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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTERLY PERIOD ENDED September 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 1-35327


GENIE ENERGY LTD.

(Exact Name of Registrant as Specified in its Charter)



Delaware

 

45-2069276

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

520 Broad Street,  Newark, New Jersey

 

07102

(Address of principal executive offices)

 

(Zip Code)


(973) 438-3500

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b)-2 of the Exchange Act:

Title of each Class Trading Symbol Name of exchange of which registered
Class B common stock, par value $0.01 per share GNE New York Stock Exchange
Series 2012-A Preferred stock, par value $0.01 per share GNE-PRA New York Stock Exchange


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes      No  





As of November 4, 2020, the registrant had the following shares outstanding:

 

Class A common stock, $0.01 par value:

1,574,326 shares

Class B common stock, $0.01 par value:

24,645,374 shares (excluding 1,319,876 treasury shares)

 

 


 

GENIE ENERGY LTD.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
1



Item 1.
Financial Statements (Unaudited) 1






CONSOLIDATED BALANCE SHEETS 1






CONSOLIDATED STATEMENTS OF OPERATIONS 2






CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 3






CONSOLIDATED STATEMENTS OF EQUITY 4






CONSOLIDATED STATEMENTS OF CASH FLOWS 6






NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7




Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations 27





Item 3.
Quantitative and Qualitative Disclosures About Market Risks #





Item 4.
Controls and Procedures #


PART II. OTHER INFORMATION
41




Item 1.
Legal Proceedings #





Item 1A.
Risk Factors 41





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds 41





Item 3.
Defaults upon Senior Securities 41





Item 4.
Mine Safety Disclosures 41





Item 5.
Other Information 41





Item 6.
Exhibits 42



SIGNATURES
43

   

i



PART I. FINANCIAL INFORMATION
Item 1.        Financial Statements (Unaudited)

 GENIE ENERGY LTD. 

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

 

September 30,
2020

 

 

December 31,
2019

 

 

(Unaudited)

 

 

(Note 1)

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

19,556

 

 

$

31,242

 

Restricted cashshort-term
29,104


6,792

Trade accounts receivable, net of allowance for doubtful accounts of $4,285 and $2,631 at September 30, 2020 and December 31, 2019, respectively

 

44,787

 

 

 

49,822

 

Inventory

 

13,414

 

 

 

16,632

 

Prepaid expenses

 

4,181

 

 

 

6,318

 

Other current assets

 

4,271

 

 

 

2,133

 

Total current assets

 

115,313

 

 

 

112,939

 

Property and equipment, net

 

357

 

 

 

3,607

 

Goodwill

 

12,213

 

 

 

12,135

 

Other intangibles, net

 

5,067

 

 

 

6,837

 

Investment in equity method investees

 

483

 

 

 

675

 

Restricted cash—long-term

 

570

 

 

 

520

 

Deferred income tax assets, net

 

7,316

 

 

 

12,154

 

Other assets

 

7,573

 

 

 

7,377

 

Total assets

$

148,892

 

 

$

156,244

 

Liabilities and equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Loan payable $ 1,422

$ 921

Trade accounts payable

 

22,889

 

 

 

24,387

 

Accrued expenses

 

31,326

 

 

 

26,116

 

Contract liability
1,033


13,426

Income taxes payable

 

1,548

 

 

 

1,591

 

Due to IDT Corporation, net

 

115

 

 

 

381

 

Short-term revolving line of credit



2,514

Other current liabilities

 

2,109

 

 

 

2,820

 

Total current liabilities

 

60,442

 

 

 

72,156

 

Long-term notes payable



777

Other liabilities

 

1,952

 

 

 

2,381

 

Total liabilities

 

62,394

 

 

 

75,314

 

Commitments and contingencies

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Genie Energy Ltd. stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; authorized shares—10,000:

 

 

 

 

 

 

 

Series 2012-A, designated shares—8,750; at liquidation preference, consisting of 2,322 shares issued and outstanding at September 30, 2020 and December 31, 2019
19,743


19,743
Class A common stock, $0.01 par value; authorized shares—35,000; 1,574 shares issued and outstanding at September 30, 2020 and December 31, 2019
16


16
Class B common stock, $0.01 par value; authorized shares—200,000; 25,808 and 25,785 shares issued and 24,521 and 24,755 shares outstanding at September 30, 2020 and December 31, 2019, respectively
258


258

Additional paid-in capital

 

140,935

 

 

 

139,615

 

Treasury stock, at cost, consisting of 1,287 and 1,030 shares of Class B common stock at September 30, 2020 and December 31, 2019
(9,572 )

(7,675 )
Accumulated other comprehensive income
2,800


2,519

Accumulated deficit

 

(52,691

)

 

 

(59,671

)

Total Genie Energy Ltd. stockholders’ equity

 

101,489


 

 

94,805


Noncontrolling interests

 

(14,991

)

 

 

(13,875

)

Total equity

 

86,498


 

 

80,930


Total liabilities and equity

$

148,892

 

 

$

156,244

 


 See accompanying notes to consolidated financial statements. 

1



GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

 

2020

2019
2020


2019

 

(in thousands, except per share data)


Revenues:











Electricity

$ 91,793

$ 81,473

$ 227,671

$ 196,142

Natural gas


2,724


3,169

24,190


27,069

Other


1,809


1,071

24,591


10,127

Total revenues


96,326


85,713

276,452


233,338

Cost of revenues


69,010


59,360

200,744


172,417

Gross profit


27,316


26,353

75,708


60,921

Operating expenses and losses:















Selling, general and administrative (i)


18,831


19,408

54,287


53,419
Impairment of assets





993



Income from operations


8,485


6,945
20,428


7,502

Interest income


21


163

164


445

Interest expense


(48 )

(161 )
(223 )

(479 )

Equity in the net loss in equity method investees, net


(146 )

(238 )
(1,698 )

(2,106 )

Other  income (expense), net


291

(85 )
390


147

Income before income taxes


8,603


6,624
19,061

5,509

Provision for income taxes


(2,406 )

(1,916 )
(5,563 )

(3,142 )

Net income


6,197


4,708
13,498

2,367

Net loss attributable to noncontrolling interests


531

539
1,026

1,484

Net income attributable to Genie Energy Ltd.


6,728


5,247
14,524

3,851

Dividends on preferred stock


(370 )

(370 )
(1,111 )

(1,111 )

Net income attributable to Genie Energy Ltd. common stockholders

$ 6,358

$ 4,877 $ 13,413
$ 2,740

 















Earnings per share attributable to Genie Energy Ltd. common stockholders:















Basic

$ 0.25

$ 0.18 $ 0.51
$ 0.10

Diluted

$ 0.24

$ 0.18 $ 0.50
$ 0.10

Weighted-average number of shares used in calculation of earnings per share:















Basic


25,928


26,683

26,107


26,603

Diluted


26,769


27,669

26,839


27,541

 















Dividends declared per common share

$ 0.085

$ 0.075
$ 0.245

$ 0.225

(i) Stock-based compensation included in selling, general and administrative expenses

$ 447

$ 335
$ 1,331

$ 1,106

 

See accompanying notes to consolidated financial statements.


2



GENIE ENERGY LTD.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

 

 

2020


2019

2020

 

 

2019

 

 

(in thousands)

(in thousands)

Net income

$ 6,197

$ 4,708

$

13,498

 

$

2,367

Other comprehensive income:








 

 

 

 

 

 

 

Foreign currency translation adjustments


173


(265 )

 

214

 

 

(16

)

Comprehensive income


6,370


4,443

 

13,712

 

 

2,351

Comprehensive loss attributable to noncontrolling interests


605


720

 

1,098

 

 

1,959

 

Comprehensive income attributable to Genie Energy Ltd.

$ 6,975

$ 5,163

$

14,810

 

$

4,310

  

See accompanying notes to consolidated financial statements.

 

3



GENIE ENERGY LTD.

 

CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except dividend per share)

Genie Energy Ltd. Stockholders


 

 

Preferred

 


Class A

 


Class B

 


Additional

 


 

 


Accumulated Other

 


 

 


 

 


 

 

 

 

Stock

 


Common Stock

 


Common Stock

 


Paid-In

 


Treasury

 


Comprehensive

 


Accumulated

 


Noncontrolling

 


Total

 

 

 

Shares

 


Amount

 


Shares

 


Amount

 


Shares

 


Amount

 


Capital

 


Stock

 


Income

 


Deficit

 


Interests

 


Equity

 

BALANCE AT JANUARY 12020
2,322
$ 19,743

1,574
$ 16

25,785
$ 258
$ 139,615
$ (7,675 ) $ 2,519
$ (59,671 ) $ (13,875 ) $ 80,930
Dividends on preferred stock ($ 0.01594 per share)  


















(370 )


(370 )
Dividends on common stock ($ 0.075 per share)  


















(1,975 )


(1,975 )
Stock-based compensation








20



483









483
Repurchase of Class B common stock from stock repurchase program 














(88 )







(88 )
Noncontrolling interest from acquisition of Lumo 












(29 )







29


Deconsolidation of subsidiaries
















(6

)




(92 )
(98 )
Other comprehensive (loss) income 
















(283 )


189

(94 )
Net income for three months ended March 31, 2020


















5,832

589

6,421
BALANCE AT  MARCH 31, 2020
2,322

19,743

1,574

16

25,805

258

140,069

(7,763 )
2,230

(56,184 )
(13,160 )
85,209
Adoption of ASU 2018-07
























Dividends on preferred stock ($0.01594 per share)  

 

 


 


 


 


 


 


 


 


 


(370

)

 


(370

)

Dividends on common stock ($0.085 per share)

 

 


 


 


 


 


 


 


 


 


(2,240

)

 


(2,240

)

Stock-based compensation 

 

 


 


 


 


 


 


401

 


 


 


 


 


401

 

Repurchase of Class B common stock from stock repurchase program














(1,458 )







(1,458 )
Purchase of subsidiary





















45

45

Other comprehensive income (loss)

 

 


 


 


 


 


 


 


 


323



 


(188

)

135

 

Net income (loss) for three months ended June 30, 2020       

 

 


 


 


 


 


 


 


 


 


1,963


(1,083)



880

BALANCE AT JUNE 30, 2020
2,322

19,743


1,574

16

25,805


258


140,470


(9,221
)

2,553


(56,831 )

(14,386
)

82,602
Dividends on preferred stock ($0.01594 per share)  


















(370 )


(370 )
Dividends on common stock ($0.085 per share)


















(2,218 )


(2,218 )
Repurchase of Class B common stock from stock repurchase program 















(88 )






(88 )
Restricted Class B common stock units purchased from employees














(263 )






(263 )
Stock-based compensation












447









447
Exercise of stock options








3



18









18
Other comprehensive income (loss)
















247



(74 )
173
Net income (loss) for three months ended September 30, 2020  


















6,728

(531 )
6,197
BALANCE AT SEPTEMBER 30, 2020 
2,322
$ 19,743

1,574
$
16

25,808
$ 258
$ 140,935
$ (9,572 ) $ 2,800
$ (52,691 ) $ (14,991 ) $ 86,498


4


GENIE ENERGY LTD.

CONSOLIDATED STATEMENTS OF EQUITY (in thousands) — (Continued)


Genie Energy Ltd. Stockholders 

 

 

Preferred

 


Class A

 


Class B

 


Additional

 


 

 


Accumulated Other

 


 

 


 

  


 

  

 

 

Stock

 


Common Stock

 


Common Stock

 


Paid-In

 


Treasury

 


Comprehensive

 


Accumulated

 


Noncontrolling

  


Total

  

 

 

Shares

 


Amount

 


Shares

 


Amount

 


Shares

 


Amount

 


Capital

 


Stock

 


Income

 


Deficit

 


Interests

  


Equity

  

BALANCE AT JANUARY 1, 2019    
2,322
$ 19,743

1,574
$ 16

25,544
$ 255
$ 136,629
$ (1,624 ) $ 2,591
$ (53,939 ) $ (11,009 ) $ 92,662
Adoption of ASU 2018-07












312





(312)




Dividends on preferred stock ($0.01594 per share) 


















(370 )


(370 )
Dividends on common stock ($ 0.075 per share)  


















(2,006 )


(2,006 )
Stock-based compensation








198

2

446









448
Exercise of stock options








25



172









172
Option issues to Howard S. Jonas












325









325
Noncontrolling interest from acquisition of Lumo 




















884

884
Other comprehensive income (loss)
















290



(194 )
96
Net income for three months ended March 31, 2019  


















6,069

91

6,160
BALANCE AT  MARCH 31, 2019
2,322

19,743

1,574

16

25,767

257

137,884

(1,624 )
2,881

(50,558 )
(10,228 )
98,371

Dividends on preferred stock ($0.01594 per share)

 



















(370 )


(370 )
Dividends on common stock ($ 0.075 per share) 

 



















(2,062 )


(2,062 )

Stock-based compensation 

 













324









324

  

Exercise of stock options








116

1

792









793

Other comprehensive income (loss)

 

















254



(101 )
153

  

Net loss for three months ended June 30, 2019     

 



















(7,466 )
(1,035 )
(8,501 )
BALANCE AT JUNE 30, 2019
2,322

19,743

1,574

16

25,883

258

139,000

(1,624 )
3,135

(60,456 )
(11,364 )
88,708
Dividends on preferred stock ($0.01954 per share) 


















(370 )


(370 )
Dividends on common stock ($0.075 per share)


















(2,042 )


(2,042 )
Repurchase of Class B common stock from stock repurchase program














(3,415 )






(3,415 )
Restricted Class B common stock purchased from employees














(315 )






(315 )
Stock-based compensation








2



341









341
Forfeiture of restricted Class B common stock








(5 )


(6 )








(6 )
Exercise of stock options








64

1

439









440
Other comprehensive loss
















(84 )


(181 )
(265 )
Net income (loss) for three months ended September 30, 2019


















5,247

(539 )
4,708
BALANCE AT SEPTEMBER 30, 2019
2,322
$
19,743

1,574
$ 16

25,944
$ 259
$ 139,774
$ (5,354 ) $ 3,051
$ (57,621 ) $ (12,084 ) $ 87,784


5



GENIE ENERGY LTD. 


