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, 2020 , 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, 2020 . 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, 2020 .
Coronavirus Disease (COVID 19)
Starting in the first quarter 2020, the world and
For the three and six months endedJune 30, 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 customer base is predominantly residential, so we benefited from the increased demand for residential 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 a reduction in theU.S. domestic meters served. Churn for the second quarter of 2021 decreased compared to the same period in 2020, 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.
In the fourth quarter of 2020, authorities began relaxing certain COVID-19 public health restrictions in some of our markets which allows 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 ofGenie Retail Energy ("GRE"),Genie Retail Energy International ("GRE International ") and Genie Renewables. InMarch 2021 , the Company modified its management reporting to rename the Genie Energy Services ("GES") segment as "Genie Renewables." GRE owns and operates retail energy providers ("REPs"), includingIDT 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 andTexas .
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GRE International holds the Company's REPs that serve retail customers inUnited Kingdom under the name Orbit Energy, its 98.8% interest in venture inJapan ("Genie Japan"), its 91.7% interest in Lumo Energia Oyj ("Lumo Finland"), a REP serving residential customers inFinland and its 98.8% interest inLumo Energi AB ("Lumo Sweden"), which was formed in 2019 to serve retail energy customers inSweden . InMay 2021 , we completed the sale ofGenie Japan . Genie Renewables holds Diversegy, a retail energy advisory and brokerage company that serves commercial and industrial customers throughoutthe United States , Genie Solar Energy and CityCom Solar and manages our 60.0% controlling interest in Prism. Prism is a solar solutions company that is engaged inU.S. based manufacturing of solar panels, solar installation design and solar energy project management. Genie Solar Energy sells rooftop solar systems to commercial and industrial clients. CityCom Solar is a marketer of community solar energy solutions. 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. Strategic Update We are conducting a strategic review of our businesses in part to address the different investment profiles of itsUnited States and European businesses and to enhance shareholder value across our operations. As one element of this review, we are contemplating opportunities to separateGRE International from GRE and Genie Renewables through a spin-off ofGRE International into a separate, publicly-traded entity. If a transaction is consummated, we believe that shareholders could benefit from the potential spin-off ofGRE International with adequate capital and a dedicated management team empowered to gain scale and accelerate growth in its current and prospective European markets. The remaining domestic operations, GRE and Genie Renewables would then be positioned to accelerate their respective growth plans.Genie Retail Energy 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 67.6% and 80.8% of our consolidated revenues in the six months endedJune 30, 2021 and 2020, 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 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 47.7% and 49.6% of GRE's natural gas revenues for the relevant years were generated in the first quarter of 2020 and 2019, 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% of GRE's electricity revenues for 2020 and 2019, 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. Winter Storm inTexas In mid-February of 2021, theState 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 theERCOT , real-time commodity prices during the crisis escalated significantly. Although our supply commitment for our customers inTexas was reasonably hedged for reasonably foreseen winter weather conditions, the market conditions exposed us to further unexpected cost increases. Despite our cost increases related to the unprecedented price volatility in real-time electricity prices, we maintained customer rates under current agreements with customers. The impact on our consolidated profitability for the three and six months endedJune 30, 2021 were approximately$1.0 and$13.0 million , respectively. InJune 2021 , the state legislature of theState 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 going to the load serving entities who originally incurred the charges. Under HB 4492, we are 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 . For the three and six months endedJune 30, 2021 , the Company recorded a reduction in cost of revenues of$1.5 million . 31
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Purchase of Receivables
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 each of the three and six months endedJune 30, 2021 the associated cost was approximately 1.0% of GRE's revenue. In the three and six months endedJune 30, 2020 the associated cost was approximately 1.3% and 1.2%, respectively, of GRE's revenue. AtJune 30, 2021 , 87.2% 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.
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 and plans to vigorously defend this action. 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. Although Residents Energy and GRE denies any wrongdoing in connection with the complaints, the parties settled the matter for a minimal amount which was included in selling general and administrative expenses for three months endedMarch 31, 2021 .
See Note 17, Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is incorporated by reference.
