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, 2019 , 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 nine months endedSeptember 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 endedSeptember 30, 2020 , compared to the same period in 2019, increased by$10.6 million equivalent to 12.4%. Our consolidated revenues for the nine months endedSeptember 30, 2020 , compared to the same period in 2019, increased by$43.1 million equivalent to 18.5%. 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 and slight a reduction in theU.S. domestic meters served. The reduction in gross meter acquisitions decreased our customer acquisition expense in the second and third quarter of 2020. Churn for the second and third quarter of 2020 decreased, in part, due to our competitors suspending 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 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. 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. 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 and Midwestern United States and Texas .
GRE International holds the Company's interest (which was 77.0% as of September
30, 2020 ) in its joint venture that serves retail customers in the United
Kingdom ("U.K."), our wholly-owned venture in Japan , its 92.5% 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 . In October
2020 , the Company acquired the remaining 23.0% interest and controlling in
Shoreditch which increased the Company's interest to 100%
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 92.9% and 95.3% of our consolidated revenues in the three months endedSeptember 30, 2020 and 2019, respectively, and 85.0% and 91.1% in the nine months endedSeptember 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 nine months endedSeptember 30, 2020 the associated cost was approximately 1.2% of GRE's revenue. In both the three and nine months endedSeptember 30, 2019 the associated cost was approximately 1.1% of GRE's revenue. AtSeptember 30, 2020 , 85.8% 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 and class claims (staying class discovery) 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 which was denied by the Court. 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 ofSeptember 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. Residents 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 as ofSeptember 30, 2020 . On or aroundOctober 9, 2020 , Residents Energy filed a preliminary motion to dismiss one of the counts in the complaint, and to dismiss GRE as a named defendant.
See Note 19, 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 19, 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 orders adopting changes to theNew York retail energy market, effectiveFebruary 14, 2021 ("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 Orders, 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 Orders. 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 ofSeptember 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 nine months endedSeptember 30, 2020 ,New York gross revenues were$14.3 million and$43.2 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. 29
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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 , PURA 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 PURA should take further action regarding alleged non-compliance, PURA requests that PRO staff petition PURA setting forth its recommendations citing supporting facts and law. As ofSeptember 30, 2020 ,Town Square's Connecticut customer base represented 13.0% of GRE's total meters served and 14.3% of the total RCEs of GRE's customer base. For three and nine months endedSeptember 30, 2020 ,Town Square's gross revenues from sales inConnecticut were$12.0 million and$29.1 million , respectively. As ofSeptember 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. In third quarter of 2019, the Company settled the liability. As ofSeptember 30, 2020 ,IDT Energy inIllinois represented 2.7% of GRE's total meters served and 1.3% of the total RCEs of GRE's customer base. For the nine months endedSeptember 30, 2020 and 2019,IDT Energy's gross revenues from sales inIllinois were$2.3 million and$5.8 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 21-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. 30
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Three and Nine Months Ended
Genie Retail Energy Segment
Three months ended Nine months ended
September 30, Change September 30, Change
(amounts in
thousands) 2020 2019 $ % 2020 2019 $ %
Revenues:
Electricity $ 86,200 $ 78,480 $ 7,720 9.8 % $ 210,350 $ 185,529 $ 24,821 13.4 %
Natural gas 2,724 3,169 (445) (14.0) 24,190 27,069 (2,879) (10.6)
Others 568 - 568 nm 568 - 568 nm
Total revenues 89,492 81,649 7,843 9.6 235,108 212,598 22,510 10.6 Cost of revenues 63,559
55,953 7,606 13.6 164,521 153,980 10,541 6.8 Gross profit
25,933 25,696 237 0.9 70,587 58,618 11,969 20.4
Selling, general
and administrative
expenses 13,600 14,840 (1,240) (8.4) 39,281 39,677 (396) (1.0)
Income from
operations