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 

 

 

Nine Months Ended
September 30,

 

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

Net income

 

$

13,498

 

$

2,367

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,219

 

 

 

2,797

 

Impairment of assets

993



Deferred income taxes

 

 

4,838

 

 

 

1,591


Provision for doubtful accounts receivable

 

 

2,209

 

 

 

453

 

Loss on sale of assets held for sale

456



Stock-based compensation

 

 

1,331

 

 

 

1,106

 

Equity in the net loss in equity method investees

 

 

1,698

 

 

 

2,106

 

Gain on deconsolidation of subsidiaries

(98 )


Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

2,827

 

 

(1,607

)

Inventory

 

 

3,218

 

 

264

Prepaid expenses

 

 

2,166

 

 

(395

)

Other current assets and other assets

 

 

(633

)

 

 

1,243

Trade accounts payable, accrued expenses and other current liabilities

 

 

2,018

 

 

2,152

Contract liability

(12,393 )

3,378

Due to IDT Corporation

 

 

(266

)

 

 

(81

)

Income taxes payable

 

 

(43

)

 

 

563

Net cash provided by operating activities

 

 

24,038

 

 

15,937

 

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(125

)

 

 

(343

)

Proceeds from disposal of assets held for sale

48



Payment for acquisition of intangible

(298 )


Investments in equity method investee

(1,502 )

(719 )

Payments for business acquisition, net of cash acquired

 

 

 

 

(1,852

)

Investments in notes receivables

 

 

 

 

(214

)

Repayment of notes receivable

 

 

14

 

 

 

132

 

Net cash used in investing activities

 

 

(1,863

)

 

 

(2,996

)

Financing activities

 

 

 

 

 

 

 

 

Dividends paid

 

 

(7,543

)

 

 

(7,220

)

Repayment of short-term debt—Lumo

 

 

 

 

(2,260

)
Proceeds from exercise of stock options

18


1,405
Proceeds from revolving line of credit

1,000



Repayment of revolving line of credit

(3,514 )


Purchase of Class B common stock from employees upon vesting of restricted shares

(263 )

(315 )
Proceeds from loan

1,395



Repayment of loan payable

(930 )


Purchases of Class B common stock

(1,634 )

(3,415 )

Repayment of notes payable

 

 

(25

)

 

 

(37

)

Net cash used in financing activities

 

 

(11,496

)

 

 

(11,842

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(3

)

 

 

12

Net increase in cash, cash equivalents, and restricted cash

 

 

10,676

 

 

1,111

Cash, cash equivalents, and restricted cash at beginning of period

 

 

38,554

 

 

 

44,197

 

Cash, cash equivalents, and restricted cash at end of period

 

$

49,230

 

 

$

45,308

 


See accompanying notes to consolidated financial statements.

6



GENIE ENERGY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

Note 1—Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Genie Energy Ltd. and its subsidiaries (the “Company” or “Genie”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The balance sheet at December 31, 2019 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

 

The Company owns 99.3% of its subsidiary, Genie Energy International Corporation (“GEIC”), which owns 100% of Genie Retail Energy (“GRE”), 100% of Genie Retail Energy International LLC ("GRE International" or "GREI"), 100% of Genie Energy Services ("GES") and 97.0% of Genie Oil and Gas, Inc. (“GOGAS”).


GRE owns and operates retail energy providers (“REPs”), including IDT Energy, Inc. (“IDT Energy”), Residents Energy, Inc. (“Residents Energy”), Town Square Energy, LLC and Town Square Energy East, LLC (collectively, "TSE"), Southern Federal Power LLC ("Southern Federal") and Mirabito Natural Gas (“Mirabito”). GRE's REP businesses resell electricity and natural gas to residential and small business customers primarily in the Eastern and Midwestern United States and Texas


GRE International holds the Company's interest (which was 77.0% as of September 30, 2020) in Shoreditch Energy Limited, its joint venture that serves retail customers in the United Kingdom ("U.K.") under the name Orbit Energy, its 98.8% interest in venture in Japan, which launched commercial operations in second quarter of 2019, the Company's 92.5% interest in Lumo Energia Oyj ("Lumo"), a REP serving residential customers in Finland, and its 100% interest in Lumo Energi AB, which was formed in 2019 to serve retail energy customers in Sweden. In October 2020, the Company acquired the remaining 23.0% interest and control in Shoreditch which increased the Company's interest to 100


          GES oversees Diversegy LLC ("Diversegy"), a retail energy advisory and brokerage company that serves commercial and industrial customers throughout the United States ("U.S.") and manages GRE's 60.0% interest in Prism Solar Technology, Inc. ("Prism"), a solar solutions company that is engaged in U.S.-based manufacturing of solar panels, solar installation design and solar energy project management. 


GOGAS is an oil and gas exploration company and owns an interest in a contracted drilling services operation. GOGAS holds an 86.1% interest in Afek Oil and Gas, Ltd. (“Afek”), an oil and gas exploration project in the Golan Heights in Northern Israel. GOGAS also holds controlling interests in inactive oil and gas projects. GOGAS also holds a 37.5% interest in a contracted drilling services company in Israel ("Atid 613").

 

Seasonality and Weather

 

The weather and the seasons, among other things, affect GRE’s revenues. Weather conditions have a significant impact on the demand for natural gas used for heating and electricity used for heating and cooling. Typically, colder winters increase demand for natural gas and electricity, and hotter summers increase demand for electricity. Milder winters or summers have the opposite effect. Unseasonable temperatures in other periods may also impact demand levels. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 46.9% and 50.3% of GRE’s natural gas revenues for the relevant years were generated in the first quarters of 2019 and 2018, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas (due, in part, to usage of electricity for both heating and cooling), approximately 31.8% and 29.5% of GRE’s electricity revenues for the relevant years were generated in the third quarters of 2019 and 2018, respectively. GRE’s REPs’ 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.  


Coronavirus Disease (COVID-19)


During 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, 2020, the impacts of COVID-19 are evident in several key aspects of the Company's business operations and the corresponding financial impact has been mixed. The Company's customer base is predominantly residential, so the Company has benefited from the increased demand for electricity as many customers are working from and spending more time in their homes. On the other hand, like other retail providers, the Company suspended its 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. The reduction in gross meter acquisitions decreased customer acquisition expenses in the second and third quarters of 2020 and resulted in a slight decline in domestic meters served during the third quarter of 2020. Churn for the second and third quarters of 2020 decreased, in part, as the Company's competitors also suspended their face to face marketing programs. COVID-19 public health restrictions relaxed in some of GRE's domestic markets in the third quarter of 2020, facilitating a partial reactivation of the previously curtailed customer acquisition channels.


There are many uncertainties regarding the impacts of the COVID-19 pandemic, and the Company is closely monitoring those impacts on all aspects of its business, including how it will impact the customers, employees, suppliers, vendors, and business partners.


  Note 2—Cash, Cash Equivalents, and Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheet that equals the total of the same amounts reported in the consolidated statements of cash flows:

 


 

September 30,

2020

 

 

December 31,

2019

 



(in thousands)

Cash and cash equivalents

 

$

19,556

 

 

$

31,242

 

Restricted cash—short-term

 

 

29,104

 

 

 

6,792

 

Restricted cash—long-term

 

 

570

 

 

 

520

 

Total cash, cash equivalents, and restricted cash

 

$

49,230

 

 

$

38,554

 

 

Restricted cash—short-term includes amounts set aside in accordance with the Amended and Restated Preferred Supplier Agreement with BP Energy Company (“BP”) (see Note 19) and Credit Agreement with JPMorgan Chase (see Note 20). Restricted cash—long-term includes Afek’s security deposits for its exploration license from the Government of Israel, and its customs and other import duties for the import of exploration equipment.

 

Note 3—Inventories

 

Inventories consisted of the following:

 


 

September 30,

2020

 

 

December 31,

2019

 



(in thousands)

Natural gas

 

$

1,025

 

 

$

1,052 

 

Renewable credits

 

 

11,354

 

 

14,940

Solar Panels:

 

 

           

 

 

Finished goods

893

424

Raw materials

 

 

142

 

 

 

216

 

Total solar panels inventory

1,035

640

Totals

 

$

13,414

 

 

$

16,632

7


Note 4—Revenue Recognition

Revenue from the single performance obligation to deliver a unit of electricity and/or natural gas is recognized as the customer simultaneously receives and consumes the benefit. Variable quantities in requirements contracts are considered to be options for additional goods and services because the customer has a current contractual right to choose the amount of additional distinct goods to purchase. Utility companies offer purchase of receivable, or POR, programs in most of the service territories in which the Company operates, and GRE’s REPs participate in POR programs for a majority of their receivables. The Company estimates variable consideration related to its rebate programs using the expected value method and a portfolio approach. The Company’s estimates related to rebate programs are based on the terms of the rebate program, the customer’s historical electricity and natural gas consumption, the customer’s rate plan, and a churn factor. Taxes that are imposed on the Company’s sales and collected from customers are excluded from the transaction price.

Revenue from sales of solar panels are recognized at a point in time following the transfer of control of the solar panels to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For sales contracts that contain multiple performance obligations, such as the shipment or delivery of solar modules, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations. Revenues from sale of solar panels are included in other revenues in the consolidated statements of operations.

The Company recognizes the incremental costs of obtaining a contract with a customer as an asset if it expects the benefit of those costs to be received in a period longer than one year. The Company determined that certain sales commissions to acquire customers meet the requirements to be capitalized. For GRE and GRE International other than Lumo, the Company applies a practical expedient to expense costs as incurred for sales commissions to acquire customers as the period would have been one year or less. Incremental customer acquisition cost of Lumo are capitalized and amortized over eighteen months. These costs and the related amortization are recorded within sales and marketing expenses. Total capitalized customer acquisition costs to obtain a contract were $0.2 million and $0.6 million for the three and nine months ended September 30, 2020, respectively. Total capitalized customer acquisition costs to obtain a contract were $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectivelyAt September 30, 2020, customer acquisition costs of $0.6 million and $0.1 million were included in other current assets and other assets, respectively, on the Company's consolidated balance sheet. The Company continuously monitors its customer relationship periods to ensure compliance with the application of the standard.

Disaggregated Revenues  

The following table shows the Company’s revenues disaggregated by pricing plans offered to customers: 


 

Electricity

 

 

Natural Gas

 

 

Other

 

 

Total

 



(in thousands)


Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate

 

$

41,707

 

 

$

631

 

 

$

 

 

$

42,338

 

Variable rate

 

 

50,086

 

 

 

2,093

 

 

 

 

 

 

52,179

 

Other

 

 

 

 

 

 

 

 

1,809

 

 

 

1,809

 

Total

 

$

91,793

 

 

$

2,724

 

 

$

1,809

 

 

$

96,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed rate

 

$

39,994

 

 

$

528

 

 

$

 

 

$

40,522

 

Variable rate

 

 

41,479

 

 

 

2,641

 

 

 

 

 

 

44,120

 

Other

 

 

 

 

 

 

 

 

1,071

 

 

 

1,071

 

Total

 

$

81,473

 

 

$

3,169

 

 

$

1,071

 

 

$

85,713

 


















Nine Months Ended September 30, 2020

















Fixed rate


$

99,278



$

3,200



$



$

102,478


Variable rate



128,393




20,990







149,383


Other









24,591




24,591


Total 


$

227,671



$

24,190



$

24,591



$

276,452



















Nine Months Ended September 30, 2019

















Fixed rate


$ 88,027

$ 2,313

$

$ 90,340

Variable rate



108,115


24,756





132,871

Other









10,127


10,127

Total


$ 196,142

$ 27,069

$ 10,127

$ 233,338



8


 


The following table shows the Company’s revenues disaggregated by non-commercial and commercial channels:

 


 

Electricity

 

 

Natural Gas

 

 

Other

 

 

Total

 



(in thousands)

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Commercial Channel

 

$

75,214

 

 

$

1,747

 

 

$

 

 

$

76,961

 

Commercial Channel

 

 

16,579

 

 

 

977

 

 

 

 

 

 

17,556

 

Other

 

 

 

 

 

 

 

 

1,809

 

 

 

1,809

 

Total

 

$

91,793

 

 

$

2,724

 

 

$

1,809

 

 

$

96,326

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Commercial Channel

 

$

66,092

 

 

$

2,072

 

 

$

 

 

$

68,164

 

Commercial Channel

 

 

15,381

 

 

 

1,097

 

 

 

 

 

 

16,478

 

Other

 

 

 

 

 

 

 

 

1,071

 

 

 

1,071

 

Total

 

$

81,473

 

 

$

3,169

 

 

$

1,071

 

 

$

85,713

 


















Nine Months Ended September 30, 2020
















Non-Commercial Channel

$

190,970



$

20,750



$



$

211,720


Commercial Channel 

36,701




3,440







40,141


Other







24,591




24,591


Total 
$

227,671



$

24,190



$

24,591



$

276,452



















Nine Months Ended September 30, 2019















Non-Commercial Channel
$ 164,183

$ 22,986

$

$ 187,169
Commercial Channel

31,959


4,083





36,042
Other







10,127


10,127
Total
$ 196,142

$ 27,069

$ 10,127

$ 233,338

 

Contract Liabilities

Certain revenue contracts in GES include provisions that require advance payment from customers. These advance payments are recognized as revenue as the Company satisfies the performance obligations to the other party. A portion of the transaction price allocated to the performance obligations to be satisfied in the future periods is recognized as contract liability. 

Nine Months Ended September 30,

 

2020

 

 

2019

 

(in thousands)

Contract liability, beginning

 

$

13,426

 

 

$

1,137

 

   Recognition of revenue included in the beginning of year contract liability

 

 

(13,004)

 

 

(558

)

   Additions during the period, net of revenue recognized during the period

 

 

611

 

 

 

4,064

 

Contract liability, end

 

$

1,033

 

 

$

4,643

 

The decrease in contract liabilities from January 1, 2020 to September 30, 2020 is primarily related to the shipment of solar panels to a customer during the period.

Note 5—Acquisition 

 

Acquisition of Lumo Energia, Oyj


On January 2, 2019 (the “Lumo Closing Date”), pursuant to a Stock Purchase Agreement dated December 17, 2018, the Company completed the purchase of an 80.0% controlling interest in Lumo Energia Oyj ("Lumo"), a Finnish public limited company. The Company paid the sellers a total of €1.6 million (equivalent to $1.9 million). The Company contributed €1.3 million (equivalent to $1.5 million) as a capital loan to fund Lumo's working capital requirements. The Company also provided Lumo with a secured loan for €2.0 million (equivalent to $2.3 million) to pay off and replace its remaining debt. The secured loan is payable in 4 years from inception and bears interest at annual rate of 4.0%, payable monthly. The Company also issued 176,104 shares of its Class B common stock to certain of the sellers which are subject to restrictions as described in the agreement (the “Lumo Restricted Shares”). The Lumo Restricted Shares are subject to vesting conditions related to employment and services to be provided by the recipients of up to two years following the Lumo Closing Date. The Lumo Restricted Shares are accounted for as a share-based compensation and is amortized to the consolidated statement of income over the vesting period of two years.


In November 2019, the Company acquired an additional 9.0% interest in Lumo for $0.2 million, increasing its aggregate ownership to 89.0%. In January 2020, Lumo paid off half of the secured loan to GREI through the issuance of additional shares which resulted in GREI's interest in Lumo increasing to 92.5%. 