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 17, 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, effectiveApril 14, 2021 ("2021 Orders"). The 2021 Orders 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 2021 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 2021 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 2021 Orders. As ofJune 30, 2021 ,New York represented 18.6% of GRE's total meters served and 14.9% of the total residential customer equivalents ("RCEs") of GRE's customer base. For the three and six months endedJune 30, 2021 ,New York gross revenues were$10.3 million and$27.4 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 evaluating the consumption profile of a given retail customer base. 32
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Town Square 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 investigationAlthough Town Square denies any basis for those complaints and any wrongdoing on its part, has cooperated with the investigation and responded to subpoenas for discovery. OnJune 17, 2020 , the 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. In the first quarter of 2021,Town Square engaged in settlement discussions with PURA and accrued$0.4 million in the first quarter of 2021. InJuly 2021 , the parties settled the dispute. Pursuant to the terms of the settlement agreement,Town Square will pay$0.4 million .Town Square has also, and has agreed to voluntarily refrain, from in-person marketing activities inConnecticut for the period of 15 months. As ofJune 30, 2021 ,Town Square's Connecticut customer base represented 10.0% of GRE's total meters served and 11.1% of the total RCEs of GRE's customer base. For three and six months endedJune 30, 2021 ,Town Square's gross revenues from sales inConnecticut were$6.5 million and$15.9 million , respectively.
Residents Energy
In August of 2020, Residents Energy began marketing retail energy services inConnecticut . For the three and six months endedJune 30, 2021 , Residents Energy's gross revenues from sales inConnecticut were$0.1 million and$0.2 million , respectively. 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, including a ban on door-to-door activities during the pertinent time period as a result of the COVID-19 pandemic. In January and February of 2021, Residents Energy responded to the limited information requests and discovery made by the enforcement division. OnMarch 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. Residents Energy believes that the initial demand is disproportionate to its scope of activity. In the first quarter of 2021, Residents Energy engaged in settlement discussions with PURA and accrued$0.3 million in the first quarter of 2021.
In
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, 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 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 endedDecember 31, 2020 .
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. 33
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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) 2021 2020 $ % 2021 2020 $ %
Revenues:
Electricity $ 61,895 $ 61,075 $ 820 1.3 % $ 135,282 $ 124,150 $ 11,132 9.0 %
Natural gas 5,082 5,396 (314 ) (5.8 ) 22,362 21,467 895 4.2Total revenues 66,977 66,471 506 0.8
157,644 145,617 12,027 8.3 Cost of revenues 48,657 49,421 (764 ) (1.5 ) 124,358 100,963 23,395 23.2 Gross profit 18,320 17,050 1,270 7.4 33,286 44,654 (11,368 ) (25.5 ) Selling, general and administrative expenses 12,811 11,095 1,716 15.5 26,574 25,680 894 3.5
Income
from operations$ 5,509 $ 5,955 $ (446 ) (7.5 ) %$ 6,712 $ 18,974 $ (12,262 ) (64.6 ) % Revenues. Electricity revenues increased by 1.3% in three months endedJune 30, 2021 compared to the same period in 2020. The increase is due to an increase in average rate per kilowatt hour sold partially offset by decrease in electricity consumption in the three months endedJune 30, 2021 compared to the same period in 2020. The average rate per kilowatt hour sold increased by 3.9% in the three months endedJune 30, 2021 compared to the same period in 2020. Electricity consumption by GRE's REPs' customers decreased by 2.4% in the three months endedJune 30, 2021 , compared to the same period in 2020. The decrease in electricity consumption reflected a 4.4% decrease in average number of meters served partially offset by a 2.1% increase in average consumption per meter. Electricity revenues increased by 9.0% in six months endedJune 30, 2021 compared to the same period in 2020. The increase is due to an increase in electricity consumption partially offset by a slight decrease in the average rate per kilowatt hour sold in the six months endedJune 30, 2021 compared to the same period in 2020. Electricity consumption by GRE's REPs' customers increased 9.8% in the six months endedJune 30, 2021 , compared to the same period in 2020. The increase in electricity consumption reflected a 10.0% increase in the average consumption per meter partially offset by a 0.2% decrease in the average number of meters served. The average rate per kilowatt hour sold decreased 0.7.% in the six months endedJune 30, 2021 compared to the same period in 2020. The increase in per meter consumption reflects colder weather in the first quarter of 2021 compared to the same period in 2020 and increased residential electricity consumption resulting from COVID-19 "stay-at-home" orders. GRE's natural gas revenues decreased by 5.8% in the three months endedJune 30, 2021 compared to the same period in 2020. The decrease in natural gas revenues in the three months endedJune 30, 2021 compared to the same period in 2020 was a result of a decrease in natural gas consumption partially offset by an increase in average rate per therm sold. Natural gas consumption by GRE's REPs' customers decreased by 9.3% in the three months endedJune 30, 2021 compared to the same period in 2020, reflecting a 9.0% decrease in average consumption per meter and a 0.3% decrease in average meters served in the three months endedJune 30, 2021 compared to the same period in 2020. The average revenue per therm increased by 9.3% in the three months endedJune 30, 2021 , compared to the same period in 2020. GRE's natural gas revenues increased in the six months endedJune 30, 2021 compared to the same period in 2020. The increase is due to an increase in natural gas consumption by GRE's REPs' customers partially offset by a decrease in the average rate per therm sold in the six months endedJune 30, 2021 , compared to the same period in 2020. Natural gas consumption by GRE's REPs' customers increased by 5.6% in the six months endedJune 30, 2021 compared to the same period in 2020 reflecting an 11.3% increase in average consumption per meter in the six months endedJune 30, 2021 compared to the same period in 2020 partially offset by a decrease of 5.2% in average meters served in the six months endedJune 30, 2021 compared to the same period in 2020. Average rate per therm sold decreased by 1.3% in the six months endedJune 30, 2021 , compared to the same period in 2020.
