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 nine months ended September 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 third quarter of 2021 slightly increased compared to the same period in 2020, however, below the churn levels that the Company typically experienced before March 2020. In the fourth quarter of 2020, authorities began relaxing certain COVID-19 public health restrictions in some of GRE's domestic markets facilitating a partial reactivation of the previously curtailed customer acquisition channels.
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.
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 Genie Solar Energy, a rooftop solar system sales and general contracting company, a 93.5% interest in CityCom Solar, a marketer of community solar energy solutions, oversees Diversegy, a retail energy advisory and brokerage company that serves commercial and industrial customers throughout the United States and manages our 60.0% controlling interest in Prism, a solar solutions company that is engaged in U.S. based manufacturing of solar panels, solar installation design and solar energy project management.
As part of our ongoing business development efforts, we seek out new opportunities, which may include complementary operations or businesses that reflect horizontal or vertical expansion from our current operations. Some of these potential opportunities are considered briefly and others are examined in further depth. In particular, we seek out acquisitions to expand the geographic scope and size of our REP businesses.
Strategic Update
We suspended the planned spin-off of our international operations in the United Kingdom and Scandinavia following the deterioration of the United Kingdom energy market, where a planned, orderly withdrawal from the market is underway. We do not expect to incur additional material, cash charges as a result.
Genie Retail Energy
GRE operates REPs that resell electricity and/or natural gas to residential and small business customers in Connecticut, Delaware, Georgia, Florida, Georgia, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Texas, Rhode Island, and Washington, D.C. GRE’s revenues represented approximately 70.5 and 85.0% of our consolidated revenues in the nine months ended September 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 nine months ended September 30, 2021 was approximately$13.0 million.
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. In the second quarter of 2021, the Company recorded a reduction in cost of revenues of $1.5 million.
In September 2021, the Public Utility Commission of Texas ("PUC") approved the Debt Obligation Order to grant ERCOT's application for a debt financing mechanism to pay for certain costs associated with Winter Storm Uri. Under the Debt Obligation Order, the amount that the Company is entitled to recover increased to approximately $3.4 million. For the three months ended September 30, 2021, the Company recorded an additional reduction in the cost of revenues of $1.9 million for an aggregate amount of $3.4 million for the nine months ended September 30, 2021.
United Kingdom Operations Update
In the third quarter of 2021, as a result of the deterioration of the energy and natural gas market in the United Kingdom, the Company initiated the process of exiting the market which resulted in the impairment assets of $6.7 million, included in the statements of operations.
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 nine months ended September 30, 2021 the associated cost was approximately 1.0% of GRE's revenue. In the three and nine months ended September 30, 2020 the associated cost was approximately 1.2%, of GRE's revenue. At September 30, 2021, 86.6% 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 September 30, 2021, New York represented 18.0% of GRE’s total meters served and 14.2% of the total residential customer equivalents (“RCEs”) of GRE’s customer base. For the three and nine months ended September 30, 2021, New York gross revenues were $12.8 million and $40.1 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.
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 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 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 paid $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 September 30, 2021, Town Square’s Connecticut customer base represented 9.0% of GRE’s total meters served and 9.9% of the total RCEs of GRE’s customer base. For three and nine months ended September 30, 2021, Town Square’s gross revenues from sales in Connecticut were $9.0 million and $24.9 million, respectively.
Residents Energy
In August of 2020, Residents Energy began marketing retail energy services in Connecticut. For the three and nine months ended September 30, 2021, Residents Energy's gross revenues from sales in Connecticut were nil 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 September 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.
Three and Nine Months Ended September 30, 2021 and Compared to Three and Nine Months Ended September 30, 2020
Genie Retail Energy Segment
|
|
|
Three months ended
September 30,
|
|
Change
|
|
|
|
Nine months ended
September 30,
|
|
Change
|
|
|
|
(amounts in thousands)
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
82,801
|
|
|
$
|
86,200
|
|
|
$
|
(3,399
|
)
|
|
|
(3.9
|
)
|
%
|
|
$
|
218,082
|
|
|
$
|
210,350
|
|
|
$
|
7,732
|
|
|
|
3.7
|
|
%
|
|
Natural gas
|
|
|
3,516
|
|
|
|
2,724
|
|
|
|
792
|
|
|
|
29.1
|
|
|
|
|
25,878
|
|
|
|
24,190
|
|
|
|
1,688
|
|
|
|
7.0
|
|
|
|
Total revenues
|
|
|
86,317
|
|
|
|
88,924
|
|
|
|
(2,607
|
)
|
|
|
(2.9
|
)
|
|
|
|
243,960
|
|
|
|
234,540
|
|
|
|
9,420
|
|
|
|
4.0
|
|
|
|
Cost of revenues
|
|
|
52,166
|
|
|
|
63,122
|
|
|
|
(10,956
|
)
|
|
|
(17.4
|
)
|
|
|
|
176,523
|
|
|
|
164,084
|
|
|
|
12,439
|
|
|
|
7.6
|
|
|
|
Gross profit
|
|
|
34,151
|
|
|
|
25,802
|
|
|
|
8,349
|
|
|
|
32.4
|
|
|
|
|
67,437
|
|
|
|
70,456
|
|
|
|
(3,019
|
)
|
|
|
(4.3
|
)
|
|
|
Selling, general and administrative expenses
|
|
|
14,437
|
|
|
|
13,573
|
|
|
|
864
|
|
|
|
6.4
|
|
|
|
|
41,010
|
|
|
|
39,253
|
|
|
|
1,757
|
|
|
|
4.5
|
|
|
|
Income from operations
|
|
$
|
19,714
|
|
|
$
|
12,229
|
|
|
$
|
7,485
|
|
|
|
61.2
|
|
%
|
|
$
|
26,427
|
|
|
$
|
31,203
|
|
|
$
|
(4,776
|
)
|
|
|
(15.3
|
)
|
%
|
Revenues. Electricity revenues decreased by 3.9% in three months ended September 30, 2021 compared to the same period in 2020. The decrease is due to a decrease in electricity consumption partially offset by an increase in the average rate per kilowatt hour sold in the three months ended September 30, 2021 compared to the same period in 2020. Electricity consumption by GRE’s REPs' customers decreased by 9.2% in the three months ended September 30, 2021, compared to the same period in 2020. The decrease in electricity consumption reflected a 5.9% decrease in average number of meters served and a 3.5% decrease in average consumption per meter. The average rate per kilowatt hour sold increased by 5.2% in the three months ended September 30, 2021 compared to the same period in 2020. The decrease in per meter consumption reflects a decrease in residential electricity as many COVID-19 "stay-at-home" orders have been lifted or relaxed in some territories.