Of the remaining 7.5% noncontrolling interest retained by the sellers, 33.3% vested in January 2020 with the balance subject to restrictions, which will lapse in two installments on the second and third anniversaries of the Lumo Closing Date, subject to employment and service conditions.

 

The Company has a conditional continuing call option to purchase a portion or the entire noncontrolling interest from the sellers during the period beginning at the third anniversary of the Lumo Closing Date and ending three years later.

 

The sellers, as a group, have a one-time option to sell a portion or all of their Lumo interests to the Company, which subject to certain conditions, may be exercised on one occasion only, at any time during the two-year period beginning at the fourth anniversary of the Lumo Closing Date. 

 

 The Company recorded revenue for Lumo of approximately $3.2 million and $11.4 million in the three and nine months ended September 30, 2020, respectively and approximately $2.6 million and $10.3 million in the three and nine months ended September 30, 2019, respectively. The net income or loss attributable to this acquisition cannot be identified on a stand-alone basis because it is in the process of being integrated into the Company's operations.  

 

9


 The Company conducted an assessment of assets and liabilities related to the acquisition of Lumo. The impact of the acquisition’s purchase price allocations on the Company’s consolidated balance sheet and the acquisition date fair value of the total consideration transferred were as follows:


(in thousands)

 

 

 

Cash

$

1,539

Trade accounts receivable

 

2,520

 

Other current assets

 

 

411

 

Intangible assets:

   Trademark (5-year useful life)

 

 

294

 

   Non-compete agreements (3-year useful life)

 

 

34

 

   Customer relationship (2-year useful life)

 

 

1,924

 

Goodwill

 

 

1,744

 

Other assets

95

Accounts and other current liabilities

 

 

(2,403

)

Short-term debts

(2,260

)

Other liabilities

 

 

(97

)

Noncontrolling interest

(410

)

Net assets

 

$

3,391

 

 

(in thousands)

 

 

Supplemental information

 

 

 

 

Cash paid to sellers

 

1,869

 

Cash contributed to Lumo

 

 

1,522

Total consideration

 

$

3,391

 


Goodwill was allocated to the GRE International segment. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce. Goodwill recognized as a result of the acquisition is not deductible for income tax purposes.

 

Note 6—Fair Value Measurements

 

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis:

 

 

 

Level 1 (1)

 

 

Level 2 (2)

 

 

Level 3 (3)

 

 

Total

 

 

 

(in thousands)

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

461

 

 

$

121

 

 

$

    

 

 

$

582

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

543

 

 

$

 

 

$

 

 

$

543

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

          Derivative contracts

 

$

5

 

 

$

322

 

 

$

 

 

$

327

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative contracts

 

$

1,569

 

 

$

410

 

 

$

 

 

$

1,979

 

 

(1) – quoted prices in active markets for identical assets or liabilities

(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) – no observable pricing inputs in the market

 

The Company’s derivative contracts consist of natural gas and electricity put and call options and swaps. The underlying asset in the Company’s put and call options is a forward contract. The Company’s swaps are agreements whereby a floating (or market or spot) price is exchanged for a fixed price over a specified period.


The Company did not have any transfers of assets or liabilities between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the period ended September 30, 2020 and 2019.

 

10


 Fair Value of Other Financial Instruments

 

The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting this data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.

 

Restricted cash—short-term and long-term, trade receivables, due to IDT Corporation, other current assets and other current liabilities. At September 30, 2020 and December 31, 2019, the carrying amounts of these assets and liabilities approximated fair value. The fair value estimate for restricted cash—short-term and long-term was classified as Level 1. The carrying value of other current assets, due to IDT Corporation, and other current liabilities approximated fair value.  

 

Other assets, revolving line of credit and notes payable. At September 30, 2020 and December 31, 2019, other assets included notes receivable. At September 30, 2020, the outstanding balance of the sellers of Lumo's one-time put option was not significant and was included in other liabilities account in the consolidated balance sheet. The carrying amount of the note receivable, revolving line of credit and notes payable approximated fair value. The fair values were estimated based on the Company’s assumptions, and were classified as Level 3 of the fair value hierarchy.


The following table presents the items measured at fair value on a non-recurring basis:  


    

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

  

 

 

(in thousands)

  

September 30, 2020 

 

 

 

 

 

 

 

 

 

 

 

  

Impairment of property and equipment

 

 

 

$

 

 

$

993

 

 

$

993

  

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

          Impairment of goodwill

 

 

 

 

 

400

 

 

400

  


The primary non-recurring fair value estimates typically are in the context of business acquisitions (Note 5) which involve a combination of Level 2 and Level 3 inputs, goodwill impairment testing, which involves Level 3 inputs, and asset impairments (Note 8) which utilize Level 3 inputs.


Concentration of Credit Risks


The Company holds cash, cash equivalents, and restricted cash at several major financial institutions, which may exceed Federal Deposit Insurance Corporation insured limits. Historically, the Company has not experienced any losses due to such concentration of credit risk. The Company’s temporary cash investments policy is to limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions. While the Company may be exposed to credit losses due to the nonperformance of the holders of its deposits, the Company does not expect the settlement of these transactions to have a material effect on its results of operations, cash flows or financial condition.


The following table summarizes the percentage of consolidated revenues from customers that equal or exceed 10.0% of the Company’s consolidated revenues in the period (no other single customer accounted for more than 10.0% of consolidated revenues in these periods): 



 

Nine Months Ended September 30,

 



2020

2019

Customer A

 


11

 


na


 

na-less than 10.0% of consolidated revenue in the period


The following table summarizes the percentage of consolidated trade receivable by customers that equal or exceed 10.0% of consolidated trade receivables at September 30, 2020 and December 31, 2019 (no other single customer accounted for 10.0% or greater of our consolidated trade receivable as of September 30, 2020 or December 31, 2019):



 

September 30, 2020


 December 31, 2019

Customer A

 


13

 


11

%


11


Note 7Derivative Instruments

 

The primary risk managed by the Company using derivative instruments is commodity price risk, which is accounted for in accordance with Accounting Standards Codification 815 — Derivatives and Hedging. Natural gas and electricity put and call options and swaps are entered into as hedges against unfavorable fluctuations in market prices of natural gas and electricity. The Company does not apply hedge accounting to these options or swaps, therefore the changes in fair value are recorded in earnings. By using derivative instruments to mitigate exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company minimizes the credit or repayment risk in derivative instruments by entering into transactions with high-quality counterparties. At September 30, 2020, GRE’s swaps and options were traded on the Intercontinental Exchange. GRE International's swaps and options were traded through counterparties.


The summarized volume of GRE’s outstanding contracts and options at September 30, 2020 was as follows (MWh – Megawatt hour and Dth – Decatherm):

 

Settlement Dates

 

Volume

 

 

 

Electricity (in MWH)

 

 

Gas (in Dth)

 

Fourth quarter 2020

 

 

134,931

 

 

 

563,030

 

First quarter 2021

 

 

127,092

 

 

 

532,550

 

Second quarter 2021

 

 

 

 

 

113,500

 

Third quarter 2021

 

 

36,000

 

 

 

82,400

 

Fourth quarter 2021

 

 

 

 

 

72,900

 

First quarter 2022

 

 

 

 

 

72,600

 

Second quarter 2022




43,800
Third quarter 2022




11,450
Fourth quarter 2022




10,400
First quarter 2023




10,700
Second quarter 2023




2,000
Third quarter 2023




150

 

12


 

The fair value of outstanding derivative instruments recorded in the accompanying consolidated balance sheets were as follows: 

 

Asset Derivatives

 

Balance Sheet Location

 

September 30,
2020

 

 

December 31,
2019

 

 

 

 

 

(in thousands)

 

Derivatives not designated or not qualifying as hedging instruments: 

 

 

 

 

 

 

 

 

 

 

Energy contracts and options1
Other current assets
$ 540

$ 324 
Energy contracts and options
Other assets

42


3

Total derivatives not designated or not qualifying as hedging instruments Assets 

 


 

$

582

 

 

$

327

 

 

 

 

 

 

 

 

 

 

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated or not qualifying as hedging instruments: 

 

 

 

 

 

 

 

 

 

 

Energy contracts and options1
Other current liabilities
$ 526


1,909
Energy contracts and options
Other liabilities

17


70

Total derivatives not designated or not qualifying as hedging instruments — Liabilities


 

$

543

 

 

$

1,979

 

 

(1The Company classifies derivative assets and liabilities as current based on the cash flows expected to be incurred within the following 12 months.

  

The effects of derivative instruments on the consolidated statements of operations was as follows:


 


Amount of Loss Recognized on Derivatives

  

Derivatives not designated or not qualifying as

 

Location of Loss Recognized


Three Months Ended September 30,

 

Nine Months Ended September 30,

  

hedging instruments

 

on Derivatives



2020

  



2019    

2020

 

 

2019

  

 

 

 


(in thousands)



(in thousands)

  

Energy contracts and options

 

 Cost of revenues


$ (4,764)

$ (5,367 )

  

$

(23,352)


 

$

(16,197
)


Note 8—Assets and Liabilities Held for Sale

In March 2020, the Company initiated a plan to sell the property, plant and equipment of Prism. Prism's 4.75% notes payable to Catskill Hudson Bank are collateralized by Prism's land, building and improvements, and will be settled from the proceeds of the sale of the assets. In the first quarter of 2020, Prism's property, plant and equipment and notes payable were reclassified as assets and liabilities held for sale and reported at lower of fair value less cost to sell and net book value. In the first quarter of 2020, the Company recorded a $0.2 million write-down to the fair value of certain property and equipment. The Company used the market approach to estimate the fair values of assets and liabilities held for sale. The related inputs were corroborated by observable market data for similar assets and liabilities, therefore the estimated fair values were classified as Level 2 of the fair value hierarchy.

In the three and nine months ended September 30, 2020, Prism recorded loss from disposal of certain property and equipment classified as assets held for sale of $0.4 million and $0.5 million, respectively, included in the selling, general and administrative expenses in the consolidated statements of operations.

The pending disposition of Prism's assets and liabilities held for sale did not meet the criteria to be reported as a discontinued operation. At September 30, 2020, assets held for sale of $2.4 million and liabilities held for sale of $0.8 million were included in other current assets and other current liabilities, respectively, in the consolidated balance sheet.

On December 11, 2019, the Company refinanced the 5.95% notes payable to Catskill Hudson Bank that were due in November 2019. The outstanding balance of notes payable of $0.9 million at December 11, 2019 will be payable in monthly equal annual installments for period of ten years. The outstanding principal amount incurs fixed interest at 4.75% per annum. The notes payable are 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 as described above.

In October 2020, the Company completed the sale of the remaining assets held for sale and the settlement of notes payable to Catskill Hudson Bank (see Note 22Subsequent Events)

Note 9—Investment in Equity Method Investees

 

Investment in Shoreditch


On July 17, 2017, the Company’s subsidiary, Genie Energy UK Ltd. (“GEUK”), entered into a definitive agreement with Energy Global Investments Pty Ltd (“EGC”) to launch Shoreditch Energy Limited (“Shoreditch”), a joint venture to offer electricity and natural gas service to residential and small business customers in the U.K., under the trade name Orbit Energy. In second quarter of 2020, the Company contributed $1.5 million to Shoreditch, which increased GEUK's total contribution to $9.5 million as of September 30, 2020. As of September 30, 2020, the Company owns 77.0% of the outstanding equity of Shoreditch.


Prior to the Company acquiring the remaining 23.0% of Shoreditch, EGC had significant participation rights in the management of Shoreditch that limited GEUK’s ability to direct the activities that most significantly impact Shoreditch’s economic performance. GEUK, therefore, accounted for its ownership interest in Shoreditch using the equity method since GEUK had the ability to exercise significant influence over its operating and financial matters, although it did not control Shoreditch.

13



  In 2018, the Company extended a $0.2 million loan to EGC (“EGC Loan”), in connection with EGC’s contribution to Shoreditch. The EGC Loan, which is secured by EGC’s interest in Shoreditch, bears a fixed annual interest rate of 2.0% and is due, together with the principal amount, on September 17, 2023. As of September 30, 2020, the outstanding balance, including accrued interest, of the EGC Loan was $0.2 million.

 

At September 30, 2020, the net book value of the Company's investment in Shoreditch was nil. There were no other arrangements, events or circumstances that could expose the Company to additional loss, aside from the balance of EGC Loan discussed above. 


On October 8, 2020, the Company acquired the remaining 23.0% interest held by EGC.  Refer to Note 22Subsequent Events.

 

Summarized unaudited statements of operations of Shoreditch are as follows:

 

 


Three Months Ended September 30,

 

Nine Months Ended September 30,

  



2020
2019

 

2020

 

 

2019

  



(in thousands)

(in thousands)

Revenues 


$ 15,079
$ 6,104

 

$

49,595

 

 

$

14,809

  

Operating expenses:








 

 

 

 

 

 

 

  

Cost of revenues



14,280

5,915

 

 

46,195

 

 

 

14,107

  

Selling, general and administrative



5,013

3,045

 

 

11,709

 

 

 

7,514

  

Loss from operations 



(4,214)

(2,856 )

 

 

(8,309)

 

 

(6,812

Other






 

 

 

 

 

  

Net loss 


$ (4,214)
$ (2,856 )

 

$

(8,309)

 

$

(6,812

Genie’s equity in net loss


$
$

 

$

1,502

 

$

1,938


Investment in Atid 613

 

In September 2018, the Company divested a majority interest in Atid Drilling Ltd. in exchange for a 37.5% interest in a contracting drilling company in Israel ("Atid 613") which the Company accounts for using equity method of accounting.

 

Summarized unaudited statements of operations of Atid 613 are as follows:




Three Months Ended September 30,

Nine Months Ended September 30,



2020
2019

2020

2019


(in thousands)

(in thousands)

Revenues


$ 248
$ 774

$ 2,009

 

$

3,499

   

Operating expenses  



618

1,141


2,479

 

 

3,684

   

Loss from operations



(370 )
(367 )

(470 )

 

 

(185)

 

Other



(10 )
(28 )

(17 )

 

 

(47)

Net income


$ (380 )
(395 )
$ (487 )

 

$

(232)

 

Genie’s equity in net loss


$ 143

148
$ 179

 

$

78

 


The Company also entered into a Shareholder Agreement with Atid 613's other shareholders to govern certain issues regarding management of the new company. Under the Shareholder Agreement, among other things, Genie Israel has agreed to make available to Atid 613 working capital financing up to $0.4 million ("Credit Facility"). The credit Facility bears a variable interest rate as defined in the Shareholder Agreement. As of September 30, 2020, the outstanding balance of Credit Facility was nil. 