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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, 2021 March 31, 2021 December 31, 2020 2020 June 30, 2020
Meters at end of quarter:
Electricity customers 292 308 305 309 310
Natural gas customers 69 65 65 67 64
Total meters 361 373 370 376 374
Gross meter acquisitions in three months ended June 30, 2021 , were
35,000 compared to 40,000 for the same period in 2020. Gross meter acquisitions
in six months ended June 30, 2021 , were 97,000 compared to 109,000 for the same
period in 2020. The decrease reflects the effects of COVID-19 related public
health restrictions on certain sales channels that remain in effect.
Meters served decreased by 12,000 meters or 3.2% from March 31, 2021 to June 30,
2021 . Meters served decreased by 9,000 meters or 2.4% from December 31,
2020 to June 30, 2021 . In three months ended June 30, 2021 , average monthly
churn decreased to 3.8% compared to 3.9% for same period in 2020. In the six
months ended June 30, 2021 , average monthly churn was flat at 4.3% compared to
same period in 2020.
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, 2021 March 31, 2021 December 31, 2020 2020 June 30, 2020
RCEs at end of quarter:
Electricity customers 272 291 284 294 288
Natural gas customers 58 56 53 56 55
Total RCEs 330 347 337 350 343
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RCEs decreased 4.9% atJune 30, 2021 compared toMarch 31, 2021 . RCEs decreased by 2.1% fromDecember 31, 2020 toJune 30, 2021 . The decreases reflect the decreases in the number of meters served as a result of continuous effects of COVID-19 related public health restrictions on certain sales channels.
Cost of Revenues and Gross Margin Percentage. GRE's cost of revenues and gross margin percentagewere as follows:
Three Months Ended
June 30, Change Six months ended June 30, Change
(amounts in
thousands) 2021 2020 $ % 2021 2020 $ %
Cost of
revenues:
Electricity $ 45,883 $ 46,181 $ (298 ) (0.6 ) % $ 112,344 $ 89,253 $ 23,091 25.9 %
Natural gas 2,774 3,239 (465 ) (14.4 ) 12,014 11,710 304 2.6
Total cost
of revenues $ 48,657 $ 49,420 $ (763 ) (1.5 ) % $ 124,358 $ 100,963 $ 23,395 23.2 %
Three months ended June 30 Six months ended June 30,
(amounts in thousands) 2021 2020 Change 2021 2020 Change
Gross margin percentage:
Electricity 25.9 % 24.4 1.5 % 17.0 % 28.1 % (11.2) %
Natural gas 45.4 40.0 5.4 46.3 45.5 0.8
Total gross margin percentage 27.4 % 25.7 % 1.7 % 21.1 % 30.7 % (9.6) %
nm-not meaningful
Cost of revenues for electricity increased in the three months ended June 30,
2021 compared to the same period in 2020 primarily because of increases in
electricity consumption by GRE's REPs' customers and the average unit cost of
electricity. The average unit cost of electricity increased 2.1% in the three
months ended June 30, 2021 compared to the same period in 2020. Gross margin on
electricity sales decreased in the three months ended June 30, 2021 compared to
the same period in 2020 because the average rate charged to customers increased
less than the increase in the average unit cost of electricity.