Electricity revenues increased by 3.7% in nine months ended September 30, 2021 compared to the same period in 2020. The increase is due to increases in electricity consumption and in the average rate per kilowatt hour sold in the nine months ended September 30, 2021 compared to the same period in 2020. Electricity consumption by GRE’s REPs' customers increased 1.8% in the nine months ended September 30, 2021, compared to the same period in 2020. The increase in electricity consumption reflected a 5.5% increase in the average consumption per meter partially offset by a 3.5% decrease in the average number of meters served. The average rate per kilowatt hour sold increased by 1.8% in the nine months ended September 30, 2021 compared to the same period in 2020.
GRE’s natural gas revenues increased by 29.1% in the three months ended September 30, 2021 compared to the same period in 2020. The increase in natural gas revenues in the three months ended September 30, 2021 compared to the same period in 2020 was a result of increases in natural gas consumption and the average rate per therm sold. Natural gas consumption by GRE’s REPs’ customers increased by 9.3% in the three months ended September 30, 2021 compared to the same period in 2020, reflecting a 0.6% increase in average consumption per meter and an 8.7% increase in average meters served in the three months ended September 30, 2021 compared to the same period in 2020. The average revenue per therm increased by 18.1% in the three months ended September 30, 2021, compared to the same period in 2020.
GRE’s natural gas revenues increased by 7.0% in the nine months ended September 30, 2021 compared to the same period in 2020. The increase is due to increases in natural gas consumption by GRE's REPs' customers and in the average rate per therm sold in the nine months ended September 30, 2021, compared to the same period in 2020. Natural gas consumption by GRE’s REPs’ customers increased by 6.1% in the nine months ended September 30, 2021 compared to the same period in 2020 reflecting a 5.2% increase in average consumption per meter in the nine months ended September 30, 2021 compared to the same period in 2020 and an increase of 0.8% in average meters served in the nine months ended September 30, 2021 compared to the same period in 2020. Average rate per therm sold slightly increased by 0.9% in the nine months ended September 30, 2021, compared to the same period in 2020.
The customer base for GRE’s REPs as measured by meters served consisted of the following:
|
(in thousands)
|
|
September 30, 2021
|
|
|
June 30, 2021
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
|
Meters at end of quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity customers
|
|
289
|
|
|
|
292
|
|
|
|
308
|
|
|
|
305
|
|
|
|
309
|
|
|
Natural gas customers
|
|
72
|
|
|
|
69
|
|
|
|
65
|
|
|
|
65
|
|
|
|
67
|
|
|
Total meters
|
|
361
|
|
|
|
361
|
|
|
|
373
|
|
|
|
370
|
|
|
|
376
|
|
Gross meter acquisitions in three months ended September 30, 2021, were 46,000 compared to 44,000 for the same period in 2020. Gross meter acquisitions in nine months ended September 30, 2021, were 144,000 compared to 154,000 for the same period in 2020.
Meters served were flat at 361,000 meters at June 30, 2021 and September 30, 2021. Meters served decreased by 9,000 meters or 2.4% from December 31, 2020 to September 30, 2021. In the three months ended September 30, 2021, average monthly churn slightly increased to 4.0% compared to 3.7% for same period in 2020. In the nine months ended September 30, 2021, average monthly churn slightly increase to 4.2% compared to 4.1% 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.
|
(in thousands)
|
|
September 30, 2021
|
|
|
June 30, 2021
|
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
|
RCEs at end of quarter:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity customers
|
|
276
|
|
|
|
272
|
|
|
|
291
|
|
|
|
284
|
|
|
|
294
|
|
|
Natural gas customers
|
|
60
|
|
|
|
58
|
|
|
|
56
|
|
|
|
53
|
|
|
|
56
|
|
|
Total RCEs
|
|
336
|
|
|
|
330
|
|
|
|
347
|
|
|
|
337
|
|
|
|
350
|
|
RCEs increased by 1.8% at September 30, 2021 compared to June 30, 2021. RCEs were relatively flat at December 31, 2020 and September 30, 2021. The fluctuations reflect the focus on adding higher consumption meters.