On August 12, 2019, the Company, together with the other shareholders of Atid 613 signed a Funding Agreement to provide aggregate loans to Atid 613 in an amount of up to New Israeli Shekel or NIS 5.1 million (equivalent to $1.5 million at September 30, 2020), including the Company's commitment to extend up to NIS1.9 million (equivalent to $0.5 million at September 30, 2020) of such amount. In August 2019, the Company extended NIS 0.8 million (equivalent to $0.2 million) in loans. The loans which are secured by Atid 613’s assets bore no interest until March 1, 2020 and bear interest at 5.5% for all subsequent periods. At September 30, 2020, there were $0.2 million loan receivables from Atid 613, included in other current assets in the Company's consolidated balance sheet.


At September 30, 2020, the Company’s maximum exposure to loss as a result of its involvement with Atid 613 was the minimal net book value of the investment and $0.2 million of notes receivablesince there were no other arrangements, events or circumstances that could expose the Company to additional loss.  

14


Note 10—Goodwill and Other Intangible Assets


The table below reconciles the change in the carrying amount of goodwill for the period from January 1, 2020 to September 30, 2020:

 


 

  GRE

GRE International




GES

Total

 



(in thousands)

Balance at January 1, 2020               

 

9,998

$

1,733



$ 404

$

12,135

 

Cumulative translation adjustment




78




78

Balance at September 30, 2020              

 

$

9,998

$

1,811



$ 404

$

12,213

 


The table below presents information on the Company’s other intangible assets: 



 

Weighted Average Amortization Period

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

Net
Balance

 



(in thousands)

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Patents and trademarks              

 

 

17.0 years

 

 

$

3,855

 

 

$

767

 

$

3,088

 

Non-compete agreements              

 

 

3.0 years

 

 

 

35

 

 

 

21

 

 

14

 

Customer relationships             

 

 

4.5 years

 

 

 

3,093

 

 

 

2,121

 

 

972

 

Licenses              

 

10.0 years

 

 

 

1,224

 

 

 

231

 

 

993

 

Total

 

 

 

 

$

8,207

 

 

$

3,140

 

$

5,067

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademark             

 

 

17.1 years

 

 

$

3,842

 

 

$

560

 

$

3,282

 

Non-compete agreement             

 

 

1.6 years

 

 

 

148

 

 

 

126

 

 

22

 

Customer relationships             

 

 

3.9 years

 

 

 

6,706

 

 

 

3,941

 

 

2,765

 

Licenses              

 

 

10.0 years

  

 

 

895

 

 

 

127

 

 

 

768

 

Total      

 

 

 

 

$

11,591

 

 

$

4,754

 

$

6,837

 

 

In the second quarter of 2020, Prism renegotiated a contract with its main customer which resulted in impairment of customer relationship of $0.8 million included in the consolidated statements of operations.


Amortization expense of intangible assets (including minimal amounts reported in cost of revenues) was $0.3 million and $1.3 million in the three and nine months ended September 30, 2020, respectively. Amortization expense of intangible assets (including minimal amounts reported in cost of revenues) was $0.5 million and $1.5 million in the three and nine months ended September 30, 2019, respectively. The Company estimates that amortization expense of intangible assets will be $0.4 million, $0.5 million, $0.5 million, $0.5 million, $0.5 million and $2.7 million for the remainder of 2020, and for 2021, 2022, 2023, 2024 and thereafter, respectively.


15


Note 11—Accrued Expenses


Accrued expenses consisted of the following:

 

 

September 30, 2020

 

 

December 31, 2019

 

(in thousands)

Renewable energy

 

$

17,437

 

 

$

13,502

 

Liability to customers related to promotions and retention incentives

 

 

9,263

 

 

 

8,201

 

Payroll and employee benefit

2,499


2,758

Other accrued expenses

 

 

2,137

 

 

 

1,655

 

Total accrued expenses

 

$

31,336

 

 

$

26,116

 


Note12—Leases

The Company entered into operating lease agreements primarily for offices in domestic and foreign locations where it has operations with lease periods expiring between 2020 and 2030. The Company has no finance leases. 
The Company determine if a contract is a lease at inception. Right-of-Use ("ROU") assets are included under other assets in the consolidated balance sheet. The current portion of the operating lease liabilities are included in other current liabilities and the noncurrent portion is included in other liabilities in the consolidated balance sheet.
ROU assets and operating lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the incremental borrowing rate, because the interest rate implicit in most of our leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized borrowing rate based on information available at the lease commencement date. ROU assets also include any prepaid lease payments and lease incentives. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The Company use the base, non-cancelable, lease term when determining the lease assets and liabilities. Operating lease expense is recognized on a straight-line basis over the lease term.
 

 

 

September 30, 2020

 

December 31, 2019



(in thousands)

ROU Assets 

$

1,995

$ 2,357








Current portion of operating lease liabilities 

465


479
Noncurrent portion of operating lease liabilities

1,579


1,917

Total

 

2,044

 

$ 2,396

At September 30, 2020, the weighted average remaining lease term is 7.7 years and the weighted average discount rate is 7.2%.

Supplemental cash flow information for ROU assets and operating lease liabilities are as follows:

 
Nine Months Ended September 30,


2020
2019
Cash paid for amounts included in the measurement of lease liabilities:
(in thousands)
Operating cash flows from operating activities  

$ 637
$ 471








ROU assets obtained in the exchange for lease liabilities






Operating leases
$
$ 172

Future lease payments under operating leases as of September 30, 2020 were as follows:  

(in thousands)



Remainder of 2020

 

$

154

 

2021

557

2022

242
2023

221
2024

225
Thereafter 

1,305

Total future lease payments

2,704

Less imputed interest

660

Total operating lease liabilities

 

2,044

 


Rental expenses under operating leases were $0.2 million and $0.6 million in the three and nine months ended September 30, 2020, respectively and $0.2 million and $0.7 million in the three and nine months ended September 30, 2019, respectively.
16


 

Note 13—Equity

 

Dividend Payments

 

The following table summarizes the quarterly dividends paid by the Company during the nine months ended September 30, 2020 (in thousands, except per share amounts):

 

Declaration Date

 

Dividend Per Share

 

 

Aggregate Dividend Amount

 

 

Record Date

 

Payment Date

 

 

 

 

 

 

 

Series 2012-A Preferred Stock (“Preferred Stock”)

January 8, 2020

 

$

0.1594

 

 

$

370

 

 

February 6, 2020

 

February 15, 2020

April 22, 2020

0.1594


370

May 4, 2020
May 15, 2020
July 16, 2020

0.1594


370

August 6, 2020
August 14, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A Common Stock and Class B Common Stock

March 11, 2020

 

$

0.0750

 

 

$

1,975

 

 

March 24, 2020

 

April 3, 2020

May 5, 2020

0.0850


2,240

May 19, 2020
May 29, 2020
August 3, 2020

0.0850


2,218

August 18, 2020
August 26, 2020

 

On October 21, 2020, the Company’s Board of Directors declared a quarterly Base Dividend of $0.1594 per share on the Preferred Stock for the third quarter of 2020. The dividend will be paid on or about November 16, 2020 to stockholders of record as of the close of business November 6, 2020.

 

On November 4, 2020, the Company’s Board of Directors declared a quarterly dividend of $0.0850 per share on its Class A common stock and Class B common stock for the third quarter of 2020. The dividend will be paid on or about December 11, 2020 to stockholders of record as of the close of business on December 4, 2020.


The Delaware General Corporation Law allows companies to declare dividends out of “Surplus,” which is calculated by deducting the par value of the company’s stock from the difference between total assets and total liabilities. The Company has elected to record dividends declared against accumulated deficit.

 

Stock Repurchase Program

 

On March 11, 2013, the Board of Directors of the Company approved a program for the repurchase of up to an aggregate of 7.0 million shares of the Company’s Class B common stock. In the three months ended September 30, 2020, the Company acquired 11,738 Class B common stock under the stock repurchase program for an aggregate amount of $0.1 million. In the nine months ended September 30, 2020, the Company acquired 224,944 Class B common stock under the stock repurchase program for an aggregate amount of $1.6 million. In the three and nine months ended September 30, 2019, the Company acquired 470,147 Class B common stock under the stock repurchase program for an aggregate amount of $3.4 million.  At September 30, 2020, 5.9 million shares remained available for repurchase under the stock repurchase program.


As of September 30, 2020 and December 31, 2019, there were 1.3 million and 1.0 million, respectively, outstanding shares of Class B common stock held in the Company's treasury, with a cost of $9.6 million and $7.7 million, respectively, at a weighted average cost per share of $7.44 and $7.46, respectively. 

 

Sales of Shares and Warrants

 

On June 8, 2018, the Company sold to Howard S. Jonas, the Chairman of the Company’s Board of Directors and then a principal beneficial owner of the Company's common stock, shares of the Company’s Class B common stock and warrants to purchase an additional 1,048,218 shares of the Company’s Class B common stock at an exercise price of $4.77 per share for an aggregate exercise price of $5.0 million. The warrants will expire in June 2023. In addition, on June 12, 2018, the Company sold to a third-party investor treasury shares of the Company’s Class B common stock for an aggregate sales price of $1.0 million and warrants to purchase an additional 209,644 shares of the Company’s Class B common stock at an exercise price of $4.77 per share for an aggregate exercise price of $1.0 million. As of September 30, 2020, there were outstanding 1,257,862 warrants to purchase the Company’s Class B common stock at $4.77 per share which will expire in June 2023.


Stock-Based Compensation

 

On May 8, 2019 and June 4, 2020, the Company’s stockholders approved an amendment to the Company’s 2011 Stock Option and Incentive Plan (the "2011 Plan") to reserve an additional 372,000 shares and 300,000 shares, respectively, of the Company’s Class B common stock for issuance thereunder. 


On February 11, 2019, the Company issued options to Howard S. Jonas to purchase 126,176 shares of the Company’s Class B common stock at an exercise price of $8.05 per share in lieu of a cash bonus of $0.3 million. These options vest in three equal annual installments beginning on February 11, 2020.


In February 2020, the Company granted certain employees and members of its Board of Directors 305,000 deferred stock, which are subject to vesting in two tranches upon the achievement of a specified thirty-day average closing price of its common stock within specified periods of time ("market conditions") and the satisfaction of service-based vesting conditions. Each deferred stock unit entitle the grantee to receive up to two shares of Class B common stock of the Company upon achievement of market conditions. The Company used a Monte Carlo simulation model to estimate the grant-date fair value of the awards. Assumptions and estimates utilized in the model include the risk-free interest rate, dividend yield, expected stock volatility based on a combination of the Company’s historical stock volatility.


As of September 30, 2020, there were approximately $2.6 million of total unrecognized stock-based compensation costs. These costs are expected to be recognized over a weighted-average period of approximately 2.4 years.


17


Note 14—Variable Interest Entity

 

Citizens Choice Energy, LLC (“CCE”), is a REP that resells electricity and natural gas to residential and small business customers in the State of New York. The Company does not own any interest in CCE. Since 2011, the Company has provided CCE with substantially all of the cash required to fund its operations. The Company determined that it has the power to direct the activities of CCE that most significantly impact its economic performance and it has the obligation to absorb losses of CCE that could potentially be significant to CCE on a stand-alone basis. The Company therefore determined that it is the primary beneficiary of CCE, and as a result, the Company consolidates CCE within its GRE segment. The net income or loss incurred by CCE was attributed to noncontrolling interests in the accompanying consolidated statements of operations.

 

The Company has an option to purchase 100% of the issued and outstanding limited liability company interests of CCE for one dollar plus the forgiveness of $0.5 million that the Company loaned to CCE in October 2015. The option expires on October 22, 2023.

 

Net loss related to CCE and aggregate net funding provided by the Company were as follows:

 

 


Three Months Ended September 30,

 

Nine Months Ended September 30,

 



2020

2019

 

2020

 

 

2019

 



(in thousands)

(in thousands)

Net loss


$ (399)

$ (238)

 

$

(1,147)

 

$

(304)

Aggregate funding provided by the Company, net


$ (932)

$ (304)

 

$

(1,454)

 

$

(311)

 

Summarized combined balance sheet amounts related to CCE was as follows:

 


 

September 30,
2020

 

 

December 31,

2019

 



(in thousands)

Assets

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

804

 

 

$

250

 

Trade accounts receivable

 

 

343

 

 

 

586

 

Prepaid expenses and other current assets

 

 

413

 

 

 

381

 

Other assets

 

 

359

 

 

 

359

 

Total assets

 

$

1,919

 

 

$

1,576

 

Liabilities and noncontrolling interests

 

 

 

 

 

 

 

 

Current liabilities

 

$

504

 

 

$

467

 

Due to IDT Energy

 

 

4,052

 

 

 

2,598

 

Noncontrolling interests

 

 

(2,637)

 

 

(1,489

)

Total liabilities and noncontrolling interests

 

$

1,919

 

 

$

1,576

 

 

The assets of CCE may only be used to settle obligations of CCE, and may not be used for other consolidated entities. The liabilities of CCE are non-recourse to the general credit of the Company’s other consolidated entities.

 

18


 

Note 15—Income Taxes

 

The following table provided a summary of Company's effective tax rate: 


 


Three Months Ended September 30,

 


Nine Months Ended September 30,

 

 


2020

2019

 


2020

 

 

2019

 

Reported tax rate


28.0 %
28.9

%



29.2

%

 


57.0

%

 

The slight decrease in the reported tax rate for three months ended September 30, 2020 compared to the same period in 2019, is a result of changes in the mix of jurisdictions in which the taxable income was earned. The decrease in the reported tax rate for the nine months ended September 30, 2020 compared to the same period in 2019 is a result of higher deductible business losses applied against taxable income in the current period due to jurisdictions of those taxable income and losses.


CARES Act


On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into U.S. federal law, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions related to refundable payroll tax credits, deferment of the employer portion of social security payments, net operating loss carryback periods, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. For the three and nine months ended September 30, 2020, the CARES Act did not have a significant impact on the consolidated financial statements.


On April 22, 2020, the Company obtained a Paycheck Protection Program Loan (the “PPP Note”) sponsored by the Small Business Administration (the “SBA”) under the CARES Act through a bank, providing for $2.4 million in proceeds, which were received on April 27, 2020. Based in part on additional guidance issued by the SBA, the Company returned the entire amount, plus minimal interest on May 6, 2020.


Note 16—Earnings Per Share

 

Basic earnings per share is computed by dividing net income or loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.

 

The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following:

 

 


Three Months Ended September 30,


 

Nine Months Ended September 30,

 



2020

2019

 

2020

 

 

2019

 



(in thousands)

(in thousands)

Basic weighted-average number of shares



25,928


26,683

 


26,107

 

 

 

26,603

 

Effect of dilutive securities:









 

 

 

 

 

 

 

 

Stock options and warrants



711


737

 


628

 

 


744

 

Non-vested restricted Class B common stock



130


249

 


104

 

 

 

194

 

Diluted weighted-average number of shares



26,769


27,669

 


26,839

 

 

 

27,541

 

 

The following shares were excluded from the diluted earnings per share computations:

 

 


Three Months Ended September 30,

 

Nine Months Ended September 30,

 



2020

2019

 

2020

 

 

2019

 



(in thousands)

(in thousands)

Stock options






126

 

 

126

 

 

 

126

 

Non-vested deferred stock units

610





610




Stock options were excluded from the diluted earnings per share computation in the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019 because the exercise prices of the stock options were greater that the average market prices of the Company's stock during the periods.


