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OFFON

GENIE ENERGY LTD.

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

08/09/2021 | 03:26pm EDT
The following information should be read in conjunction with the accompanying
consolidated financial statements and the associated notes thereto of this
Quarterly Report, and the audited consolidated financial statements and the
notes thereto and our Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended December 31, 2020, as filed with the U.S. Securities and
Exchange Commission (or SEC).



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



Forward-Looking Statements



This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements that contain the words
"believes," "anticipates," "expects," "plans," "intends," and similar words and
phrases. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from the results projected
in any forward-looking statement. In addition to the factors specifically noted
in the forward-looking statements, other important factors, risks and
uncertainties that could result in those differences include, but are not
limited to, those discussed below under Part II, Item IA and under Item 1A to
Part I "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 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 the SEC pursuant to the Securities Act of
1933 and the Securities Exchange Act of 1934, including our Annual Report on
Form 10-K for the year ended December 31, 2020.


Coronavirus Disease (COVID 19)

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



For the three and six months ended June 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 in March 2020 as public health
measures were implemented to combat COVID-19, resulting in a decrease in gross
meter acquisitions and a reduction in the U.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 of Genie Retail Energy ("GRE"), Genie Retail Energy
International ("GRE International") and Genie Renewables. In March 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"), 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.


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GRE International holds the Company's REPs that serve retail customers in United
Kingdom under the name Orbit Energy, its 98.8% interest in venture in Japan
("Genie Japan"), its 91.7% interest in Lumo Energia Oyj ("Lumo Finland"), a REP
serving residential customers in Finland and its 98.8% interest in
Lumo Energi AB ("Lumo Sweden"), which was formed in 2019 to serve retail energy
customers in Sweden. In May 2021, we completed the sale of Genie Japan.


Genie Renewables holds Diversegy, a retail energy advisory and brokerage company
that serves commercial and industrial customers throughout the 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 in U.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 its United States and European businesses and
to enhance shareholder value across our operations. As one element of this
review, we are contemplating opportunities to separate GRE International from
GRE and Genie Renewables through a spin-off of GRE International into a
separate, publicly-traded entity. If a transaction is consummated, we believe
that shareholders could benefit from the potential spin-off of GRE 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 in Connecticut, Delaware, Georgia, Illinois, Maryland,
Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Florida,
Texas, Rhode Island, and Washington, D.C. GRE's revenues represented
approximately 67.6% and 80.8% of our consolidated revenues in the six months
ended June 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 in Texas



In mid-February of 2021, the State of Texas experienced unprecedented cold
weather and snow, which was named Winter Storm Uri. With the grid overtaxed due
to demand and weather-related reduced supply and rolling blackouts being
enforced, by order of the ERCOT, real-time commodity prices during the crisis
escalated significantly. Although our supply commitment for our customers in
Texas 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 ended June 30, 2021 were approximately$1.0 and  $13.0 million,
respectively.


In June 2021, the state legislature of the State of Texas passed House Bill 4492
("HB 4492") which includes certain provisions for financing certain costs
associated with electric markets caused by Winter Storm Uri. Pursuant to HB
4492, two categories of charges associated with Winter Storm Uri are to be
securitized and the proceeds of the securitization will be provided 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 ended June 30, 2021, the Company recorded a reduction in cost of
revenues of $1.5 million.



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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 ended June 30,
2021 the associated cost was approximately 1.0% of GRE's revenue. In the three
and six months ended June 30, 2020 the associated cost was approximately 1.3%
and 1.2%, respectively, of GRE's revenue. At June 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.



On February 18, 2020, named Plaintiff Danelle Davis filed a putative class
action complaint against Residents Energy and GRE in United States District of
New 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 around October 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 ended March 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



In December 2017, the New York Public Service Commission ("PSC") held an
evidentiary hearing to assess the retail energy market in New York. On December
12, 2019, following the completion of post-hearing briefings in the proceedings,
the PSC issued orders adopting changes to the New York retail energy market,
effective April 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 of June 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 ended June 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.



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State of Connecticut Public Utilities Regulatory Authority


Town Square



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


In July 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 in
Connecticut for the period of 15 months. As of June 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 ended
June 30, 2021, Town Square's gross revenues from sales in Connecticut were $6.5
million and $15.9 million, respectively.


Residents Energy



In August of 2020, Residents Energy began marketing retail energy services in
Connecticut. For the three and six months ended June 30, 2021, Residents
Energy's gross revenues from sales in Connecticut 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. On
March 12, 2021, the enforcement division filed a motion against Resident Energy
with the adjudicating body of PURA, seeking the assessment of $1.5 million in
penalties, along with a suspension of license for eighteen months, auditing of
marketing practices upon reinstatement and an invitation for settlement
discussions. 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 June 2021, the parties settled the dispute. Pursuant to the terms of the settlement agreement, Residents Energy paid $0.3 million and volunteered to withdraw from the market in Connecticut for a period of 36 months.



Critical Accounting Policies



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



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Three and Six Months Ended June 30, 2021 and Compared to Three and Six Months Ended June 30, 2020




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         4.2

Total 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 ended June 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 ended June 30, 2021 compared to the same period
in 2020. The average rate per kilowatt hour sold increased by 3.9% in the three
months ended June 30, 2021 compared to the same period in 2020. Electricity
consumption by GRE's REPs' customers decreased by 2.4% in the three months ended
June 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 ended June 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 ended June 30, 2021 compared to
the same period in 2020. Electricity consumption by GRE's REPs' customers
increased 9.8% in the six months ended June 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 ended June 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 ended June 30,
2021 compared to the same period in 2020.  The decrease in natural gas revenues
in the three months ended June 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 ended June 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 ended June 30, 2021 compared to the same period in 2020. The average
revenue per therm increased by 9.3% in the three months ended June 30, 2021,
compared to the same period in 2020.