Cost of Revenues and Gross Margin Percentage. GRE’s cost of revenues and gross margin percentage were as follows:
|
|
|
Three Months Ended September 30,
|
|
|
Change
|
|
|
|
Nine months ended September 30,
|
|
|
Change
|
|
|
|
|
(amounts in thousands)
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
52,096
|
|
|
$
|
61,467
|
|
|
$
|
(9,371
|
)
|
|
(15.2
|
)
|
%
|
|
$
|
164,440
|
|
|
$
|
150,720
|
|
|
$
|
13,720
|
|
|
|
9.1
|
|
%
|
|
|
Natural gas
|
|
|
70
|
|
|
|
1,655
|
|
|
|
(1,585
|
)
|
|
(95.8
|
)
|
|
|
|
12,083
|
|
|
|
13,364
|
|
|
|
(1,281
|
)
|
|
|
(9.6
|
)
|
|
|
|
Total cost of revenues
|
|
$
|
52,166
|
|
|
$
|
63,122
|
|
|
$
|
(10,956
|
)
|
|
(17.4
|
)
|
%
|
|
$
|
176,523
|
|
|
$
|
164,084
|
|
|
$
|
12,439
|
|
|
|
7.6
|
|
%
|
|
|
|
|
|
Three months ended September 30
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
(amounts in thousands)
|
|
|
2021
|
|
|
|
2020
|
|
|
|
Change
|
|
|
|
2021
|
|
|
|
2020
|
|
|
|
Change
|
|
|
|
|
Gross margin percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
|
37.1
|
%
|
|
|
28.7
|
%
|
|
|
8.4
|
%
|
|
|
24.6
|
%
|
|
|
28.3
|
%
|
|
|
(3.8
|
)
|
%
|
|
|
Natural gas
|
|
|
98.0
|
|
|
|
39.2
|
|
|
|
58.8
|
|
|
|
53.3
|
|
|
|
44.8
|
|
|
|
8.6
|
|
|
|
|
Total gross margin percentage
|
|
|
39.6
|
%
|
|
|
29.0
|
%
|
|
|
10.5
|
%
|
|
|
27.6
|
%
|
|
|
30.0
|
%
|
|
|
(2.4
|
)
|
%
|
|
nm—not meaningful
Cost of revenues for electricity decreased in the three months ended September 30, 2021 compared to the same period in 2020 primarily because of decreases in electricity consumption by GRE’s REPs’ customers and the average unit cost of electricity. The average unit cost of electricity decreased 6.7% in the three months ended September 30, 2021 compared to the same period in 2020. Gross margin on electricity sales increased in the three months ended September 30, 2021 compared to the same period in 2020 because the average rate charged to customers increased while the average unit cost of electricity decreased.
Cost of revenues for electricity increased in the nine months ended September 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 7.3% in the nine months ended September 30, 2021 compared to the same period in 2020. A significant portion of the increase resulted from incremental cost incurred as an effect of the major winter storm in Texas discussed above. Gross margin on electricity sales decreased in the nine months ended September 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 natural gas decreased in the three months ended September 30, 2021 compared to the same period in 2020 primarily because of a decrease in the average unit cost of natural gas partially offset by an increase in natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 96.2% in the three months ended September 30, 2021 compared to the same period in 2020. A significant portion of the decrease resulted from the favorable fluctuation of the fair value of the Company's natural gas hedges. Gross margin on natural gas sales increased in the three months ended September 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 decreased in the nine months ended September 30, 2021 compared to the same period in 2020 primarily because of a decrease in the average unit cost of natural gas partially offset by an increase in natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 15.6% in the nine months ended September 30, 2021 compared to the same period in 2020. Gross margin on natural gas sales increased in the nine months ended September 30, 2021 compared to the same period in 2020 because the average rate charged to customers slightly increased while the average unit cost of natural gas decreased.
Selling, General and Administrative. The increase in selling, general and administrative expenses in the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to an increase in marketing and employee-related expenses. Employee-related expenses increased by $0.6 million in the three months ended September 30, 2021, compared to the same period in 2020 due to an increase in the number of employees. Marketing expenses increased by $0.2 in the three months ended September 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 increased from 15.3% in the three months ended September 30, 2020 to 16.7% in the three months ended September 30, 2021.
The increase in selling, general and administrative expenses in the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to increases in marketing expenses. Marketing expenses increased by $1.5 million in the nine months ended September 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 expenses increased from 15.3% in the nine months ended September 30, 2020 to 16.7%% in the nine months ended September 30, 2021.