 Non-vested deferred stock units were excluded from the basic and diluted weighted average shares outstanding calculation because the market condition for vesting of those deferred stock units were not met as of September 30, 2020.


19



Note 17—Related Party Transactions 

 

The Company was formerly a subsidiary of IDT Corporation (“IDT”). On October 28, 2011, the Company was spun-off by IDT. The Company entered into various agreements with IDT prior to the spin-off including an agreement for certain services to be performed by the Company and IDT. Also, the Company provides specified administrative services to certain of IDT’s foreign subsidiaries.

 

The Company leases office space and parking in New Jersey and Israel from Rafael Holdings, Inc. ("Rafael") a former subsidiary of IDT that was spun off from IDT in March 2018. Howard S. Jonas is the Chairman of the Board of Directors and Chief Executive Officer of Rafael. The leases expire in April 2025.

 

The charges for services provided by IDT to the Company, and rent charged by Rafael, net of the charges for the services provided by the Company to IDT, are included in “Selling, general and administrative” expense in the consolidated statements of operations.

 



Three Months Ended

September 30,


 

Nine Months Ended

September 30,

 

   


2020

2019

 

2020

 

 

2019

 

 

(in thousands)

(in thousands)

 

Amount IDT charged the Company


$ 286

$ 260

 

$

806

 

 

$

698

 

Amount the Company charged IDT


$ 35

$ 36

 

$

114

 

 

$

115

 

Amount Rafael charged the Company


$ 56

$ 56

 

$

168

 

 

$

166

 

 

The following table presents the balance of receivables and payables to IDT and Rafael:

 


 

September 30,

2020

 

 

December 31,

2019

 

 

 

(in thousands)

 

Due to IDT

 

$

162

 

 

$

434

 

Due from IDT

 

$

47

 

 

$

45

 

Due to Rafael

 

$

 

 

$

 

 

The Company had minimal transactions with Zedge, Inc. (“Zedge”) related to certain employees of the Company providing services to Zedge. Zedge was majority-owned  subsidiary of IDT that was spun-off from IDT in June 2016. Howard Jonas is a director and Vice Chairman of the Board of Directors of Zedge. There is minimal amount due from Zedge at September 30, 2020 and December 31, 2019


The Company had notes receivable outstanding from employees of a nominal amount and $0.2 million at September 30, 2020 and December 31, 2019, respectively, which were included in “Other assets” in the accompanying consolidated balance sheet.   


20


From 2012 to 2015, the Company extended a series of loans to an employee with an aggregate principal amount of $0.5 million (“Promissory Notes”). The Promissory Notes bore interest equivalent to a minimum rate, in effect from time to time required by local regulations. The Notes and the related unpaid accrued interest were due on May 1, 2019. On August 31, 2018, the Company entered into a Loan Modification Agreement with the employee to restructure the Promissory Notes with outstanding balance of $0.5 million including $0.1 million of accrued interest. Pursuant to the Loan Modification Agreement, the employee paid the Company $0.4 million and the remaining outstanding balance of $0.1 million of the Promissory Notes and the related accrued interest is to be repaid between December 2020 and December 2052. The Company recorded minimal amounts of interest income for the nine months ended September 30, 2020 and 2019 related to this debt. The outstanding balance, including accrued interest was $0 million as of September 30, 2020.

 

The Company obtains insurance policies from several insurance brokers, one of which is IGM Brokerage Corp. (“IGM”). IGM is owned by the mother of Howard S. Jonas and Joyce Mason, the Company’s Corporate Secretary. Jonathan Mason, husband of Joyce Mason and brother-in-law of Howard S. Jonas, provides insurance brokerage services via IGM. Based on information the Company received from IGM, the Company believes that IGM received commissions and fees from payments made by the Company (including payments from third party brokers). The Company paid IGM a total of $0.3 million in 2019 related to premium of various insurance policies that were brokered by IGM. There was no outstanding payable to IGM was as of September 30, 2020. Neither Howard S. Jonas nor Joyce Mason has any ownership or other interest in IGM other than via the familial relationships with their mother and Jonathan Mason.


See Note 9, Investment in Equity Method Investees, for details of notes receivables from Atid 613.

 

Note 18—Business Segment Information

 

The Company has 4 reportable business segments: GRE, GRE International, GES and GOGAS. GRE owns and operates REPs, including IDT Energy, Residents Energy, TSE, and Mirabito. Its REP businesses resell electricity and natural gas to residential and small business customers in the Eastern and Midwestern United States. GRE International, operates REPs in Japan, Finland and Sweden and manages the Company's share in operations of Shoreditch in the U.K. GES designs, manufactures and distributes solar panels, and also offers energy brokerage and advisory services. The GOGAS segment is comprised of the Company’s 86.1% interest in Afek, an oil and gas exploration project in the Golan Heights in Northern Israel, whose operations have been suspended. The GOGAS segment also owns inactive oil shale projects and the Company's equity investment in Atid 613. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expenses and other corporate-related general and administrative expenses. Corporate does not generate any revenues, nor does it incur any cost of revenues.


The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision-maker.

 

21


The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on income (loss) from operations. There are no significant asymmetrical allocations to segments.

 

Operating results for the business segments of the Company were as follows:


(in thousands)

 

GRE



GRE International

 

 

GES

 

 

GOGAS

 

 

Corporate

 

 

Total

 

Three Months Ended September 30, 2020























Revenues
$ 89,492

$ 5,830

$ 1,004

$

$

$ 96,326
Income (loss) from operations

12,333


(1,574)

(719)

(146)

(1,409)

8,485
Equity in the net loss of equity method investees









142


4


146

























Three Months Ended September 30, 2019























Revenues
$ 81,649

$ 3,039

$ 1,025

$

$

$ 85,713
Income (loss) from operations

10,856

(1,560 )

(798 )

(283 )

(1,270 )

6,945
Equity in net loss of equity method investees









148

90


238

























Nine Months Ended September 30, 2020

 

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

235,108



$ 17,820

 

 

$

23,524

 

 

$

 

 

$

 

 

$

276,452

 

Income (loss) from operations

 

 

31,306




(4,701)

 

 

(1,489)

 

 

(541)

 

 

(4,147)

 

 

20,428

Impairment of assets







993








993

Equity in the net loss of equity method investees

 

 




1,502

 

 

 

 

 

179

 

 

17

 

 

1,698

 

 

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

212,598



$ 10,751

 

 

$

9,989

 

 

$

 

 

$

 

 

$

233,338

 

Income (loss) from operations

 

 

18,941




(4,911 )

 

 

(1,711

)

 

 

(828

)

 

 

(3,989

)

 

 

7,502

Equity in net the (loss) income of equity method investees

 

 




1,938

 

 

 

 

 

78

 

 

 

90

 

 

 

2,106


Total assets for the business segments of the Company were as follows:


(in thousands)

 

GRE



GRE International

 

 

GES

 

 

GOGAS

 

 

Corporate

 

 

Total

 

Total assets:

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

$

116,925



$ 10,104

 

 

$

5,538

 

 

$

10,522

 

 

$

5,803

 

 

$

148,892

 

December 31, 2019

 

  

105,937




11,468

 

 

  

19,383

 

 


10,873

 

 

  

8,583

 

 

  

156,244

 


22


Note 19—Commitments and Contingencies

 

Legal Proceedings 

On October 5, 2018, named plaintiffs Scott Mackey and Daniel Hernandez filed a putative class action complaint against IDT Energy in the United States District Court for the Northern District of Illinois alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. The named plaintiffs filed the suit on behalf of: (1) a putative Cell Phone class consisting of all persons in the U.S. to whom IDT Energy and/or a third party acting on IDT Energy’s behalf allegedly made one or more telemarketing calls promoting IDT Energy’s goods or services to their cellular telephone number through the use of an automatic telephone dialing system or an artificial or prerecorded voice within the four year period preceding the filing of the complaint and (2) a putative Do-Not-Call class consisting of all persons in the U.S. who allegedly received more than one call from IDT Energy and/or some party acting on IDT Energy’s behalf promoting IDT Energy’s goods or services in a 12-month period on their cellular phone or residential telephone line and whose number appears on the National Do-Not-Call registry within the four year period preceding the filing of the complaint. On October 31, 2019, the court granted IDT Energy's motion to bifurcate individual and class claims (staying class discovery) to expedite discovery and dispositive motions related to the named plaintiffs. On January 9, 2020, the court granted IDT Energy's motion for summary judgement to dismiss one of the named plaintiffs for lack of personal jurisdiction. The remaining named plaintiff filed a motion to compel class discovery which was denied by the Court. On July 14, 2020, IDT Energy filed a motion for summary judgment to dismiss the remaining named plaintiff. IDT Energy denies the allegations in the complaint, which it believes to be meritless and plans to vigorously defend this action. Based upon the Company’s preliminary assessment of this matter, a loss is not considered probable, nor is the amount of loss, if any, estimable as of September 30, 2020.


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. Resident Energy denies allegations in the complaint and plans to vigorously defend this action. Based upon the Company's preliminary assessment of this matter, a loss is not considered probable, nor is the amount of loss if any, estimable as of September 30, 2020. 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.


In 2018, the Company settled previously filed class actions alleging harm caused by unlawful sales and marketing practices.


On July 23, 2019, the Chapter 7 Trustee of the Aspirity Holdings, LLC bankruptcy filed an adversary complaint against Diversified Trading Company, LLC (f/k/a Kreiger Enterprises, LLC, "Krieger") and its subsidiaries and affiliates in connection with a note payable by Krieger to Aspirity. GRE purchased Retail Energy Holdings, LLC ("REH") which owns the TSE entities (which were subsidiaries of Krieger prior to the purchase) from Krieger in November 2016. One of the several counts in the complaints alleges that as subsidiaries of Kreiger at the time, REH and TSE, together with several other defendants, guaranteed Kreiger's obligations under the note. The Trustee is seeking combined damages of unpaid principal of approximately $16.0 million with unpaid accrued interest. The Company denies all allegations in the complaint and does not believe that REH or the TSE entities are liable for Krieger's obligations to Aspirity. On February 6, 2020, REH and the Trustee agreed to settle the dispute (withdrawal with full releases) in exchange for payment of $0.2 million by REH. On April 6, 2020, the parties signed a settlement agreement which was later approved by the Court. The Company accrued $0.2 million in the fourth quarter of 2019 and paid the settlement amount in June 2020.


In addition to the matters disclosed above, the Company may from time to time be subject to legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

 

Agency and Regulatory Proceedings 

From time to time, the Company receives 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 the Company responds those inquiries or requests. 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. 


23


 

New York Public Service Commission Orders

 

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 the changes to the New York retail energy market, effective February 14, 2021 ("2020 Order"). The 2020 Order limits the types of the services energy retailer marketers may offer new customers or renewals, in terms of pricing for non-renewable commodities and renewable product offerings. Although the Company is working to ensure that its products and services are fully compatible with the 2020 Orders, such compliance may adversely impact customer acquisition and renewal revenue and profitability. The Company is evaluating its options, both by itself and in tandem with other industry participants, to challenge or petition for additional clarity and changes to the 2020 Orders. There is insufficient basis to deem any loss probable or to assess the amount of any possible loss based on the changes instituted by the 2020 Order. For the three and nine months ended September 30, 2020 gross revenue from New York was $14.3 million and $43.2 million, respectively.

         

State of Connecticut Public Utilities Regulatory Authority

 

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, it is cooperating with the investigation and responding to subpoenas for discovery. On June 17, 2020, PURA notified Town Square that it was advancing its 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.  If a settlement is not achieved and PRO staff believe PURA should take further action regarding alleged non-compliance, PURA may request that PRO staff petition PURA setting forth its recommendations citing supporting facts and law. For the three and nine months ended September 30, 2020, Town Square’s gross revenues from sales in Connecticut was $12.0 million and $29.1 million, respectively. As of September 30, 2020, no claims or demands have been made against Town Square by either agency, and there is insufficient basis to deem the loss probable or to the assess the amount of any possible loss.


In December 2019, PURA issued a Proposed Final Decision that would require electric suppliers to return all of their “Hardship Customers” to the local utility company by March 1, 2020. In January 2020, PURA issued a Proposed Final Decision containing new marketing standards for electric suppliers to comply with. The supplier industry has filed opposition to both PURA decisions. 

 

State of Illinois Office of the Attorney General

 

In response to complaints that IDT Energy enrolled consumers without their express consent and misrepresented the amount of savings those consumers would receive, the Office of the Attorney General of the State of Illinois (“IL AG”) has been investigating the marketing practices of IDT Energy and has alleged violations of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. and the Illinois Telephone Solicitations Act, 815 ILCS 413/1 et seq. Shortly thereafter, the Illinois Commerce Commission ("IL ICC") commenced a similar investigation. Although IDT Energy denies any wrongdoing in connection with those allegations, the parties (including IL ICC) settled the matter pursuant to a court approved consent decree that includes restitution payments in the amount of $3.0 million, temporary suspension of all marking activities directed at new customers through December 31, 2020, and implementation of various compliance and reporting procedures.

 

In third quarter of 2018, the Company recorded a liability of $3.0 million recorded as a reduction of electricity revenues in the consolidated statements of operations. In third quarter of 2019, the Company settled the liability. For the three and nine months ended September 30, 2020, IDT Energy’s gross revenues from sales in Illinois were $2.3 million and $5.8 million, respectively.


Other Reviews or Investigations


From time to time regulators may initiate reviews, compliance checks or issue subpoenas for information as means to evaluate the Company and its subsidiaries’ compliance with applicable laws, rules, regulations and practices.


The Massachusetts Department of Public Utilities opened an informal review and information requests to determine whether the disproportionate number of low-income customers of Town Square, Residents Energy and several other energy retailers in the industry evidences a pattern of misconduct. In response to the information provided, the Massachusetts Department of Public Utilities has closed its review of Town Square Residents without further action. 


On October 25, 2019, the Office of the IL AG notified Residents Energy (by way of subpoena) that it is conducting an investigation to assess compliance with the Illinois Consumer Fraud and Deceptive Business Practices Act. The notice was issued in the form of a subpoena in the course of the foregoing. The Company, which has responded in part, has challenged the merits of the subpoena and investigation which it believes is precluded by the broader settlement with IDT Energy. The IL AG is seeking to compel Residents Energy's response to its subpoena. Residents Energy denies any wrongdoing on its part. As of September 30, 2020, no claims or demands have been made against Residents Energy by the IL AG, and there is insufficient basis to deem any loss probable or to assess the amount of any possible loss.