nm-not meaningful Revenues. Electricity revenues increased by 9.8% in three months endedSeptember 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 endedSeptember 30, 2020 compared to the same period in 2019. Electricity consumption by GRE's REPs' customers increased by 17.8% in the three months endedSeptember 30, 2020 , compared to the same period in 2019. The increase in electricity consumption reflected a 20.3% increase in average consumption per meter partially offset by a 2.1% decrease in average number of meters served. The increase in per meter 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 6.8% in the three months endedSeptember 30, 2020 compared to the same period in 2019. Electricity revenues increased by 13.4% in nine months endedSeptember 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 nine months endedSeptember 30, 2020 compared to the same period in 2019. Electricity consumption by GRE's REPs' customers increased 22.1% in the nine months endedSeptember 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 7.1% and in the average consumption per meter which increased by 14.0% in the nine months endedSeptember 30, 2020 compared to the same period in 2019. The average rate per kilowatt hour sold decreased 7.1% in the nine months endedSeptember 30, 2020 compared to the same period in 2019. GRE's natural gas revenues decreased by 14.0% in the three months endedSeptember 30, 2020 compared to the same period in 2019. Natural gas consumption by GRE's REPs' customers decreased by 5.0% in the three months endedSeptember 30, 2020 compared to the same period in 2019 reflecting a 10.2% decrease in average meters served in the three months endedSeptember 30, 2020 compared to the same period in 2019 partially offset by 5.8% increase in average consumption per meter in the three months endedSeptember 30, 2020 compared to the same period in 2019. The decrease is also due to a decrease in average rate per therm sold which decreased by 9.5% in the three months endedSeptember 30, 2020 , compared to the same period in 2019. GRE's natural gas revenues decreased in the nine months endedSeptember 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 nine months endedSeptember 30, 2020 , compared to the same period in 2019. Natural gas consumption by GRE's REPs' customers decreased 4.2% in the nine months endedSeptember 30, 2020 compared to the same period in 2019 reflecting a 2.7% decrease in average consumption per meter in the nine months endedSeptember 30, 2020 compared to the same period in 2019 and a decrease of 1.5% in average meters served in the nine months endedSeptember 30, 2020 compared to the same period in 2019. Average rate per therm sold decreased by 6.7% in the nine months endedSeptember 30, 2020 , compared to the same period in 2019. 31
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The customer base for GRE's REPs as measured by meters served consisted of the
following:
September September 30,
(in thousands) 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 2019
Meters at end of quarter:
Electricity customers 309 310 313 297 314
Natural gas customers 67 64 71 73 74
Total meters 376 374 384 370 388
Gross meter acquisitions in three months ended September 30, 2020 , were
44,000 compared to 76,000 for the same period in 2019. Gross meter acquisitions
in the nine months ended September 30, 2020 , were 154,000 compared to 252,000
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 the nine
months ended September 30, 2019 includes the impact of a municipal aggregation
deal in New Jersey which added approximately 35,000 meters.
Meters served increased by 2,000 or 0.5% from June 30, 2020 to September 30,
2020 . Meters served decreased by 6,000 or 2.1% from December 31, 2019 to
September 30, 2020 . In three months ended September 30, 2020 , average monthly
churn decreased to 3.7% compared to 5.3% for same period in 2019. In nine months
ended September 30, 2020 , average monthly churn decreased to 4.1% compared to
5.0% 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 as well as
continuing increase in the ratio of fixed rate to variable rate customers, where
fixed rate customers generally have lower rates of churn. 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) September 30, 2020 June 30, 2020 March 31, 2019 December 31, 2019 2019RCEs at end of quarter: Electricity customers 294 288 272 248 266 Natural gas customers 56 55 58 61 61 Total RCEs 350 343 330 309 327 32
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RCEs increased 7.0% at
Other revenue in the three and nine months ended
Cost of Revenues and Gross Margin Percentage. GRE's cost of revenues and gross margin percentage were as follows:
Three months ended Nine months ended
September 30, Change September 30, Change(amounts in thousands) 2020 2019 $ % 2020 2019 $ % Cost of revenues: Electricity$ 61,467 $ 53,989 $ 7,478 13.9 %$ 150,720 $ 135,898 $ 14,822 10.9 % Natural gas 1,655 1,964 (309) (15.7) 13,364 18,082 (4,718 ) (26.1 ) Others 437 - 437 nm 437 - 437 nm Total cost of revenues$ 63,559 $ 55,953 $ 7,606 13.6 %$ 164,521 $ 153,980 $ 10,541 6.8 % Three months ended Nine months ended September 30 September 30, (amounts in thousands) 2020 2019 Change 2020 2019 Change Gross margin percentage: Electricity 28.7 % 31.2 % (2.5) % 28.3 % 26.8 % 1.6 % Natural gas 39.2 38.0 1.2 44.8 33.2 11.6 Others 23.1 - 23.1 23.1