GRE International Segment
|
|
|
Three Months Ended September 30,
|
|
|
Change
|
|
|
|
Nine Months Ended September 30,
|
|
|
Change
|
|
|
|
(amounts in thousands)
|
|
|
2021
|
|
|
|
2020
|
|
|
|
$
|
|
|
|
%
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity
|
|
$
|
20,998
|
|
|
$
|
5,593
|
|
|
$
|
15,405
|
|
|
|
275.4
|
|
%
|
|
$
|
72,701
|
|
|
$
|
17,321
|
|
|
$
|
55,380
|
|
|
|
319.7
|
|
%
|
|
Natural gas
|
|
|
4,093
|
|
|
|
—
|
|
|
|
4,093
|
|
|
|
nm
|
|
|
|
|
22,580
|
|
|
|
—
|
|
|
|
22,580
|
|
|
|
nm
|
|
|
|
Others
|
|
|
418
|
|
|
|
236
|
|
|
|
182
|
|
|
|
77.1
|
|
|
|
|
800
|
|
|
|
499
|
|
|
|
301
|
|
|
|
60.3
|
|
|
|
Total revenues
|
|
$
|
25,509
|
|
|
$
|
5,829
|
|
|
$
|
19,680
|
|
|
|
337.6
|
|
|
|
$
|
96,081
|
|
|
$
|
17,820
|
|
|
$
|
78,261
|
|
|
|
439.2
|
|
|
|
Cost of revenue
|
|
|
17,739
|
|
|
|
4,741
|
|
|
|
12,998
|
|
|
|
274.2
|
|
|
|
|
82,342
|
|
|
|
15,105
|
|
|
|
67,237
|
|
|
|
445.1
|
|
|
|
Gross profit
|
|
|
7,770
|
|
|
|
1,088
|
|
|
|
6,682
|
|
|
|
614.2
|
|
|
|
|
13,739
|
|
|
|
2,715
|
|
|
|
11,024
|
|
|
|
406.0
|
|
|
|
Selling, general and administrative expenses
|
|
|
12,055
|
|
|
|
2,663
|
|
|
|
9,392
|
|
|
|
352.7
|
|
|
|
|
27,719
|
|
|
|
7,416
|
|
|
|
20,303
|
|
|
|
273.8
|
|
|
|
Impairment of assets
|
|
|
6,650
|
|
|
|
—
|
|
|
|
6,650
|
|
|
|
nm
|
|
|
|
|
6,650
|
|
|
|
—
|
|
|
|
6,650
|
|
|
|
nm
|
|
|
|
Loss from operations
|
|
$
|
(10,935)
|
|
|
$
|
(1,575
|
)
|
|
$
|
9,360
|
|
|
|
594.3
|
|
%
|
|
$
|
(20,630
|
)
|
|
$
|
(4,701
|
)
|
|
$
|
15,929
|
|
|
|
338.8
|
|
%
|
|
Equity in net loss of Shoreditch
|
|
|
—
|
|
|
|
1,502
|
|
|
|
(1,502
|
)
|
|
|
(100.0
|
)
|
|
|
|
—
|
|
|
|
1,502
|
|
|
|
(1,502
|
)
|
|
|
(100.0
|
)
|
|
nm—not meaningful
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) was flat at 193,000 at September 30, 2021 compared to June 30, 2021 and slightly decreased by 2,000 compared to December 31, 2020. The decreases are primarily due to the sale of Genie Japan partially offset by the growth in Orbit Energy's customer bases.
RCEs served by GRE International's REPs (including those served by Orbit Energy for all periods) decreased to 98,000 at September 30, 2021 from 106,000, at June 30, 2021 and 103,000 at December 31, 2020. The decrease are primarily due to the sale of Genie Japan.
In the third quarter of 2021, as a result of the deterioration of the energy and natural gas market in the United Kingdom, the Company initiated the process of exiting the market and is in discussion with the regulators for an oderly transfer of existing customers.
Revenue. GRE International's revenues increased in three and nine months ended September 30, 2021 compared to the same periods in 2020 primarily due to the consolidation of Orbit Energy in October 2020, partially offset by the decrease from the sale of Genie Japan in May 2021. Orbit Energy increased GREI's revenue in the three and nine months ended September 30, 2021 by $18.0 million and $67.2 million, respectively.
Cost of Revenues. Cost of revenue increased in the three and nine months ended September 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 nine months ended September 30, 2021 by $17.1 million and $58.8 million, respectively. Cost of revenues for nine months ended September 30, 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 the first quarter of 2021.
Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses in the three and nine months ended September 30, 2021 compared to the same periods in 2020 was primarily due to the consolidation of Orbit Energy in October 2020, the continued growth of operations at Lumo Finland and the start of commercial operation of Lumo Sweden in the second quarter of 2020, partially offset by the sale of Genie Japan in May 2021. Orbit Energy increased GREI's selling, general and administrative expenses for the three and nine months ended September 30, 2021 by $10.7 million and $22.4 million, respectively.
Impairment of assets. In the third quarter of 2021, as a result of the deterioration of the energy and natural gas market in the United Kingdom, the Company initiated the process of exiting the market which resulted in the impairment of trademark, customer relationship, non-compete agreements, property and equipment and right of use assets for an aggregate amount of $6.7 million.