Cost of revenues for electricity increased in the six months ended June 30,
2021 compared to the same period in 2020 primarily because of increases in
electricity consumption by GRE's REPs' customers and the average unit cost of
electricity. The average unit cost of electricity increased 14.8% in the six
months ended June 30, 2021 compared to the same period in 2020. A significant
portion of the increase resulted from incremental cost incurred as an effect of
a major winter storm in Texas as discussed above. Gross margin on electricity
sales decreased in the six months ended June 30, 2021 compared to the same
period in 2020 because the average rate charged to customers decreased while the
average unit cost of electricity increased.
Cost of revenues for natural gas increased in the three months ended June 30,
2021 compared to the same period in 2020 primarily because of an increase
in natural gas consumption by GRE's REPs' customers partially offset by a
decrease in average unit cost of natural gas. The average unit cost of natural
gas decreased 9.9% in the three months ended June 30, 2021 compared to the same
period in 2020. Gross margin on natural gas sales increased in the three months
ended June 30, 2021 compared to the same period in 2020 because the average rate
charged to customers increased while the average unit cost of natural gas
decreased.
Cost of revenues for natural gas increased in the six months ended June 30,
2021 compared to the same period in 2020 primarily because of an increase in
natural gas consumption by GRE's REPs' customers partially offset by a decrease
in average unit cost of natural gas. The average unit cost of natural gas
decreased 3.8% in the six months ended June 30, 2021 compared to the same period
in 2020. Gross margin on natural gas sales increased in the six months ended
June 30, 2021 compared to the same period in 2020 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 increase in selling, general and administrative expenses in the three months endedJune 30, 2021 compared to the same period in 2020 was primarily due to increase in customer acquisition costs. Customer acquisition expenses increased by$1.6 million in the three months endedJune 30, 2021 , compared to the same period in 2020 due to change in the mix of customers acquired during the periods. As a percentage of GRE's total revenues, selling, general and administrative expense increased from 16.7% in the three months endedJune 30, 2020 to 19.1% in the three months endedJune 30, 2021 . The increase in selling, general and administrative expenses in the six months endedJune 30, 2021 compared to the same period in 2020 was primarily due to increases in marketing expenses. Marketing expenses increased by$0.8 million in the six months endedJune 30, 2021 , compared to the same period in 2020 due to expenses incurred on different marketing channels to offset the effect of COVID-19 related public health restrictions on door-to-door marketing. As a percentage of GRE's total revenues, selling, general and administrative expense decreased from 17.6% in the six months endedJune 30, 2020 to 16.9% in the six months endedJune 30, 2021 . GRE International Segment Three Months Ended June Change Six Months Ended June 30, 30, Change (amounts in 2021 2020 $ % 2021 2020 $ % thousands) Revenues
Electricity$ 21,419 $ 4,831 $ 16,588 343.4 %$ 51,703 $ 11,727 $ 39,976 340.9 % Natural gas 6,694 - 6,694 100.0 18,486 - 18,486 100.0 Others 272 206 66 32.0 382 263 119 45.2
Total revenues
64,602 10,363 54,239 523.4
Gross profit 4,524 1,915 2,609 136.2 5,969 1,627 4,342 266.9 Selling, general and 7,559 2,522 5,037 199.7 administrative expenses 15,664 4,754 10,910 229.5 Loss from ) ) ) ) operations$ (3,035) $ (607$ 2,428 400.0 % $ (9,695 $ (3,127$ 6,568 210.0 % Equity in net loss of ) ) ) Shoreditch - 1,502 (1,502 (100.0 - 1,502 (1,502 (100.0 )GRE International holds our stakes in REPs outside ofNorth America . These businesses include Shoreditch, which operates as Orbit Energy in theU.K. ,Genie Japan (prior to its sale inMay 2021 ), our controlling stakes in Lumo Finland and Lumo Sweden. Lumo Sweden began operations in the second quarter of 2020. Prior to our acquisition of the remaining 23.0% of Shoreditch inOctober 2020 , 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. InJanuary 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 inJapan was hedged reasonably for expected winter weather conditions, the extreme price spike exposed us to further unexpected cost increases. The impact on our first quarter 2021 consolidated result of operations was approximately$2.5 million . OnApril 26, 2021 , we entered into an Equity Purchase Agreement ("Purchase Agreement") withHanhwa Q Cells Japan Co., Ltd. ("Hanhwa"), pursuant to which, we agreed to sell our interest inGenie Japan for ¥570.0 million (equivalent to approximately$5.3 million atApril 26, 2021 ) subject to certain terms and conditions set forth in the Purchase Agreement. OnMay 11, 2021 , upon the terms and subject to the conditions of Purchase Agreement, we completed the divestiture ofGenie Japan for an aggregate cash consideration of ¥570.0 million (equivalent to approximately$5.2 million atMay 11, 2021 ). Hanhwa also assumed the outstanding loans payable ofGenie Japan . We paid$0.6 million of commission to certain former employees ofGenie Japan and recognized a pre-tax gain of$4.2 million from the divestiture. For the period fromJanuary 1, 2021 toMay 11, 2021 ,Genie Japan had revenues and cost of revenues of$3.9 million and$5.9 million , respectively. Meters served byGRE International's REPs (including those served by Orbit Energy for all periods) decreased to 192,000 atJune 30, 2021 from 199,000 atMarch 31, 2021 and 195,000 atDecember 31, 2020 . The decreases are primarily due to the sale ofGenie Japan partially offset by the growth in Orbit Energy's and Lumo Finland's customer bases.