- 23.1 Total gross margin percentage 29.0 % 31.5 % (2.5) % 30.0 % 27.6 % 2.5 %
nm-not meaningful Cost of revenues for electricity increased in the three months endedSeptember 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 3.4% in the three months endedSeptember 30, 2020 compared to the same period in 2019. Gross margin on electricity sales decreased in the three months endedSeptember 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased more than the decrease in the average unit cost of electricity. Cost of revenues for electricity increased in the nine months endedSeptember 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 9.2% in the nine months endedSeptember 30, 2020 compared to the same period in 2019. Gross margin on electricity sales increased in the nine months endedSeptember 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 endedSeptember 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 11.3% in the three months endedSeptember 30, 2020 compared to the same period in 2019. Gross margin on natural gas sales decreased in the three months endedSeptember 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased more than the decrease in the average unit cost of natural gas. Cost of revenues for natural gas decreased in the nine months endedSeptember 30, 2020 compared to the same period in 2019 primarily because of decreases in both natural gas consumption of GRE's REP's customers and the average unit cost of natural gas and natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 23.0% in the nine months endedSeptember 30, 2020 compared to the same period in 2019. Gross margin on natural gas sales increased in the nine months endedSeptember 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 endedSeptember 30, 2020 compared to the same period in 2019 was primarily due to decreases in both marketing and customer acquisition costs and employee-related costs partially offset by increase in provision for doubtful accounts and costs related to POR programs. Marketing and customer acquisition expenses decreased by$1.8 million in the three months endedSeptember 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 slightly decreased by$0.1 million in the three months endedSeptember 30, 2020 compared to the same period in 2019 primarily due to a reduction in the number of employees. Provision for doubtful accounts and costs related to POR programs increased by$1.0 million in three months endedSeptember 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 18.2% in the three months endedSeptember 30, 2019 to 15.2% in the three months endedSeptember 30, 2020 . The slight decrease in selling, general and administrative expense in the nine months endedSeptember 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 expense and costs related to POR programs. Marketing and customer acquisition expenses decreased by$2.8 million in the nine months endedSeptember 30, 2020 , compared to the same period in 2019. Employee-related expenses increased by$0.3 million in the nine months endedSeptember 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 programs increased by$2.2 million in the nine months endedSeptember 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 18.7% in the nine months endedSeptember 30, 2019 to 16.7% in the nine months endedSeptember 30, 2020 . GRE International Segment Three Months Ended Nine Months Ended September 30, Change September 30, Change (amounts in thousands) 2020 2019 $ % 2020 2019 $ % Revenues$ 5,830 $ 3,039 $ 2,791
91.8 %
4,741 2,643 2,098 79.4 15,105 10,134 4,971 49.1 Gross profit
1,089 396 693 175.0 2,715 617 2,098 340.0
Selling, general and
administrative expenses 2,663 1,955 708 36.2 7,416 5,528 1,888 34.2
Loss from operations
$ (1,574) $ (1,559) $ 15 1.0 % $ (4,701) $ (4,911) $ (210) (4.3) %
Equity in net loss of
Shoreditch $ - $ 867 $ (867) (100.0) % $ 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 through a wholly owned entity.
Prior to our acquisition of the remaining 23.0% of Shoreditch, we accounted for
our 77.0% interest in Shoreditch under the equity method of accounting. Under
this method, we recorded our share in the net income or loss of Shoreditch.
Therefore, revenue generated, and expenses incurred were not reflected in our
consolidated revenue and expenses. In October 2020 , we acquired the
remaining 23.0% controlling interest in Shoreditch which increased our interest
to 100%.
Meters served by GRE International's REPs, including Shoreditch, increased to
182,000 at September 30, 2020 from 161,000 at June 30, 2020 primarily as a
result of the growth in Shoreditch's and Lumo's customer bases. Meters served by
GRE International's REPs, including Shoreditch, increased by 55,000 or 43.3%
from December 31, 2019 to September 30, 2020 , primarily as a result of growth
in Shoreditch's and Lumo's customer bases. The Company also started the
commercial operations of Genie Japan in second quarter of 2019.