In response to certain customers complaints, the State of Maine Public Utility Commission ("MPUC") has opened a review of the door to door marketing practices of Town Square. In connection with the review, the MPUC has requested information from Town Square demonstrating compliance in the form of an order to show cause as to why its marketing practices are  in compliance and it should be permitted to continue licensed operations in Maine. Town Square has responded to the request and is cooperating with MUPC's review. As of September 30, 2020, no claims or demands have been made against Town Square by MPUC, and there is insufficient basis to deem any loss probable or to assess the amount of any possible loss.


Other Commitments

 

Purchase Commitments

 

The Company had future purchase commitments of $155.6 million at September 30, 2020, of which $99.5 million was for future purchase of electricity. The purchase commitments outstanding as of September 30, 2020 are expected to be paid as follows:


(in thousands)

  

 

  

Remainder of 2020

  

25,718

  

2021

  

 

69,184

  

2022

  

 

38,753

  

2023

20,028
2024

1,880

Thereafter

  

 

  

Total payments

  

155,563

  

 

In three months ended September 30, 2020, the Company purchased $23.2 million and $5.9 million of electricity and renewable energy credits, respectively, under these purchase commitments. In the nine months ended September 30, 2020, Company purchased $43.1 million and $12.5 million of electricity and renewable energy credit, respectively. 


Renewable Energy Credits 

 

GRE must obtain a certain percentage or amount of its power supply from renewable energy sources in order to meet the requirements of renewable portfolio standards in the states in which it operates. This requirement may be met by obtaining renewable energy credits that provide evidence that electricity has been generated by a qualifying renewable facility or resource. At September 30, 2020, GRE had commitments to purchase renewable energy credits of $56.1 million.


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Performance Bonds and Unused Letters of Credit

 

GRE has performance bonds issued through a third party for certain utility companies and for the benefit of various states in order to comply with the states’ financial requirements for REPs. At September 30, 2020, GRE had aggregate performance bonds of $13.3 million outstanding and unused letters of credit of $2.3 million.


BP Energy Company Preferred Supplier Agreement

 

Certain of GRE’s REPs are party to an Amended and Restated Preferred Supplier Agreement with BP, which is to be in effect through November 30, 2020. Under the agreement, the REPs purchase electricity and natural gas at market rate plus a fee. 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, 2020, the Company was in compliance with such covenants. At September 30, 2020, restricted cash—short-term of $23.9 million and trade accounts receivable of $44.6 million were pledged to BP as collateral for the payment of trade accounts payable to BP of $14.8 million at September 30, 2020.


Note 20—Debt


Loan with Tokyo Star Bank

 

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 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 mature on November 13, 2020. At September 30, 2020, $1.4 million was outstanding under the May 2020 Loan. At September 30, 2020, the effective interest rate was 3.0%.


Revolving Line of Credit with Vantage Commodities


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 $20.0 million revolving loan facility. The borrowers consist of the Company’s 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 was payable monthly, and all outstanding principal and any accrued and unpaid interest was due on the maturity date of April 3, 2020. At December 31, 2019, $2.5 million was outstanding under the revolving line of credit with an effective interest rate of 6.41% per annum. In April 2020, the revolving line of credit expired and the Company paid the outstanding balance of $3.5 million in exchange for the release and termination of any further obligations and security interest.


Credit Agreement with JP Morgan Chase Bank


On December 5, 2019, the Company entered into an amendment of its existing Credit Agreement with JPMorgan Chase Bank ( the “Credit Agreement”) to extend the maturity date of December 31, 2020. 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. The Company 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, 2020, JP Morgan Chase Bank issued $2.3 million letters of credit from the Credit Line. As of September 30, 2020, none of the letters of credits were drawn upon. At September 30, 2020, the cash collateral of $5.2 million was included in restricted cash—short-term in the consolidated balance sheet.


Note 21—Recently Issued Accounting Standards

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), related to the accounting for leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Subsequent to the issuance of ASU 2016-02, in July 2018, the FASB issued Accounting Standards Update No. 2018-10, Codification Improvements to Topic 842, Leases ("ASU 2018-10") and Accounting Standards Update No. 2018-11, Leases (Topic 842): Targeted Improvements ("ASU 2018-11"). The amendments in ASU 2018-10 clarify, correct or remove inconsistencies in the guidance provided under ASU 2016-02 related to sixteen specific issues identified. The amendments in ASU 2018-11 provide entities with an additional (and optional) transition method to adopt the new leases standard. Under the new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity's reporting for the comparative periods presented in the financial statements in the period of adoption will continue to be in accordance with ASC 840, Leases ("ASC 840"). An entity that elects this additional (and optional) transition method must provide the required disclosures under ASC 840 for all periods that continue to be in accordance with ASC 840. ASU 2018-11 also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if certain criteria are met. The effective date and transition requirements for these two standards are the same as the effective date and transition requirements of ASU 2016-02. The standards were effective for the Company beginning after December 15, 2018.


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The Company adopted Topic 842 as of January 1, 2019 using a modified retrospective transition method. The financial results reported in periods prior to January 1, 2019 are not adjusted. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification. As most of the Company's leases do not provide an implicit rate, we used our collateralized incremental borrowing rate based on the information available at the lease implementation date in determining the present value of the lease payments. At January 1, 2019, the Company recognized $2.4 million of ROU assets related to the Company's operating leases. The ROU was included in other assets in the consolidated balance sheet. The Company also recognized $0.4 million and $2.0 million of current and noncurrent lease liabilities, included in other current liabilities and other liabilities in the consolidated balance sheets. 


In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, that changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The Company will adopt the new standard on January 1, 2023. The Company is evaluating the impact that the new standard will have on its consolidated financial statements. 


In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, to simplify several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The Company adopted this ASU on January 1, 2019. The Company recorded additional $0.3 million to accumulated deficit on January 1, 2019. There was no impact on the consolidated statements of operations and consolidated statements of cash flows. 


In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, that eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The amendments in this ASU are effective for the Company on January 1, 2020. Early application is permitted. The guidance on changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 measurements, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively. All other amendments should be applied retrospectively. The Company adopted the ASU on January 1, 2020. The adoption of the ASU does not have a significant impact on the consolidated financial statements.


In November 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities, that changes how entities apply the variable interest entity ("VIE") guidance evaluate decision-making fees. The ASU provides guidance on whether these fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportionate basis rather than in their entirety. When evaluating whether decision-making fees are a variable interest, indirect interest will be evaluated in a similar manner to how they are considered when identifying the primary beneficiary of a VIE. The new guidance in this ASU are effective for the Company on January 1, 2020. Early adoption was permitted. The Company adopted the ASU on January 1, 2020. The adoption of the ASU does not have a significant impact on the consolidated financial statements.


In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU eliminates certain exceptions and adds guidance to reduce complexity in accounting for income taxes. Specifically, this guidance: (1) removes the intraperiod tax allocation exception to the incremental approach; (2) removes the ownership changes in investments exception in determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting and applies this provision on a modified retrospective basis through a cumulative-effect adjustment to retained earnings at the beginning of the period of adoption; and (3) removes the exception to using the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The ASU also simplifies accounting principles by making other changes, including requiring an entity to: (1) evaluate whether a step-up in tax basis of goodwill relates to a business combination or a separate transaction; (2) make a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and to apply this provision retrospectively to all periods presented; and (3) recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and apply this provision either retrospectively for all periods presented or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The provisions of this guidance (except as specifically mentioned above) are to be applied prospectively upon their effective date. The ASU is effective for annual reporting periods beginning after December 15, 2020, and interim periods within those years. Early adoption is permitted but requires simultaneous adoption of all provisions of this guidance. The Company is currently evaluating the requirements of this guidance and has not yet determined the impact of its adoption on the Company's consolidated financial position, results of operations and cash flows.



Note 22—Subsequent Event


Acquisition of Minority Interest in Shoreditch


On October 8, 2020, the Company entered into an agreement (the “Purchase Agreement”) with EGC under which GEUK purchased EGC’s remaining interest in Shoreditch, in exchange for a cash payment of £1.3 million (equivalent to $1.7 million on the date of closing) offset by £0.2 million (equivalent to $0.2 million on the date of closing) in amounts owing from EGC to the Company under a loan provided to EGC in 2018 related to EGC’s capital contributions to Shoreditch. Following the transaction, Shoreditch is a wholly-owned subsidiary of GEUK.

 

Following the transaction, EGC has no rights in the management of Shoreditch and GEUK has complete control over the activities of Shoreditch. 


The acquisition of the controlling interest of Shoreditch will be accounted for using the acquisition method of business combination under ASC 805, Business Combinations. The initial accounting for the business combination is incomplete due to the timing of the acquisition, therefore, the Company is unable to disclose certain information required by ASC 805. The Company will provide preliminary purchase price allocation information in the Company’s Annual Report on Form 10-K for the period ending December 31, 2020.


Sale of Assets Held for Sale


On October 16, 2020, the Company completed the sale of certain property of Prism classified as assets held of sale (see Note 9Assets and Liabilities Held for Sale) with a carrying value of $2.4 million for net proceeds of $2.6 million. A portion of the net proceeds was used to settle the notes payable of Prism classified as liabilities held for sale at carrying value of $0.9 million.


26



Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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, 2019, 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, 2019. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with 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, 2019.


Coronavirus Disease (COVID 19)


During 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, 2020, the impacts of COVID-19 are evident in several key aspects of our business operations and the corresponding financial impact has been mixed. Our consolidated revenues for the three months ended September 30, 2020, compared to the same period in 2019, increased by $10.6 million equivalent to 12.4%. Our consolidated revenues for the nine months ended September 30, 2020, compared to the same period in 2019, increased by $43.1 million equivalent to 18.5%. 


Our customer base is predominantly residential, so we benefited from the increased demand for electricity when customers are working from their homes. On the other hand, like other retail providers, we suspended our face-to-face customer acquisition programs in March 2020 as public health measures were implemented to combat COVID-19, resulting in a decrease in gross meter acquisitions and slight a reduction in the U.S. domestic meters served. The reduction in gross meter acquisitions decreased our customer acquisition expense in the second and third quarter of 2020. Churn for the second and third quarter of 2020 decreased, in part, due to our competitors suspending face to face marketing programs. 


We did not experience any significant changes in our workforce composition and were able to implement our business continuity plans with no significant impact to our ability to maintain our operations. We continue to maintain strong physical and cybersecurity measures in order to both serve our operational needs with a remote workforce and to ensure that we continue to provide services to our customers. We face challenges due to the need to operate with a remote workforce and are continuing to address those challenges so as to minimize the impact on our ability to operate. 


Beginning the third quarter, specially at GRE, public health restrictions have begun to ease in some of our markets which allow us to resume face-to-face sales and marketing. Looking ahead, we expect to see a modest rebound in meter acquisition, however, any reversal of the easing of restrictions would impact that expected rebound.


There are many uncertainties regarding the impacts of the COVID-19 pandemic, and we are closely monitoring those impacts of on all aspects of its business, including how it will impact our customers, employees, suppliers, vendors, and business partners. We are currently unable to predict the impact that COVID-19 will have on our financial position and operating results due to the complexities of the impacts and numerous uncertainties that are beyond the Company's control. We expect to continue to assess the evolving impact of COVID-19 on our business and assets and intend to make adjustments accordingly.

 

Overview

 

We are comprised of Genie Retail Energy ("GRE"), Genie Retail Energy International ("GRE International"), Genie Energy Services ("GES") and Genie Oil & Gas ("GOGAS").


GRE owns and operates retail energy providers ("REPs"), including IDT Energy, Residents Energy, Town Square Energy ("TSE"), Southern Federal and Mirabito Natural Gas. GRE's REP businesses resell electricity and natural gas primarily to residential and small business customers, with the majority of the customers in the Eastern and Midwestern United States and Texas.


GRE International holds the Company's interest (which was 77.0% as of September 30, 2020) in its joint venture that serves retail customers in the United Kingdom ("U.K."), our wholly-owned venture in Japan, its 92.5% interest in Lumo Energia Oyj ("Lumo"), a REP serving residential customers in Finland, and 100% of Lumo Energi AB, which serves retail customers in Sweden. In October 2020, the Company acquired the remaining 23.0% interest and controlling in Shoreditch which increased the Company's interest to 100


GES holds Diversegy, a retail energy advisory and brokerage company that serves commercial and industrial customers throughout U.S., manages our 60.0% controlling interest in Prism and 100% interest in Genie Solar Energy. Prism is a solar solutions company that is engaged in U.S. based manufacturing of solar panels, solar installation design and solar energy project management. Genie Solar Energy sells rooftop solar system to commercial and industrial clients.


We also operate (and own 97.0% of the equity of GOGAS, an oil and gas exploration company and owns a minority interest in a contracted drilling services company ("Atid 613"). GOGAS’ four exploration projects are inactive. GOGAS holds 86.1% interest in Afek Oil and Gas ("Afek"), an oil and gas exploration project in the Golan Heights in Northern Israel. GOGAS also holds a 37.5% interest in a contracted drilling services company in Israel ("Atid 613").


As part of our ongoing business development efforts, we seek out new opportunities, which may include complementary operations or businesses that reflect horizontal or vertical expansion from our current operations. Some of these potential opportunities are considered briefly and others are examined in further depth. In particular, we seek out acquisitions to expand the geographic scope and size of our REP businesses.


27


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 92.9% and 95.3% of our consolidated revenues in the three months ended September 30, 2020 and 2019, respectively, and 85.0% and 91.1% in the nine months ended September 30, 2020 and 2019, respectively.


Seasonality and Weather

 

The weather and the seasons, among other things, affect GRE’s REPs' revenues. Weather conditions have a significant impact on the demand for natural gas used for heating and electricity used for heating and cooling. Typically, colder winters increase demand for natural gas and electricity, and hotter summers increase demand for electricity. Milder winters or summers have the opposite effects. Unseasonable temperatures in other periods may also impact demand levels. Natural gas revenues typically increase in the first quarter due to increased heating demands and electricity revenues typically increase in the third quarter due to increased air conditioning use. Approximately 46.9% and 50.3% of GRE’s natural gas revenues for the relevant years were generated in the first quarter of 2019 and 2018, respectively, when demand for heating was highest. Although the demand for electricity is not as seasonal as natural gas (due, in part, to usage of electricity for both heating and cooling), approximately 31.8% and 29.5% of GRE’s electricity revenues for 2019 and 2018, respectively, were generated in the third quarters of those years. GRE's REP's revenues and operating income are subject to material seasonal variations, and the interim financial results are not necessarily indicative of the estimated financial results for the full year.