Genie Renewables Segment
The Genie Renewables (formerly GES) segment is composed of Genie Solar, CityCom Solar, Diversegy and Prism, in which we hold a 60% controlling interest.
|
|
Three Months Ended September 30,
|
|
|
Change
|
|
|
|
Nine Months Ended September 30,
|
|
|
Change
|
|
|
|
(amounts in thousands)
|
|
|
2021
|
|
|
2020
|
|
|
|
$
|
|
|
|
%
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
Revenues
|
|
$
|
1,338
|
|
|
$
|
1,573
|
|
|
$
|
(235
|
)
|
|
|
(14.9
|
)
|
%
|
|
$
|
6,170
|
|
|
$
|
24,092
|
|
|
$
|
(17,922
|
)
|
|
|
(74.4
|
)
|
%
|
|
Cost of revenues
|
|
|
883
|
|
|
|
1,147
|
|
|
|
(264
|
)
|
|
|
(23.0
|
)
|
|
|
|
3,675
|
|
|
|
21,555
|
|
|
|
(17,880
|
)
|
|
|
(83.0
|
)
|
|
|
Gross profit
|
|
|
455
|
|
|
|
426
|
|
|
|
29
|
|
|
|
6.8
|
|
|
|
|
2,495
|
|
|
|
2,537
|
|
|
|
(42
|
)
|
|
|
(1.7
|
)
|
|
|
Selling, general and administrative expenses
|
|
|
658
|
|
|
|
1,040
|
|
|
|
(382
|
)
|
|
|
(36.7
|
)
|
|
|
|
1,805
|
|
|
|
2,929
|
|
|
|
(1,124
|
)
|
|
|
(38.4
|
)
|
|
|
Impairment of assets
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
nm
|
|
|
|
|
—
|
|
|
|
993
|
|
|
|
(993
|
)
|
|
|
nm
|
|
|
|
(Loss) income from operations
|
|
$
|
(203)
|
|
|
$
|
(614
|
)
|
|
$
|
(411
|
)
|
|
|
(66.9
|
)
|
%
|
|
$
|
690
|
|
|
$
|
(1,385
|
)
|
|
$
|
(2,075
|
)
|
|
|
(149.8
|
)
|
%
|
nm—not meaningful
Revenue. Genie Renewables' revenues decreased in the three and nine months ended September 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 commissions from selling third-party products to customers.
Cost of Revenues. Cost of revenue decreased in the three and nine months ended September 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 in the three and nine months ended September 30, 2021 compared to the same periods in 2020 primarily because of the streamlining of operations of Prism and the sale of the Prism facility in October 2020.
Impairment of assets. Impairment of assets in three and nine months ended September 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.
Corporate
Corporate does not generate any revenues, nor does it incur any cost of revenues. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expense and other corporate-related general and administrative expense.
|
(amounts in thousands)
|
|
Three months ended
September 30,
|
|
|
Change
|
|
|
Nine months ended
September 30,
|
|
|
Change
|
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
2021
|
|
|
|
2020
|
|
|
|
$
|
|
|
|
%
|
|
|
|
General and administrative expenses and loss from operations
|
|
$
|
1,703
|
|
|
$
|
1,555
|
|
|
$
|
148
|
|
|
|
9.5
|
|
%
|
$
|
4,832
|
|
|
$
|
4,689
|
|
|
$
|
143
|
|
|
|
3.0
|
|
%
|
Corporate general and administrative expenses in the three and nine months ended September 30, 2021 increased compared to the same periods in 2020, primarily due to an increase in stock-based compensation. As a percentage of our consolidated revenues, Corporate general and administrative expenses decreased to 1.5% in the three months ended September 30, 2021 from 1.6% in the three months ended September 30, 2020 and decreased to 1.4% in the nine months ended September 30, 2021 from 1.7% in the nine months ended September 30, 2020.
Consolidated
Selling, general and administrative expenses. Stock-based compensation expenses included in consolidated selling, general and administrative expenses was $0.5 million and $0.4 million in the three months ended September 30, 2021 and 2020, respectively and $1.7 million and $1.3 million in the nine months ended September 30, 2021 and 2020, respectively. At September 30, 2021, aggregate unrecognized compensation cost related to non-vested stock-based compensation was $5.4 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
September 30,
|
|
|
Change
|
|
|
|
Nine months ended
September 30,
|
|
|
Change
|
|
|
|
(amounts in thousands)
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
2021
|
|
|
2020
|
|
|
$
|
|
|
%
|
|
|
|
Income from operations
|
|
$
|
6,873
|
|
|
$
|
8,485
|
|
|
$
|
(1,612
|
)
|
|
|
(19.0)
|
%
|
|
$
|
1,655
|
|
$
|
20,428
|
|
$
|
(18,773
|
)
|
|
(91.9
|
)
|
%
|
|
Interest income
|
|
|
8
|
|
|
|
21
|
|
|
|
(13
|
)
|
|
|
(61.9
|
)
|
|
|
28
|
|
|
164
|
|
|
(136
|
)
|
|
(82.9
|
)
|
|
|
Interest expense
|
|
|
(99
|
)
|
|
|
(48
|
)
|
|
|
(51
|
)
|
|
|
106.3
|
|
|
|
(311
|
)
|
|
(223
|
)
|
|
(88
|
)
|
|
39.5
|
|
|
|
Equity in net income (loss) in equity method investees
|
|
|
52
|
|
|
|
(146
|
)
|
|
|
198
|
|
|
|
(135.6
|
)
|
|
|
215
|
|
|
(1,698
|
)
|
|
1,913
|
|
|
(112.7
|
)
|
|
|
Other (loss) income, net
|
|
|
(17
|
)
|
|
|
291
|
|
|
|
(308
|
)
|
|
|
(105.8
|
)
|
|
|
267
|
|
|
390
|
|
|
(123
|
)
|
|
(31.5
|
)
|
|
|
Unrealized (loss) gain on marketable equity securities and investments
|
|
|
(5,312
|
)
|
|
|
—
|
|
|
|
(5,312
|
)
|
|
|
nm
|
|
|
|
1,710
|
|
|
—
|
|
|
1,710
|
|
|
nm
|
|
|
|
Gain on sale of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
nm
|
|
|
|
4,226
|
|
|
—
|
|
|
4,226
|
|
|
nm
|
|
|
|
Provision for income taxes
|
|
|
(3,822
|
)
|
|
|
(2,406
|
)
|
|
|
(1,416
|
)
|
|
|
58.9
|
|
|
|
(7,515
|
)
|
|
(5,563
|
)
|