GRE's natural gas revenues increased in the six months ended June 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 ended June 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 ended June 30, 2021
compared to the same period in 2020 reflecting an 11.3% increase in average
consumption per meter in the six months ended June 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 ended June 30, 2021 compared to the same period
in 2020. Average rate per therm sold decreased by 1.3% in the six months ended
June 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% at June 30, 2021 compared to March 31, 2021. RCEs decreased
by 2.1%  from December 31, 2020 to June 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 ended June 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
ended June 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 ended June 30, 2020 to 19.1% in the three months ended June 30,
2021.


The increase in selling, general and administrative expenses in the six months
ended June 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 ended June 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 ended June 30, 2020 to 16.9% in the six
months ended June 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 $ 28,385 $ 5,037 $ 23,348 463.5 $ 70,571 $ 11,990 $ 58,581 488.6 Cost of revenue 23,861 3,122 20,739 664.3

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 of North America. These
businesses include Shoreditch, which operates as Orbit Energy in the U.K., Genie
Japan (prior to its sale in May 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 in October 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.


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


On April 26, 2021, we entered into an Equity Purchase Agreement ("Purchase
Agreement") with Hanhwa Q Cells Japan Co., Ltd. ("Hanhwa"), pursuant to which,
we agreed to sell our interest in Genie Japan for ¥570.0 million (equivalent to
approximately $5.3 million at April 26, 2021) subject to certain terms and
conditions set forth in the Purchase Agreement. On May 11, 2021, upon the terms
and subject to the conditions of Purchase Agreement, we completed the
divestiture of Genie Japan for an aggregate cash consideration of ¥570.0 million
(equivalent to approximately $5.2 million at May 11, 2021). Hanhwa also assumed
the outstanding loans payable of Genie Japan. We paid $0.6 million of commission
to certain former employees of Genie Japan and recognized a pre-tax gain of
$4.2 million from the divestiture. For the period from January 1, 2021 to May
11, 2021, Genie Japan had revenues and cost of revenues of $3.9 million and $5.9
million, respectively.


Meters served by GRE International's REPs (including those served by Orbit
Energy for all periods) decreased to 192,000 at June 30, 2021 from 199,000 at
March 31, 2021 and 195,000 at December 31, 2020. The decreases are primarily due
to the sale of Genie Japan partially offset by the growth in Orbit Energy's and
Lumo Finland's customer bases.


RCEs served by GRE International's REPs increased to 106,000 at June 30, 2021 from 103,000, at March 31, 2021 and December 31, 2020. The increases are primarily from the growth in Orbit Energy, Lumo Finland and Lumo Sweden partially offset by the sale of Genie Japan.



Revenue. GRE International's revenues increased in three and six months ended
June 30, 2021 compared to the same periods in 2020 primarily due to the
consolidation of Orbit Energy in October 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 of Genie Japan in May
2021. Orbit Energy increased GREI's revenue in the three and six months ended
June 30, 2021 by $21.3 million and $49.2 million, respectively.


37

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




Cost of Revenues. Cost of revenue increased in the three and six months ended
June 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 ended June
30, 2021 by $18.8 million and $41.7 million, respectively. Cost of revenues for
six months ended June 21, 2021 includes $2.5 million incremental cost recorded
in Genie Japan as a result of weather volatility and the lack of adequate gas
reserves in Japan in first quarter of 2021.


Selling, General and Administrative Expenses. The increase in selling, general
and administrative expenses in the six months ended June 30, 2021 compared to
the same period in 2020 was primarily due to the consolidation of Orbit
Energy in October 2020, continued growth of operations at Lumo Finland and Genie
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 ended June 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 ended June 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, Genie Solar and CityCom Solar.



                     Three Months Ended              Change               

Six Months Ended June 30,

                          June 30,                                                                               Change
(amounts in            2021        2020           $            %              2021            2020           $            %
thousands)
Revenues           $   2,344     $  4,567     $ (2,223 )      (48.7 ) %   $

4,832 $ 22,519 $ (17,687 ) (78.5 ) % Cost of revenues 1,422 4,045 (2,623 ) (64.8 )

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 $ 334 $ (1,111 ) $ (1,445 ) (130.1 ) % $

894 $ (771 ) $ (1,665 ) (216.0 ) %



nm-not meaningful


Revenue. Genie Renewables' revenues decreased in the three and six months ended
June 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 ended
June 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 ended June 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 in October
2020.


Impairment of assets. Impairment of assets in three and six months ended June
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
in New York and renegotiation of the contract with the customer.


38

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

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

39


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

Other (loss) income, net. Other income (loss), net in the three and six months ended June 30, 2021 and 2020 consisted primarily foreign currency transactions.




Provision for Income Taxes. Reported tax rate for three months ended June 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 ended June 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 ended June 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
ended June 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 in December 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 of Genie 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 at June 30, 2021
will be sufficient to meet our currently anticipated cash requirements for at
least the period from July 1, 2021 to August 9, 2022.



At June 30, 2021, we had working capital (current assets less current liabilities) of $41.3 million.

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