RCEs at
Revenue and Cost of Revenue.GRE International's revenues and cost of revenue increased in the three and nine months endedSeptember 30, 2020 compared to the same periods in 2019 primarily because of the start of commercial operations ofGenie Japan in second quarter of 2019 and the increase in meters served at Lumo. In the second quarter of 2020, our wholly-owned subsidiary,Lumo Energi AB , began its commercial operations serving customers inSweden . Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses in the three and nine months endedSeptember 30, 2020 compared to the same periods in 2019 is primarily due to continued growth of operations at Lumo andGenie Japan and the start of commercial operation inSweden in the second quarter of 2020. Marketing and customer acquisition-related expenses increased related to the increase in number of meters acquired. The number of employees also increase in 2020 as a result of the expansion of operations. Equity in net loss of joint venture. We accounted for our ownership interest in Shoreditch using the equity method since we had the ability to exercise significant influence over Shoreditch's operating and financial matters, although we did not control Shoreditch. In second quarter of 2020, the book value of our investment in Shoreditch was reduced to nil as a result of our share in accumulated losses of Shoreditch. We did not recognize any share in net losses of Shoreditch for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2020 we recognized$1.5 million share in net losses of Shoreditch equivalent to the total capital contributed during that period. The Company's share in Shoreditch's net loss for the three and nine months endedSeptember 30, 2019 were$0.8 million and$1.9 million , respectively. InOctober 2020 , we acquired the remaining 23.0% interest and controlling interest in Shoreditch which increased our interest to 100% 34
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GES Segment
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
(amounts in thousands) 2020 2019 $ % 2020 2019 $ %
Revenues $ 1,004 $ 1,025 $ (21) (2.0) % $ 23,524 $ 9,989 $ 13,535 135.5 %
Cost of revenue 709 763 (54) (7.1) 21,117 8,303 12,814 154.3
Gross profit 295 262 33 12.6 2,407 1,686 721 42.8
Selling, general and
administrative expenses 1,014 1,060 (46) (4.3) 2,903 3,397 (494) (14.5)
Impairment of assets - - - nm 993 - 993 nm
Loss from operations
$ (719) $ (798) $ (79) (9.9) % $ (1,489) $ (1,711 ) $ (222) (13.0) %
nm-not meaningful
Revenue. GES' revenues decreased in the three months ended September 30,
2020 compared to the same period in 2019. The decrease in revenues was the
result of the discontinuance of a relationship with a customer in the second
quarter of 2020. GES' revenues increased in the nine months ended September 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 revenue decreased in the three months ended September
30, 2020 compared to the same period in 2019. The decrease in cost revenues was
consistent with the decrease in revenues for the period. Cost of
revenues increased in the nine months ended September 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 nine months ended
September 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 nine months ended September 30, 2020 compared
to the same periods in 2019 primarily because of the streamlining of operations
of Prism in first quarter of 2020.
In March 2020 , we initiated a plan to sell the property, plant and equipment of
Prism. Prism's 4.75% notes payable to Catskill 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. At September 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.
In the three and nine months ended September 30, 2020 , Prism recorded loss from
disposal of certain property and equipment classified as assets held for sale of
$0.4 million and $0.5 million , respectively, included in the selling, general
and administrative expenses in the consolidated statements of operations.
We are currently exploring options to reduce overhead at Prism due to changes in market conditions.