 

 Purchase of Receivables

 

Utility companies offer purchase of receivable, or POR, programs in most of the service territories in which we operate. GRE’s REPs reduce their customer credit risk by participating in POR programs for a majority of their receivables. In addition to providing billing and collection services, utility companies purchase those REPs’ receivables and assume all credit risk without recourse to those REPs. GRE’s REPs’ primary credit risk is therefore nonpayment by the utility companies. In the three and nine months ended September 30, 2020 the associated cost was approximately 1.2% of GRE's revenue. In both the three and nine months ended September 30, 2019 the associated cost was approximately 1.1% of GRE's revenue. At September 30, 2020, 85.8% of GRE’s net accounts receivables were under a POR program.


Class Action Lawsuits


Although GRE endeavors to maintain best sales and marketing practices, such practices have been the subject of certain class action lawsuits.


On October 5, 2018, two named plaintiffs filed a putative class action complaint against IDT Energy alleging violations of the Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. in connection with its telemarketing practices.  IDT Energy denies the allegations in the complaint, which it believes to be meritless and is vigorously defending this action. On October 31, 2019, the court granted IDT Energy’s motion to bifurcate individual and class claims (staying class discovery) to expedite discovery and dispositive motions related to the named plaintiffs. On January 9, 2020, the Court granted IDT Energy’s motion for summary judgment to dismiss one of the named plaintiffs for lack of personal jurisdiction. The remaining named plaintiff filed a motion to compel class discovery which was denied by the Court. On July 14, 2020, IDT Energy filed a motion for summary judgment to dismiss the remaining named plaintiff. Based upon the Company’s assessment of this matter, a loss based on the merits is not considered probable, nor is the amount of loss, if any, estimable as of September 30, 2020.


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 which it to be meritless and plans to vigorously defend this action. Based upon the Company's preliminary assessment of this matter, a loss is not considered probable, nor is the amount of loss, nor is the amount of loss if any, estimable as of September 30, 2020. 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.


See Note 19, Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is incorporated by reference.


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Agency and Regulatory Proceedings


From time to time, the Company responds to inquiries or requests for information or materials from public utility commissions or other governmental regulatory or law enforcement agencies related to investigations under statutory or regulatory schemes. The Company cannot predict whether any of those matters will lead to claims or enforcement actions or whether the Company and the regulatory parties will enter into settlements before a formal claim is made. See Notes 19, Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is incorporated by reference, for further detail on agency and regulatory proceedings.


New York Public Service Commission Proceedings


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 February 14, 2021 (“2020 Order”). The 2020 Order limits the types of services energy retailer marketers may offer new customers or renewals, in terms of pricing for non-renewable commodities, and renewable product offerings.  Although the Company is working to ensure that its products and services are fully compatible with the 2020 Orders, such compliance may adversely impact customer acquisition and renewal revenue and profitability. The Company is evaluating its options, both by itself and in tandem with other industry participants, to challenge or petition for additional clarity and changes to the 2020 Orders. There is insufficient basis to deem any loss probable or to assess the amount of any possible loss based on the changes instituted by the 2020 Order. As of September 30, 2020, New York represented 20.6% of GRE’s total meters served and 15.6% of the total residential customer equivalents (“RCEs”) of GRE’s customer base. For the three and  nine months ended September 30, 2020, New York gross revenues were $14.3 million and $43.2 million, respectively.


An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.

 

29


State of Connecticut Public Utilities Regulatory Authority

 

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, it is cooperating with the investigation and responding to subpoenas for discovery. On June 17, 2020, 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.  If a settlement is not achieved and PRO staff believe PURA should take further action regarding alleged non-compliance, PURA requests that PRO staff petition PURA setting forth its recommendations citing supporting facts and law. As of September 30, 2020, Town Square’s Connecticut customer base represented 13.0% of GRE’s total meters served and 14.3% of the total RCEs of GRE’s customer base. For three and nine months ended September 30, 2020, Town Square’s gross revenues from sales in Connecticut were $12.0 million and $29.1 million, respectively. As of September 30, 2020no claims or demands have been made against Town Square by either agency, and there is insufficient basis to deem the loss probable or to assess the amount of any possible loss.

 

State of Illinois Office of the Attorney General

 

In response to complaints that IDT Energy enrolled consumers without their express consent and misrepresented the amount of savings those consumers would receive, the Office of the Attorney General of the State of Illinois (“IL AG”) has been investigating the marketing practices of IDT Energy and has alleged violations of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq. and the Illinois Telephone Solicitations Act, 815 ILCS 413/1 et seq. Shortly thereafter, the Illinois Commerce Commission ("IL ICC") commenced a similar investigation. Although IDT Energy denies any wrongdoing in connection with those allegations, the parties (including the IL ICC) settled the matter pursuant to a court approved consent decree that includes restitution payments in the amount of $3.0 million, temporary suspension of all marking activities directed at new customers through December 1, 2020, and implementation of various compliance and reporting procedures. 


In third quarter of 2018, the Company recorded a liability of $3.0 million recorded as a reduction of electricity revenues in the consolidated statements of operations. In third quarter of 2019, the Company settled the liability. As of September 30, 2020, IDT Energy in Illinois represented 2.7% of GRE’s total meters served and 1.3% of the total RCEs of GRE’s customer base. For the nine months ended September 30, 2020 and 2019, IDT Energy’s gross revenues from sales in Illinois were $2.3 million and $5.8 million, respectively.


Critical Accounting Policies

 

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted 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, 2019. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, allowance for doubtful accounts, goodwill, and income taxes. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Recently Issued Accounting Standards

 

Information regarding new accounting pronouncements is included in Note 21—Recently Issued Accounting Standards, to the current period’s consolidated financial statements.

 

Results of Operations

 

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

 

30


Three and Nine Months Ended September 30, 2020 Compared to Three and Nine Months Ended September 30, 2019

 

Genie Retail Energy Segment

  

 

Three months ended

September 30,


Change
Nine months ended
September 30,
  Change

(amounts in thousands)


2020

2019


$


%


2020     2019     $     %  
Revenues:











             
Electricity $ 86,200

$ 78,480

$ 7,720


9.8 %
$ 210,350     $ 185,529     $ 24,821     13.4 %
Natural gas
2,724


3,169



(445)


(14.0)

  24,190       27,069       (2,879)     (10.6)
Others
568





568


nm


568





568


nm
Total revenues
89,492


81,649



7,843


9.6

  235,108       212,598       22,510     10.6
Cost of revenues
63,559


55,953



7,606


13.6

  164,521       153,980       10,541     6.8
Gross profit
25,933


25,696



237


0.9

  70,587       58,618       11,969     20.4

Selling, general and administrative expenses


13,600



14,840


(1,240)


(8.4)

  39,281       39,677       (396)     (1.0)
       Income from operations $ 12,333


$ 10,856


$ 1,477


(13.6)
%
$
31,306     $ 18,941   $ 12,365     65.3 %

 

nm—not meaningful


Revenues. Electricity revenues increased by 9.8% in three months ended September 30, 2020 compared to the same period in 2019. The increase is due to an increase in electricity consumption partially offset by a decrease in the average rate per kilowatt hour sold in the three months ended September 30, 2020 compared to the same period in 2019. Electricity consumption by GRE’s REPs' customers increased by 17.8% in the three months ended September 30, 2020, compared to the same period in 2019. The increase in electricity consumption reflected a 20.3% increase in average consumption per meter partially offset by a 2.1% decrease in average number of meters served. The increase in per meter consumption reflects a sustained focus on the acquisition of higher consumption meters, warmer weather in the 2020 period compared to 2019 and increased residential electricity consumption resulting from COVID-19 "stay-at-home" orders. The average rate per kilowatt hour sold decreased 6.8% in the three months ended September 30, 2020 compared to the same period in 2019


Electricity revenues increased by 13.4% in nine months ended September 30, 2020 compared to the same period in 2019. The increase is due to an increase in electricity consumption partially offset by a decrease in the average rate per kilowatt hour sold in the nine months ended September 30, 2020 compared to the same period in 2019. Electricity consumption by GRE’s REPs' customers increased 22.1% in the nine months ended September 30, 2020, compared to the same period in 2019. The increase in electricity consumption reflected an increase in the average number of meters served which increased by 7.1% and in the average consumption per meter which increased by 14.0% in the nine months ended September 30, 2020 compared to the same period in 2019. The average rate per kilowatt hour sold decreased 7.1% in the nine months ended September 30, 2020 compared to the same period in 2019. 


GRE’s natural gas revenues decreased by 14.0% in the three months ended September 30, 2020 compared to the same period in 2019.  Natural gas consumption by GRE’s REPs customers decreased by 5.0% in the three months ended September 30, 2020 compared to the same period in 2019 reflecting a 10.2% decrease in average meters served in the three months ended September 30, 2020 compared to the same period in 2019 partially offset by 5.8% increase in average consumption per meter in the three months ended September 30, 2020 compared to the same period in 2019. The decrease is also due to a decrease in average rate per therm sold which decreased by 9.5% in the three months ended September 30, 2020, compared to the same period in 2019.


GRE’s natural gas revenues decreased in the nine months ended September 30, 2020 compared to the same period in 2019.  The decrease is due to decreases in natural gas consumption by GRE's REPs' customers and average rate per therm sold in the nine months ended September 30, 2020, compared to the same period in 2019. Natural gas consumption by GRE’s REPs’ customers decreased 4.2% in the nine months ended September 30, 2020 compared to the same period in 2019 reflecting a 2.7% decrease in average consumption per meter in the nine months ended September 30, 2020 compared to the same period in 2019 and a decrease of 1.5% in average meters served in the nine months ended September 30, 2020 compared to the same period in 2019. Average rate per therm sold decreased by 6.7% in the nine months ended September 30, 2020, compared to the same period in 2019.

 

31


The customer base for GRE’s REPs as measured by meters served consisted of the following:

 

(in thousands)

 

September 30, 2020



June 30, 2020 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

September 30, 2019

 

Meters at end of quarter:

 




 

 

 

 

 

 

 

 

 

 

 

Electricity customers

 

309

 

310

 

 

 

313

 

 

 

297

 

 

 

314

 

Natural gas customers

 

67

 

64

 

 

 

71

 

 

 

73

 

 

 

74

 

Total meters

 

376

 

374

 

 

 

384

 

 

 

370

 

 

 

388

 

 

Gross meter acquisitions in three months ended September 30, 2020, were 44,000 compared to 76,000 for the same period in 2019.  Gross meter acquisitions in the nine months ended September 30, 2020, were 154,000 compared to 252,000 for the same period in 2019. The decreases reflect reduced sales activity in the second quarter of 2020 as a result of COVID-19 related public health restrictions on certain sales channels. Gross meter acquisition in the nine months ended September 30, 2019 includes the impact of a municipal aggregation deal in New Jersey which added approximately 35,000 meters.


Meters served increased by 2,000 or 0.5% from June 30, 2020 to September 30, 2020. Meters served decreased by 6,000 or 2.1% from December 31, 2019 to September 30, 2020. In three months ended September 30, 2020, average monthly churn decreased to 3.7% compared to 5.3% for same period in 2019. In nine months ended September 30, 2020, average monthly churn decreased to 4.1% compared to 5.0% for the same period in 2019. The reduction in churn reflects the impact of a shift in our customer mix related to channel, product and geography as well as continuing increase in the ratio of fixed rate to variable rate customers, where fixed rate customers generally have lower rates of churn. The reduction in churn also reflects decreased sales activity by competitors as a result of COVID-19 related restrictions.

 

The average rates of annualized energy consumption, as measured by RCEs, are presented in the chart below. An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.

 

(in thousands)

 

September 30, 2020

June 30, 2020

 

 

March 31, 2019

 

 

December 31, 2019

 

 

September 30, 2019

 

RCEs at end of quarter:

 




 

 

 

 

 

 

 

 

 

 

 

Electricity customers

 

294

 

288

 

 

 

272

 

 

 

248

 

 

 

266

 

Natural gas customers

 

56

 

55

 

 

 

58

 

 

 

61

 

 

 

61

 

Total RCEs

 

350

 

343

 

 

 

330

 

 

 

309

 

 

 

327

 

 

32


RCEs increased 7.0% at September 30, 2020 compared to September 30, 2019 reflecting our recent focus on adding higher consumption meters, warmer than average weather in 2020 and COVID-19 driven shift to work-from-home.


Other revenue in the three and nine months ended September 30, 2020 included commission from selling third-party products to customers.

 

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)
2020

2019

$

%
  2020
  2019
  $
  %
Cost of revenues:











                       
Electricity
$ 61,467

$ 53,989

$ 7,478


13.9 %   $
150,720     $ 135,898     $ 14,822       10.9 %
Natural gas

1,655


1,964


(309)



(15.7)

    13,364       18,082       (4,718 )     (26.1 )
Others

437





437


nm


437





437


nm
Total cost of revenues
$ 63,559


$ 55,953


$ 7,606



13.6
%   $
164,521     $ 153,980     $ 10,541     6.8 %

 

 
Three months ended
September 30

 Nine months ended
September 30,

 
(amounts in thousands)
2020


2019


Change

2020
  2019     Change
 
Gross margin percentage:











                 
Electricity
28.7 %

31.2 %

(2.5) %
  28.3 %     26.8 %     1.6 %  
Natural gas
39.2


38.0


1.2

  44.8       33.2       11.6  
Others
23.1





23.1


23.1





23.1

Total gross margin percentage
29.0
%

31.5
%

(2.5) %
  30.0 %     27.6 %     2.5 %  


nm—not meaningful


Cost of revenues for electricity increased in the three months ended September 30, 2020 compared to the same period in 2019 primarily because of an increase in electricity consumption by GRE’s REPs’ customers partially offset by a decrease in the average unit cost of electricity. The average unit cost of electricity decreased 3.4% in the three months ended September 30, 2020 compared to the same period in 2019. Gross margin on electricity sales decreased in the three months ended September 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased more than the decrease in the average unit cost of electricity.  


Cost of revenues for electricity increased in the nine months ended September 30, 2020 compared to the same period in 2019 primarily because of an increase in electricity consumption by GRE’s REPs’ customers partially offset by a decrease in the average unit cost of electricity. The average unit cost of electricity decreased 9.2% in the nine months ended September 30, 2020 compared to the same period in 2019. Gross margin on electricity sales increased in the nine months ended September 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased less than the decrease in the average unit cost of electricity.  


Cost of revenues for natural gas decreased in the three months ended September 30, 2020 compared to the same period in 2019 primarily because of a decrease in the average unit cost of natural gas partially offset by increase in natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 11.3% in the three months ended September 30, 2020 compared to the same period in 2019. Gross margin on natural gas sales decreased in the three months ended September 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased more than the decrease in the average unit cost of natural gas.