|
(1,952
|
)
|
|
35.1
|
|
|
|
Net (loss) income
|
|
|
(2,317
|
)
|
|
|
6,197
|
|
|
|
(8,514
|
)
|
|
|
137.4
|
|
|
|
275
|
|
|
13,498
|
|
|
(13,223
|
)
|
|
(98.0
|
)
|
|
|
Net loss attributable to noncontrolling interests
|
|
|
(31
|
)
|
|
|
(531
|
)
|
|
|
500
|
|
|
|
(94.2
|
)
|
|
|
(821
|
)
|
|
(1,026
|
)
|
|
205
|
|
|
(20.0
|
)
|
|
|
Net (loss) income attributable to Genie
|
|
$
|
(2,286
|
)
|
|
$
|
6,728
|
|
|
$
|
(9,014
|
)
|
|
|
(134.0)
|
%
|
|
$
|
1,096
|
|
$
|
14,524
|
|
$
|
(13,428
|
)
|
|
(92.5
|
)
|
%
|
nm—not meaningful
Other (loss) income, net. Other (loss) income, net in the three and nine months ended September 30, 2021 and 2020 consisted primarily foreign currency transactions.
Provision for Income Taxes. Our reported tax rate for the three months ended September 30, 2021 was 254.0%, an increase as compared to 28.0% for the same period in 2020. Our reported tax rate for the three months ended September 30, 2021 was 96.5%, an increase as compared to 29.2% for the same period in 2020. The increases in the reported tax rate for the three and nine months ended September 30, 2021 compared to the same periods in 2020 are 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 other jurisdictions that had losses due to valuation allowances in those jurisdictions. The GRE International segment incurred significant losses as discussed above which resulted in lower consolidated income before income taxes.
Net Loss Attributable to Noncontrolling Interests. The decrease in the net loss attributable to noncontrolling interests in the three months ended September 30, 2021 compared to the same periods in 2020 was primarily due to a decrease in net losses of CCE, improvement of results of operations of Lumo Finland as discussed above and the acquisition of a noncontrolling interest of GRE International in the third quarter of 2021.
The decrease in the net loss attributable to noncontrolling interests in the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to a decrease in net losses of CCE, improvement of results of operations of Lumo Finland as discussed above and the streamline of operations at Prism.
Unrealized (loss) gain on marketable equity securities and investments. The unrealized (loss) gain on marketable equity securities and investment for the three and nine months ended September 30, 2021 pertains primarily to the fluctuation of the market price 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.
Equity in net income (loss) in equity method investees. The equity in net income (loss) in equity method investees for the three months ended September 30, 2021 and 2020 pertains to our share in the result of operations of certain investee that are accounted for using the equity method of accounting.
The equity in net income from equity method investees for the nine months ended September 30, 2021 relates to our shares in the result of operation of certain investee. The equity in net loss from equity method investees for the nine months ended September 30, 2020, pertains to our share in the results of operations of Orbit. Prior to the acquisition of the controlling interest of Orbit in October 2020 as discussed above, we accounted for our ownership interest in Orbit using the equity method since we had the ability to exercise significant influence over Orbit's operating and financial matters, although we did not control Shoreditch.
Gain on sale of subsidiary. The gain on the sale of the subsidiary for the nine months ended September 30, 2021 pertains to the gain recognized related to the sale of Genie Japan in May 2021.
Liquidity and Capital Resources
General
We currently expect that our cash flow from operations and the $34.0 million balance of unrestricted cash and cash equivalents that we held at September 30, 2021 will be sufficient to meet our currently anticipated cash requirements for at least the period from October 1, 2021 to November 8, 2022.
At September 30, 2021, we had working capital (current assets less current liabilities) of $44.4 million.
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(in thousands)
|
|
|
Cash flows provided by (used in):
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
86
|
|
|
$
|
24,038
|
|
|
Investing activities
|
|
|
2,656
|
|
|
|
(1,863
|
)
|
|
Financing activities
|
|
|
(5,194
|
)
|
|
|
(11,496
|
)
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
|
(221
|
)
|
|
|
(3
|
)
|
|
(Decrease) increase in cash, cash equivalents, and restricted cash
|
|
$
|
(2,673
|
)
|
|
$
|
10,676
|
|
Operating Activities
Cash, cash equivalents and restricted cash provided by operating activities decreased by $24.0 million in the nine months ended September 30, 2021 compared the same period in 2020. Net income after non-cash adjustments decreased cash flows by $10.5 million for the nine months ended September 30, 2021, compared to the same period in 2020. The decrease in operating cash flows is primarily the result of unfavorable results of operations and the consolidation of operations of Orbit Energy in the nine months ended September 30, 2021.
