incurred are not reflected in our consolidated revenue and expenses.
Meters served byGRE International's REPs, including Shoreditch, increased to 161,000 atJune 30, 2020 from 148,000 atMarch 31, 2020 primarily as a result of the growth Shoreditch's and Lumo's customer bases. Meters served byGRE International's REPs, including Shoreditch, increased by 34,000 or 26.7% fromDecember 31, 2019 toJune 30, 2020 , primarily as a result of growth in Shoreditch's and Lumo's customer bases. The Company also started the commercial operations ofGenie Japan in second quarter of 2019. RCEs atJune 30, 2020 , including Shoreditch, increased to 79,000 from 72,000 atMarch 30, 2020 primarily from the increase in meters served as discussed above. RCEs atJune 30, 2020 increased by 13,000 or 20.6% fromDecember 31, 2019 toJune 30, 2020 , primarily as a result of growth in Shoreditch, Japan and Lumo. Revenue and Cost of Revenue.GRE International's revenues and cost of revenue increased in the three and six months endedJune 30, 2020 compared to the same period in 2019 primarily because of the start of commercial operations ofGenie Japan in second quarter of 2019 and increase in meters served of Lumo. In second quarter of 2020, our wholly-owned subsidiary,Lumo Energi AB , began its commercial operations serving customers inSweden . Equity in net loss of joint venture. We account for our ownership interest in Shoreditch using the equity method since we have the ability to exercise significant influence over Shoreditch's operating and financial matters, although we do not control Shoreditch. In fourth quarter of 2019, the book value the Company's investment in Shoreditch was reduced to nil as a result of the Company's share in accumulated losses of Shoreditch using the equity method of accounting. The Company recognized$1.5 million share in net losses Shoreditch for the three and six months endedJune 30, 2020 . equivalent to the total capital contribution for the same periods. The Company's share in Shoreditch's net loss for the three and six months endedJune 30, 2019 were$0.9 million and$1.9 million , respectively. 33
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GES Segment
Three Months Ended Six Months Ended
June 30, Change June 30, Change(amounts in thousands) 2020 2019 $ % 2020 2019 $ % Revenues$ 4,566 $ 3,708 $ 858 23.1 %$ 22,519 $ 8,965 $ 13,554 151.2 % Cost of revenue 4,045 3,214 831 25.9 20,408 7,540 12,868 170.7 Gross profit 521 494 27 5.5 2,111 1,425 686 48.1 Selling, general and administrative expenses 833 1,176 (343) (29.2) 1,889 2,338 (449 ) (19.2 ) Impairment of assets 801 - 801 nm 993 - 993 nm Loss from operations$ (1,113) $ (682) $ 431 63.2 %$ (771) $ (913 ) $ (142) (15.6) % nm-not meaningful Revenue. GES' revenues increased in the three and six months endedJune 30, 2020 compared to the same period in 2019. The increase in revenues was the result of the delivery of a large number of orders at Prism particularly in the first quarter of 2020. Revenues from Diversegy includes commissions, entry fees and other fees from our energy brokerage and marketing services businesses. Cost of Revenues. Cost of revenues increased in the three and six months endedJune 30, 2020 compared to the same periods in 2019 primarily as a result of the significant increase in deliveries of solar panels. Cost of revenues in the three and six months endedJune 30, 2020 also includes commissions incurred by our energy brokerage and marketing services businesses. Selling, General and Administrative. Selling, general and administrative expenses decreased the three and six months endedJune 30, 2020 compared to the same period in 2019 primarily because of the streamlining of operations of Prism in first quarter of 2020. InMarch 2020 , we initiated a plan to sell the property, plant and equipment of Prism. Prism's 4.75% notes payable toCatskill Hudson Bank are collateralized by Prism's land and building and improvements and will be settled from the proceeds of the sale of the property. AtJune 30, 2020 , Prism's property, plant and equipment and notes payable were reclassified as assets and liabilities held for sale and reported at lower of fair value less cost to sell and net book value. In the first quarter of 2020, the Company recorded a$0.2 million write-down to fair value of certain property and equipment. In second quarter of 2020, Prism renegotiated a contract with a customer which resulted in impairment of customer relationship of$0.8 million included in the consolidated statements of operation.
We are currently exploring options to reduce overhead at Prism due to changes in market conditions.
The pending disposition of Prism's assets and liabilities held for sale did not meet the criteria to be reported as a discontinued operation. AtJune 30, 2020 , assets held of sale of$2.2 million and liabilities held for sale of$0.8 million were included in other current assets and other current liabilities, respectively, in the consolidated balance sheet.