RCEs served by
Revenue.GRE International's revenues increased in three and six months endedJune 30, 2021 compared to the same periods in 2020 primarily due to the consolidation of Orbit Energy inOctober 2020 , increase in meters served in Lumo Finland and the start of commercial operations of Lumo Sweden in the second quarter of 2020, partially offset by decrease from sale ofGenie Japan inMay 2021 . Orbit Energy increased GREI's revenue in the three and six months endedJune 30, 2021 by$21.3 million and$49.2 million , respectively.
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Cost of Revenues. Cost of revenue increased in the three and six months endedJune 30, 2021 compared to the same periods in 2020. The increases in cost of revenues were consistent with the increases in revenues for the periods. Orbit Energy increased GREI's cost of revenue in the three and six months endedJune 30, 2021 by$18.8 million and$41.7 million , respectively. Cost of revenues for six months endedJune 21, 2021 includes$2.5 million incremental cost recorded inGenie Japan as a result of weather volatility and the lack of adequate gas reserves inJapan in first quarter of 2021. Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses in the six months endedJune 30, 2021 compared to the same period in 2020 was primarily due to the consolidation of Orbit Energy inOctober 2020 , continued growth of operations at Lumo Finland andGenie Japan (prior to its sale) and the start of commercial operation of Lumo Sweden in the second quarter of 2020. Orbit Energy increased GREI's selling, general and administrative expenses for the three months endedJune 30, 2021 by$5.9 million . Marketing and customer acquisition-related expenses increased related to the increase in number of meters acquired. The number of employees also increased in six months endedJune 30, 2021 compared to same period in 2020 as a result of the expansion of operations. Genie Renewables Segment
The Genie Renewables (formerly GES) segment is composed of Prism, in which we
hold a 60.0% controlling interest, Diversegy,
Three Months Ended Change
Six Months Ended
June 30, Change
(amounts in 2021 2020 $ % 2021 2020 $ %
thousands)
Revenues $ 2,344 $ 4,567 $ (2,223 ) (48.7 ) % $
4,832
2,792 20,408 (17,616 ) (86.3 ) Gross profit
922 522 400 76.6 2,040 2,111 (71 ) (3.4 )
Selling, general
and
administrative
expenses 588 832 (244 ) (29.3 ) 1,146 1,889 (743 ) (39.3 )
Impairment of - 801 (801 ) nm
assets
- 993 (993 ) nm
Income (loss)
from operations
894
nm-not meaningful Revenue. Genie Renewables' revenues decreased in the three and six months endedJune 30, 2021 compared to the same periods in 2020. The decreases in revenues were the result of the discontinuance of a relationship with a customer of Prism in the second quarter of 2020. Revenues from Diversegy include commissions, entry fees and other fees from our energy brokerage and marketing services businesses. Revenues from CityCom Solar include commission from selling third-party products to customers. Cost of Revenues. Cost of revenue decreased in the three and six months endedJune 30, 2021 compared to the same periods in 2020. The decreases in cost of revenues were consistent with the decreases in revenues for the periods. Cost of revenues 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, 2021 compared to the same periods in 2020 primarily because of the streamlining of operations of Prism in first quarter of 2020 and the sale of the Prism facility inOctober 2020 . Impairment of assets. Impairment of assets in three and six months endedJune 30, 2020 pertains to the impairments of property, plant and equipment and customer relationship of Prism as a result of the disposal of Prism's property inNew York and renegotiation of the contract with the customer.