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Changes in working capital decreased cash flows by $12.7 million for the nine months ended September 30, 2021, compared to the same period in 2020. Changes in other assets decreased cash flows by $0.4 million in the nine months ended September 30, 2021, compared to the same period in 2020.
GRE’s REPs are party to an Amended and Restated Preferred Supplier Agreement with BP Energy Company, or BP, which is to be in effect through November 30, 2020. The obligations to BP are secured by a first security interest in deposits or receivables from utilities in connection with their purchase of the REPs’ customer’s receivables, and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. In addition, the REPs must pay an advance payment of $2.5 million to BP each month that BP will apply to the next invoiced amount due to BP. The ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants. At September 30, 2021, we were in compliance with such covenants. At September 30, 2021, restricted cash—short-term of $0.9 million and trade accounts receivable of $51.7 million were pledged to BP as collateral for the payment of trade accounts payable to BP of $15.5 million at September 30, 2021.
We had purchase commitments of $219.9 million at September 30, 2021, of which $170.7 million was for purchases of electricity.
Orbit Energy had an exclusive contract with Shell U.K. Limited ("Shell") to provide electricity and natural gas to Orbit Energy until June 2024, with an option (not an obligation) to extend through June 2027. Shell provides access to the forward market such that Orbit Energy can enter into forward hedge position for its customers which protects the Company from mark-to-market fluctuations. Shell also provides extended payment facilities of an additional 30 days compared to the United Kingdom payment terms up to a limit of £5.0 million at an interest of LIBOR plus 5.0%. Shell charges an additional £0.9 per therm of natural gas and Mwh of electricity for all delivered volume on top of the wholesale costs. The contract with Shell is secured by a pledge of the outstanding equity interest of Orbit Energy. The contract is also subject to satisfaction of certain conditions including the maintenance of certain covenants which includes minimum levels of cash, gross margin, net worth, as defined in the contract, earnings before tax, as defined in the contract and provision for bad debts on accounts receivable. At September 30, 2021, Orbit Energy was in compliance with such covenants. At September 30, 2021, Orbit Energy's total liability to Shell was $9.1 million included in trade accounts payable and accrued expenses accounts in the consolidated balance sheet.
In October 2021, as part of the orderly exit process from the United Kingdom market discussed above, Orbit and Shell agreed to terminate the exclusive supply contract. As part of the termination agreement, Orbit was required to unwind all physical forward hedges with Shell which resulted in net cash proceeds after settlement of all related liabilities with Shell. These proceeds, together with the existing cash and accounts receivables as of September 30, 2021, are expected to cover the cost to supply its current customers with electricity and natural gas until the orderly transfer is completed, and to exceed Orbit’s liabilities and carrying value of goodwill at September 30, 2021 of $30.7 million and $13.9 million, respectively. Due to a wide range of outcomes related to the on-going exit from the United Kingdom market, the Company is unable to provide the expected net proceeds from the exit from the United Kingdom market at this time.
From time to time, we receive 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, and we respond to those inquiries or requests. We cannot predict whether any of those matters will lead to claims or enforcement actions.
Investing Activities
Our capital expenditures were $0.2 million and $0.1 million for the nine months ended September 30, 2021 and 2020, respectively. We currently anticipate that our total capital expenditures in the twelve months ending December 31, 2021 will be between $0.3 to $0.6 million.
In December 2020, we invested $5.0 million in Class B common stock of Rafael. Rafael, a publicly-traded company, is also a related party. In connection with the purchase, Rafael issued to us warrants to purchase an additional 43,649 shares of Rafael's Class B common stock with an exercise price of $22.91 per share. The warrants had a term expiring on June 6, 2022. We exercised the warrants in full on March 31, 2021 for a total exercise price of $1.0 million. We do not exercise significant influence over the operating or financial policies of Rafael.
On May 11, 2021, upon the terms and subject to the conditions of the Purchase Agreement, we completed the divestiture of Genie Japan for an aggregate consideration of ¥570.0 million (equivalent to approximately $5.2 million at May 11, 2021). We paid $0.6 million of commission to certain former employees of Genie Japan and included $0.1 million of cash in the assets transferred to the buyer for a net proceed of $4.5 million.
Financing Activities
In each of the nine months ended September 30, 2021 and 2020, we paid aggregate quarterly Base Dividends of $0.4782 per share, $1.1 million in the aggregate, on our Series 2012-A Preferred Stock, or Preferred Stock. On October 13, 2021, our Board of Directors declared a quarterly Base Dividend of $0.1594 per share of our Preferred Stock. The dividend will be paid on or about November 15, 2021 to stockholders of record as of the close of business on November 8, 2021.
In March 2021, in light of the losses incurred from the effects of the events in Texas and Japan discussed above, the Company suspended the payment of quarterly dividends on its common stock to rebuild cash position.
In the nine months ended September 30, 2020, we paid aggregate quarterly dividends of $0.245 per share to stockholders of our Class A common stock and Class B common stock. The Company paid $6.4 million in aggregate dividends on our common stock in the nine months ended September 30, 2020.