AtSeptember 30, 2020 , assets held of sale of$2.4 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. OnOctober 16, 2020 , Prism completed the sale of certain property of Prism classified as assets held of sale with a carrying value of$2.4 million for net proceeds of$2.6 million . A portion of the net proceeds was used to settle the notes payable of Prism classified as liabilities held for sale at carrying value of$0.9 million Genie Oil and Gas Segment Three Months Ended Nine Months Ended September 30, Change September 30, Change (amounts in thousands) 2020 2019 $ % 2020 2019 $ % Revenue $ - $ - $ - nm % $ - $ - $ - nm % General and administrative 146 283 (137) (48.4) 541 828 (287) (34.7) Loss from operations$ 146 $ 283 $ (137) (48.4) %$ 541 $ 828 $ (287) (34.7) % Equity in net loss of Atid 613$ 142 $ 148 $ (6) (4.1) %$ 179 $ 78 $ 101 129.5 nm-not meaningful 35
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General and Administrative. General and administrative expense decreased in the three and nine months endedSeptember 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. We initiated the final well test in the second half ofOctober 2020 . 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 Nine months ended thousands) September 30, Change September 30, Change 2020 2019 $ % 2020 2019 $ % General and administrative expenses and loss from operations$ 1,409 $ 1,270 $ 139 10.9 %$ 4,147 $ 3,989 $ 158 4.0 % Corporate general and administrative expenses increased in three and nine months endedSeptember 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 was flat in the three months endedSeptember 30, 2019 compared to the three months endedSeptember 30, 2020 and decreased from 1.7% in the nine months endedSeptember 30, 2019 to 1.5% in the nine months endedSeptember 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 endedSeptember 30, 2020 and 2019, respectively and$1.3 million and$1.1 million in the nine months endedSeptember 30, 2020 and 2019, respectively. AtSeptember 30, 2020 , aggregate unrecognized compensation cost related to non-vested stock-based compensation was$2.6 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 Nine months ended
September 30, Change September 30, Change
(amounts in
thousands) 2020 2019 $ % 2020 2019 $ %
Income from
operations $ 8,485 $ 6,945 $ 1,540 (22.2) % $ 20,428 $ 7,502 $ 12,926 172.3 %
Interest income 21 163 (142) (87.1) 164 445 (281) (63.1)
Interest expense (48) (161) 113 (70.2)(223) (479 ) 256 (53.4 ) Equity in net loss in equity method
(146) (238) 92 (38.7)
investees (1,698) (2,106) 408 (19.4)
Other income (loss),
net 291 (85) 376 (442.4) 390 147 243 165.3
Provision for benefit
from income taxes (2,406) (1,916) (490) 25.6
(5,563) (3,142) (2,421) 77.1
Net income 6,197 4,708 1,489 (31.6) 13,498 2,367 11,131 (470.3)
Net loss attributable
to noncontrolling
interests 531 539 (8) (1.5) 1,026 1,484 (458) (30.9)
Net income
attributable to Genie $ 6,728 $ 5,247 $ 1,481 (28.2) % $ 14,524 $ 3,851 $ 10,673 (277.2)
36
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Other Income (Expense), net. Other income, net in the three months endedSeptember 30, 2020 consisted primarily of gain from the settlement of accounts payables Prism and of foreign currency transaction. Increase in other income, net in the nine months endedSeptember 30, 2020 compared to the same period in 2019 is primarily due to the gains on settlement of accounts payable of Prism and deconsolidation of a subsidiary. Provision for Income Taxes. The slight increase in the reported tax rate for the three months endedSeptember 30, 2020 compared to the same period in 2019, is a result of changes in the mix of jurisdiction in which taxable income was earned. The decrease in reported tax rate for the nine months endedSeptember 30, 2020 compared to the same period in 2019 is a result of higher deductible business losses applied against taxable income in the current period due to jurisdictions of those taxable income and losses. Net Income Attributable to Noncontrolling Interests. The change in the net loss attributable to noncontrolling interests in the three months endedSeptember 30, 2020 compared to the similar period in 2019 was primarily due to the decrease in the share of noncontrolling interest in net losses of Prism and Afek offset by an increase in our share in net loss of noncontrolling interest related to CCE. The change in the net loss attributable to noncontrolling interests in the nine months endedSeptember 30, 2020 compared to the similar periods in 2019 was primarily due to the share of noncontrolling interest from deconsolidation of non-operating subsidiaries and a decrease in net losses of Lumo, Prism and Afek offset by an increase in share in net loss of noncontrolling interest related to CCE.
Liquidity and Capital Resources
General We currently expect that our cash flow from operations and the$19.6 million balance of unrestricted cash and cash equivalents that we held atSeptember 30, 2020 will be sufficient to meet our currently anticipated cash requirements for at least the period fromOctober 1, 2020 toNovember 6, 2021 .
At
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