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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
2021 2020 $ % 2021 2020 $ %
General and
administrative
expenses and
loss from
operations $ 1,452 $ 1,507 $ (55 ) (3.6 ) % $ 3,130 $ 3,133 $ (3 ) (0.1 ) %
Corporate general and administrative expenses in the three and six months ended
June 30, 2021 were relatively flat compared to the same periods in 2020. As a
percentage of our consolidated revenues, Corporate general and administrative
expense decreased to 1.5% in the three months ended June 30, 2021 from 2.0% in
the three months ended June 30, 2020 and decreased to 1.3% in the six months
ended June 30, 2021 from 1.7% six months ended June 30, 2020 .
Consolidated
Selling, general and administrative expenses. Stock-based compensation expense
included in consolidated selling, general and administrative expense was $0.6
million and $0.4 million in the three months ended June 30, 2021 and 2020,
respectively and $1.1 million and $0.9 million in the six months ended June 30,
2021 and 2020, respectively. At June 30, 2021 , aggregate unrecognized
compensation cost related to non-vested stock-based compensation was $5.3
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) 2021 2020 $ % 2021 2020 $ %
Income (loss) from
operations $ 1,356 $ 2,730 $ (1,374 ) (50.3) % $ (5,219 ) $ 11,943 $ (17,162 ) (143.7 ) %
Interest income 10 20 (10 ) (50.0 ) 20 143 (123 ) (86.0 )
Interest expense (103 ) (58 ) (45 ) 77.6 (212 ) (175 ) (37 ) 21.1
Equity in net
income (loss) in 53 (1,173 ) 1,226 (104.5 ) 164 (1,552 ) 1,716 (110.6 )
equity method
investees
Other (loss)
income, net (14 ) (52 ) 38 (73.1 ) 283 98 185 188.8
Unrealized gain on
marketable equity 2,915 - 2,915 nm 7,022 - 7,022 nm
securities and
investments
Gain on sale of 4,226 - 4,226 nm 4,226 - 4,226 nm
subsidiary
Provision for
income taxes (3,158 ) (587 ) (2,571 ) 438.0 (3,693 ) (3,156 ) (537) 17.0
Net income 5,285 880 4,405 (500.6 ) 2,591 7,301 (4,710) (64.5)
Net loss
attributable to
noncontrolling
interests (82 ) (1,083 ) 1,001 (92.4 ) (790 ) (494 ) (296 ) 59.9
Net income
attributable to
Genie $ 5,367 $ 1,963 $ 3,404 173.4 % $ 3,381 $ 7,795 $ (4,414) (56.6) %
nm-not meaningful
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Other (loss) income, net. Other income (loss), net in the three and six months
ended
Provision for Income Taxes. Reported tax rate for three months endedJune 30, 2021 was 37.4%, a slight decrease as compared to the same period in 2020. The increase in the reported tax rate for six months endedJune 30, 2021 compared to the same period in 2020 is a result of changes in the mix of jurisdictions in which the 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 Income Attributable to Noncontrolling Interests. The decreases in the net loss attributable to noncontrolling interests in the three months endedJune 30, 2021 compared to the same periods in 2020 was primarily due to decreases in net losses of CCE and Prism due to streamline of operations. Unrealized gain on marketable equity securities and investments. The unrealized gain on marketable equity securities and investment for the three and six months endedJune 30, 2021 pertains to the appreciation of the Company's investments in common stock and warrants to purchase common stock of Rafael Holdings, Inc. ("Rafael") which the Company acquired inDecember 2020 . Gain on sale of subsidiary. The gain on the sale of the subsidiary for the three and six pertain to the gain recognizes related to the sale ofGenie Japan as discussed above.
Liquidity and Capital Resources
General We currently expect that our cash flow from operations and the$31.4 million balance of unrestricted cash and cash equivalents that we held atJune 30, 2021 will be sufficient to meet our currently anticipated cash requirements for at least the period fromJuly 1, 2021 toAugust 9, 2022 .
At
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