On March 11, 2013, our Board of Directors approved a program for the repurchase of up to an aggregate of 7.0 million shares of our Class B common stock. In the three months ended September 30, 2021, we acquired 230,000 Class B common stock under the stock purchase program for an aggregate amount of $1.4 million. In the nine months ended September 30, 2021, we acquired 622,932 Class B common stock under the stock purchase program for an aggregate amount of $3.8 million. In the three months ended September 30, 2020, we acquired 11,738 Class B common stock under the stock purchase program for an aggregate amount of $0.1 million. In the nine months ended September 30, 2020, we acquired 224,944 Class B common stock under the stock repurchase program for an aggregate amount of $1.6 million. At September 30, 2021, 5.3 million shares of Class B common stock remained available for repurchase under the stock repurchase program.
In the nine months ended September 30, 2021, we paid $0.2 million to purchase 39,523 shares of our Class B common stock, and, in the nine months ended September 30, 2020, we paid $0.3 million to repurchase 32,907 shares of our Class B common stock tendered by our employees to satisfy tax withholding obligations in connection with the
lapsing of restrictions on awards of restricted stock. Such shares were purchased by us based on their fair market value on the trading day immediately prior to the vesting date.
On November 28, 2019, Genie Japan entered into a Loan Agreement with Tokyo Star Bank for a ¥100.0 million (equivalent to $0.9 million) short-term credit facility. Genie Japan provided a letter of credit issued by JPMorgan Chase amounting to ¥100.0 million (equivalent to $0.9 million) as collateral. The outstanding principal amount incurred interest at Tokyo Star Bank's short-term prime rate plus 0.25% per annum. Interest was payable monthly and all outstanding principal and any accrued and unpaid interest matured on of May 13, 2020. Genie Japan settled the Loan agreement and paid the outstanding balance of ¥100.0 million (equivalent to $0.9 million) on May 13, 2020.
On May 13, 2020, Genie Japan entered into a new Loan Agreement with Tokyo Star Bank for a ¥150.0 million (equivalent to $1.4 million) short-term credit facility ("May 2020 Loan"). Genie Japan provided a letter of credit issued by JPMorgan Chase in the amount of ¥150.0 million (equivalent to $1.4 million) as collateral. The outstanding principal amount incurs interest at 3.0% per annum. Interest is payable monthly and all outstanding principal and any accrued and unpaid interest matured on November 13, 2020. On November 13, 2020, Genie Japan and Tokyo Star Bank amended the May 2020 Loan to extend the maturity date to March 13, 2021. At March 31, 2021, $1.4 million was outstanding under the May 2020 Loan. At March 31, 2021, the effective interest rate was 3.0%.
In May 2021, completed the sale of Genie Japan including the outstanding balance of the May 2020 Loan of $1.4 million at the date of the sale.
On April 4, 2017, GRE, IDT Energy, and other GRE subsidiaries entered into a Credit Agreement with Vantage Commodities Financial Services II, LLC ("Vantage"), for a $20 million revolving loan facility. The borrowers consist of our subsidiaries that operate REP businesses, and those subsidiaries’ obligations are guaranteed by GRE. The borrowers have provided as collateral a security interest in their receivables, bank accounts, customer agreements, certain other material agreements and related commercial and intangible rights. The outstanding principal amount incurred interest at LIBOR plus 4.5% per annum. Interest is payable monthly, and all outstanding principal and any accrued and unpaid interest matured on April 3, 2020. In April 2020, the revolving line of credit expired and we paid outstanding balance of $3.5 million.
On December 5, 2019, we entered into the first amendment of Credit Agreement with JPMorgan Chase Bank (“Credit Agreement”) to extend the maturity date to December 31, 2020. On December 8, 2020, we entered into the second amendment of the existing Credit Agreement to extend the maturity date to December 31, 2021. The Company continues to have the aggregate principal amount of $5.0 million credit line facility (“Credit Line”). The Company pays a commitment fee of 0.1% per annum on unused portion of the Credit Line as specified in the Credit Agreement. The borrowed amounts will be in the form of letters of credit which will bear interest of 1.0% per annum. The Company will also pay a fee for each letter of credit that is issued equal to the greater of $500 or 1.0% of the original maximum available amount of the letter of credit. We agreed to deposit cash in a money market account at JPMorgan Chase Bank as collateral for the line of credit equal to $5.1 million. As of September 30, 2021, there was no letters of credit issued from JP Morgan Chase Bank. At September 30, 2021, the cash collateral of $5.2 million was included in restricted cash—short-term in the consolidated balance sheet.
In December 11, 2019, we refinanced Prism's outstanding 5.95% notes payable from Catskill Hudson Bank that was due in November 2019. The outstanding balance of notes payable of $0.9 million at December 11, 2019 was payable in monthly equal installments for period of ten years. The outstanding principal amount incurred fixed interest at 4.75% per annum. The notes payable were secured by Prism's commercial property in Highland, New York. In March 2020, the outstanding balance of the notes payable was transferred to liabilities held for sale. On October 16, 2020, Prism settled the notes payable to Catskill Bank previously classified as liabilities held for sale with full payment of the principal amount of $0.8 million.
Off-Balance Sheet Arrangements
We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following. GRE has performance bonds issued through a third party for the benefit of certain utility companies and for various states in order to comply with the states’ financial requirements for retail energy providers. At September 30, 2021, the Company had outstanding aggregate performance bonds of $13.4 million.