Genie Oil and Gas Segment
Three Months Ended Six Months Ended
June 30, Change June 30, Change
(amounts in thousands) 2020 2019 $ % 2020 2019 $ %
Revenue $ - $ - $ - nm % $ - $ - $ - nm %
General and
administrative 172 381 (209) (54.9) 395 545 (150) (27.5)
Loss from operations $ 172 $ 381 $ (209) (54.9) % $ 395 $ 545 $ (150) (27.5) %
Equity in net loss of
Atid 613 $ 224 $ (204) $ 428 (209.8) % $ (36) $ 70 $ (106) (151.4 )%
nm-not meaningful
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General and Administrative. General and administrative expense decreased in the three and six months endedJune 30, 2020 compared to the same periods in 2020 because of decrease in payroll and related expenses and consulting fees. Exploration. In 2017, we suspended drilling operations at Afek. Subsequent analysis indicates that a zone within the well contains evidence of hydrocarbons at levels sufficient to warrant additional testing. Accordingly, Afek requested and received a renewal of its exploratory license from theMinistry of Energy for the Northern portion of its former license area. Because of COVID-19 restrictions, an essential member of our technical team has not been able to get a visa, which makes it difficult to determine a new time-frame for completion of the tests since the execution depends on factors outside our span of control, however, we will provide an update in our third quarter of 2020 report 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 Three months ended Six months ended thousands) June 30, Change June 30, Change 2020 2019 $ % 2020 2019 $ % General and administrative expenses and loss from operations$ 1,335 $ 1,188 $ 147 12.4 %$ 2,738 $ 2,718 $ 20 0.7 % Corporate general and administrative expenses increased in three and six months endedJune 30, 2020 compared to the same periods in 2019 primarily because of an increase in stock-based compensation expense. As a percentage of our consolidated revenues, Corporate general and administrative expense decreased from 1.9% in the three months endedJune 30, 2019 to 1.8% in the three months endedJune 30, 2020 and decreased from 1.8% in the six months endedJune 30, 2019 to 1.5% in the six months endedJune 30, 2020 . Consolidated Selling, general and administrative expenses. Stock-based compensation expense included in consolidated selling, general and administrative expense was$0.4 million and$0.3 million in the three months endedJune 30, 2020 and 2019, respectively and$0.9 million and$0.8 million in the six, respectively. AtJune 30, 2020 , aggregate unrecognized compensation cost related to non-vested stock-based compensation was$3.0 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 Six months ended
June 30, Change June 30, Change
(amounts in thousands) 2020 2019 $ % 2020 2019 $ %
Income (loss) from
operations $ 2,730 $ (9,276) $ 12,006 129.4 % $ 11,943 $ 558 $ 11,385 2,040.3 %
Interest income 20 189 (169) (89.4) 143 281 (138) (49.1)
Interest expense (58) (178) 120 (67.4) (175) (319 ) 144 (45.1 ) Equity in net loss in (1,173) (1,071) (102) 9.5 equity method investees
(1,552) (1,868) 316 (16.9)
Other (loss) income,
net (52) 157 (209) (133.1) 98 232 (134) (57.8)
(Provision for) benefit
from income taxes (587) 1,678 (2,265) (135.0) (3,156) (1,225) (1,931) 157.6
Net income (loss) 880 (8,501) 9,381 110.4 7,301 (2,341) 9,642 411.9
Net loss attributable
to noncontrolling
interests (1,083) (1,035) 48 4.6 (494) (944) (450) (47.7)
Net income (loss)
attributable to Genie $ 1,963 $ (7,466) $ 9,429 126.3 % $ 7,795 $ (1,397) $ 10,092 722.4
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Other Income (Expense), net. Other expense, net in the three months endedJune 30, 2020 consisted primarily of foreign currency transaction and loss on deconsolidation of subsidiary. Other income, net in the six months endedJune 30, 2020 consisted primarily of foreign currency transaction gains. Provision for Income Taxes. The increase in the reported tax rate for the three months endedJune 30, 2020 compared to the same period in 2019, is a result of higher taxable income on GRE business that is not offset by losses on other business. The provision for income taxes in the six months endedJune 30, 2020 is a result of consolidated taxable income GRE. The benefit from income taxes in the six months endedJune 30, 2019 is a result of loss during the period. Net Income Attributable to Noncontrolling Interests. The change in the net loss attributable to noncontrolling interests in the three months endedJune 30, 2020 compared to the similar periods in 2019 was primarily due to the increase in the share of noncontrolling interest from net losses of Prism and CCE offset by decrease in share in net loss of noncontrolling interest related to Afek. The change in the net loss attributable to noncontrolling interests in the six months endedJune 30 , 2020compared to the similar periods in2019was primarily due to the share of noncontrolling interest from deconsolidation of non-operating subsidiaries and decrease in net loss of Lumo and Afek offset by increase in share in net loss of noncontrolling interest related to Prism.
Liquidity and Capital Resources
General We currently expect that our cash flow from operations and the$33.4 million balance of unrestricted cash and cash equivalents that we held atJune 30, 2020 will be sufficient to meet our currently anticipated cash requirements for at least the period fromJuly 1, 2020 toAugust 7, 2021 .
At
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