Cost of revenues for natural gas decreased in the nine months ended September 30, 2020 compared to the same period in 2019 primarily because of decreases in both natural gas consumption of GRE's REP's customers and the average unit cost of natural gas and natural gas consumption by GRE's REPs' customers. The average unit cost of natural gas decreased 23.0% in the nine months ended September 30, 2020 compared to the same period in 2019. Gross margin on natural gas sales increased in the nine months ended September 30, 2020 compared to the same period in 2019 because the average rate charged to customers decreased less than the decrease in the average unit cost of natural gas.


33


Selling, General and Administrative. The decrease in selling, general and administrative expense in the three months ended September 30, 2020 compared to the same period in 2019 was primarily due to decreases in both marketing and customer acquisition costs and employee-related costs partially offset by increase in provision for doubtful accounts and costs related to POR programs. Marketing and customer acquisition expenses decreased by $1.8 million in the three months ended September 30, 2020, compared to the same period in 2019 due to reduced pace of customer acquisition activities related to COVID-19 related public health restrictions. Employee-related expenses slightly decreased by $0.1 million in the three months ended September 30, 2020 compared to the same period in 2019 primarily due to a reduction in the number of employees. Provision for doubtful accounts and costs related to POR programs increased by $1.0 million in three months ended September 30, 2020 compared to the same period in 2019 as a result of entrance to non-POR markets (which led to an increase in the provision for doubtful accounts) and increase in revenue. As a percentage of GRE’s total revenues, selling, general and administrative expense decreased from 18.2% in the three months ended September 30, 2019 to 15.2% in the three months ended September 30, 2020. 


The slight decrease in selling, general and administrative expense in the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to a decrease in marketing and customer acquisition costs partially offset by increases in employee-related costs, provision for doubtful accounts expense and costs related to POR programs. Marketing and customer acquisition expenses decreased by $2.8 million in the nine months ended September 30, 2020, compared to the same period in 2019. Employee-related expenses increased by $0.3 million in the nine months ended September 30, 2020 compared to the same period in 2019 primarily due to an increase in accrued bonuses resulting from improved results of operations. Provision for doubtful accounts and costs related to POR programs increased by $2.2 million in the nine months ended September 30, 2020 compared to the same period in 2019. As a percentage of GRE’s total revenues, selling, general and administrative expense slightly decreased from 18.7% in the nine months ended September 30, 2019 to 16.7% in the nine months ended September 30, 2020. 

 

GRE International Segment




Three Months Ended 
September 30,


Change

Nine Months Ended 
September 30,



Change

 

(amounts in thousands)
2020

2019

$


%

2020


2019


$


%

 

Revenues               


$ 5,830

$ 3,039

$ 2,791


91.8 %
$ 17,820

$ 10,751

$ 7,069


65.8 %

 

Cost of revenue        



4,741


2,643


2,098


79.4


15,105


10,134


4,971


49.1

 

Gross profit 



1,089


396


693


175.0


2,715


617


2,098


340.0

Selling, general and administrative expenses



2,663


1,955


708


36.2


7,416


5,528


1,888

34.2

 

Loss from operations              


$ (1,574)

$ (1,559)

$ 15


1.0 %
$ (4,701)
$ (4,911)
$ (210)

(4.3) %

 

Equity in net loss of Shoreditch
$

$ 867

$ (867)


(100.0) %
$ 1,502

$ 1,938

$ (436)


(22.5) %


GRE International holds our stakes in REPs outside of North America. These businesses currently include our stake in Shoreditch, which operates as Orbit Energy in the U.K., Genie Japan, and our controlling stake in Lumo, which operates in certain portions of Scandinavia. In the second quarter of 2020, we started commercial operations in Sweden through a wholly owned entity.


Prior to our acquisition of the remaining 23.0% of Shoreditch, we accounted for our 77.0% interest in Shoreditch under the equity method of accounting. Under this method, we recorded our share in the net income or loss of Shoreditch. Therefore, revenue generated, and expenses incurred were not reflected in our consolidated revenue and expenses. In October 2020, we acquired the remaining 23.0% controlling interest in Shoreditch which increased our interest to 100%. 


Meters served by GRE International's REPs, including Shoreditch, increased to 182,000 at September 30, 2020 from 161,000 at June 30, 2020 primarily as a result of the growth in Shoreditch's and Lumo's customer bases. Meters served by GRE International's REPs, including Shoreditch, increased by 55,000 or 43.3% from December 31, 2019 to September 30, 2020, primarily as a result of growth in Shoreditch's and Lumo's customer bases. The Company also started the commercial operations of Genie Japan in second quarter of 2019.


RCEs at September 30, 2020, including Shoreditch, increased to 92,000 from 79,000 at June 30, 2020 primarily from the increase in meters served as discussed above. RCEs at September 30, 2020 increased by 27,000 or 41.5% from December 31, 2019 to September 30, 2020, primarily as a result of growth in Shoreditch, Japan and Lumo.


Revenue and Cost of Revenue. GRE International's revenues and cost of revenue increased in the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily because of the start of commercial operations of Genie Japan in second quarter of 2019 and the increase in meters served at Lumo. In the second quarter of 2020, our wholly-owned subsidiary, Lumo Energi AB, began its commercial operations serving customers in Sweden.


Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses in the three and nine months ended September 30, 2020 compared to the same periods in 2019 is primarily due to continued growth of operations at Lumo and Genie Japan and the start of commercial operation in Sweden in the second quarter of 2020. Marketing and customer acquisition-related expenses increased related to the increase in number of meters acquired. The number of employees also increase in 2020 as a result of the expansion of operations.


Equity in net loss of joint venture. We accounted for our ownership interest in Shoreditch using the equity method since we had the ability to exercise significant influence over Shoreditch's operating and financial matters, although we did not control Shoreditch. In second quarter of 2020, the book value of our investment in Shoreditch was reduced to nil as a result of our share in accumulated losses of Shoreditch. We did not recognize any share in net losses of Shoreditch for the three months ended September 30, 2020. For the nine months ended September 30, 2020 we recognized $1.5 million share in net losses of Shoreditch equivalent to the total capital contributed during that period. The Company's share in Shoreditch’s net loss for the three and nine months ended September 30, 2019 were $0.8 million and $1.9 million, respectively. In October 2020, we acquired the remaining 23.0% interest and controlling interest in Shoreditch which increased our interest to 100%

 

34


GES Segment

 




Three Months Ended 
September 30,


Change

Nine Months Ended 
September 30,



Change

 

(amounts in thousands)

2020


2019


$


%

2020


2019


$


%

 

Revenues               


$ 1,004

$ 1,025

$ (21)


(2.0) %
$ 23,524

$ 9,989

$ 13,535


135.5 %

 

Cost of revenue        



709


763


(54)


(7.1)


21,117


8,303


12,814


154.3

 

Gross profit



295


262


33


12.6


2,407


1,686


721


42.8

Selling, general and administrative expenses



1,014


1,060


(46)


(4.3)


2,903


3,397


(494)

(14.5)

 

Impairment of assets










nm


993





993


nm

Loss from operations              


$ (719)

$ (798)

$ (79)


(9.9) %
$ (1,489)
$ (1,711 )
$ (222)

(13.0) %

 


nm—not meaningful


Revenue. GES' revenues decreased in the three months ended September 30, 2020 compared to the same period in 2019. The decrease in revenues was the result of the discontinuance of a relationship with a customer in the second quarter of 2020. GES' revenues increased in the nine months ended September 30, 2020 compared to the same period in 2019. The increase in revenues was the result of the delivery of a large number of orders at Prism particularly in the first quarter of 2020Revenues from Diversegy includes commissions, entry fees and other fees from our energy brokerage and marketing services businesses.  


Cost of Revenues. Cost of revenue decreased in the three months ended September 30, 2020 compared to the same period in 2019. The decrease in cost revenues was consistent with the decrease in revenues for the period. Cost of revenues increased in the nine months ended September 30, 2020 compared to the same periods in 2019 primarily as a result of the significant increase in deliveries of solar panels. Cost of revenues in the three and nine months ended September 30, 2020 also includes commissions incurred by our energy brokerage and marketing services businesses. 


Selling, General and Administrative. Selling, general and administrative expenses decreased the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily because of the streamlining of operations of Prism in first quarter of 2020.


In March 2020, we initiated a plan to sell the property, plant and equipment of Prism. Prism's 4.75% notes payable to Catskill Hudson Bank are collateralized by Prism's land and building and improvements and will be settled from the proceeds of the sale of the property. At September 30, 2020, Prism's property, plant and equipment and notes payable were reclassified as assets and liabilities held for sale and reported at lower of fair value less cost to sell and net book value. In the first quarter of 2020, the Company recorded a $0.2 million write-down to fair value of certain property and equipment. 

In second quarter of 2020, Prism renegotiated a contract with a customer which resulted in impairment of customer relationship of $0.8 million included in the consolidated statements of operation.

In the three and nine months ended September 30, 2020, Prism recorded loss from disposal of certain property and equipment classified as assets held for sale of $0.4 million and $0.5 million, respectively, included in the selling, general and administrative expenses in the consolidated statements of operations.

We are currently exploring options to reduce overhead at Prism due to changes in market conditions.

At September 30, 2020, assets held of sale of $2.4 million and liabilities held for sale of $0.8 million were included in other current assets and other current liabilities, respectively, in the consolidated balance sheet.

On October 16, 2020, Prism completed the sale of certain property of Prism classified as assets held of sale with a carrying value of $2.4 million for net proceeds of $2.6 million. A portion of the net proceeds was used to settle the notes payable of Prism classified as liabilities held for sale at carrying value of $0.9 million

Genie Oil and Gas Segment

 

 


Three Months Ended 
September 30,

Change

Nine Months Ended 
September 30,


Change

 

(amounts in thousands)
2020


2019


$


%

2020

2019

$

%

 

Revenue

$

$

$


nm %
$

$

$


nm %

 

 
































 

General and administrative


146


283


(137)


(48.4)


541


828


(287)

(34.7)

 

Loss from operations

$ 146

$ 283

$ (137)


(48.4) %
$ 541

$ 828

$ (287)

(34.7) %

 

Equity in net loss of Atid 613 $ 142

$ 148

$ (6)


(4.1) %
$ 179
$ 78

$ 101

129.5

  

nm—not meaningful

 

35


General and Administrative. General and administrative expense decreased in the three and nine months ended September 30, 2020 compared to the same periods in 2020 because of decrease in payroll and related expenses and consulting fees. 


Exploration. In 2017, we suspended drilling operations at Afek. Subsequent analysis indicates that a zone within the well contains evidence of hydrocarbons at levels sufficient to warrant additional testing. Accordingly, Afek requested and received a renewal of its exploratory license from the Ministry of Energy for the Northern portion of its former license area. We initiated the final well test in the second half of October 2020.

 

Corporate

 

Corporate does not generate any revenues, nor does it incur any cost of revenues. Corporate costs include unallocated compensation, consulting fees, legal fees, business development expense and other corporate-related general and administrative expense. 


(amounts in thousands)

Three months ended
September 30,

Change

Nine months ended
September 30,

  Change
 



2020


2019


$



%


2020     2019      $     %  
General and administrative expenses and loss from operations
$ 1,409


$ 1,270


$ 139



10.9
%
$ 4,147     $ 3,989     $ 158     4.0 %

 

Corporate general and administrative expenses increased in three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily because of an increase in stock-based compensation expense. As a percentage of our consolidated revenues, Corporate general and administrative expense was flat in the three months ended September 30, 2019 compared to the three months ended September 30, 2020 and decreased from 1.7% in the nine months ended September 30, 2019 to 1.5% in the nine months ended September 30, 2020.

 

Consolidated

 

Selling, general and administrative expenses. Stock-based compensation expense included in consolidated selling, general and administrative expense was $0.4 million and $0.3 million in the three months ended September 30, 2020 and 2019, respectively and $1.3 million and $1.1 million in the nine months ended September 30, 2020 and 2019, respectively. At September 30, 2020, aggregate unrecognized compensation cost related to non-vested stock-based compensation was $2.6 million. The unrecognized compensation cost is recognized over the expected service period.

 

The following is a discussion of our consolidated income and expense line items below income from operations: 

 

   

Three months ended

September 30,



Change

Nine months ended

September 30,

    Change    
 (amounts in thousands)   2020


2019


 $


%


2020     2019      $     %    
Income from operations   $ 8,485

$ 6,945

$ 1,540


(22.2) %
$ 20,428   $ 7,502   $ 12,926     172.3 %  
Interest income  
21


163



(142)



(87.1)

  164       445       (281)     (63.1)  
Interest expense  
(48)


(161)


113



(70.2)


  (223)     (479 )     256     (53.4 )  
Equity in net loss in equity method investees

(146)


(238)


92


(38.7)



(1,698)


(2,106)


408


(19.4)

Other income (loss), net  
291


(85)



376



(442.4)

  390     147     243     165.3  
Provision for benefit from income taxes  
(2,406)


(1,916)



(490)



25.6

  (5,563)     (3,142)     (2,421)     77.1  
Net income  
6,197



4,708


1,489


(31.6)

  13,498     2,367     11,131     (470.3)  
Net loss attributable to noncontrolling interests  
531


539


(8)



(1.5)


  1,026       1,484       (458)       (30.9)    
Net income attributable to Genie   $ 6,728


$ 5,247


$ 1,481



(28.2)
%
$ 14,524   $ 3,851   $ 10,673     (277.2)  

 

36


Other Income (Expense), net.  Other income, net in the three months ended September 30, 2020 consisted primarily of gain from the settlement of accounts payables Prism and of foreign currency transaction. Increase in other income, net in the nine months ended September 30, 2020 compared to the same period in 2019 is primarily due to the gains on settlement of accounts payable of Prism and deconsolidation of a subsidiary. 

 

Provision for Income Taxes. The slight increase in the reported tax rate for the three months ended September 30, 2020 compared to the same period in 2019, is a result of changes in the mix of jurisdiction in which taxable income was earned. The decrease in reported tax rate for the nine months ended September 30, 2020 compared to the same period in 2019 is a result of higher deductible business losses applied against taxable income in the current period due to jurisdictions of those taxable income and losses.

 

Net Income Attributable to Noncontrolling Interests. The change in the net loss attributable to noncontrolling interests in the three months ended September 30, 2020 compared to the similar period in 2019 was primarily due to the decrease in the share of noncontrolling interest in net losses of Prism and Afek offset by an increase in our share in net loss of noncontrolling interest related to CCE. 


The change in the net loss attributable to noncontrolling interests in the nine months ended September 30, 2020 compared to the similar periods in 2019 was primarily due to the share of noncontrolling interest from deconsolidation of non-operating subsidiaries and a decrease in net losses of Lumo, Prism and Afek offset by an increase in share in net loss of noncontrolling interest related to CCE. 

 

Liquidity and Capital Resources

 

General

 

We currently expect that our cash flow from operations and the $19.6 million balance of unrestricted cash and cash equivalents that we held at September 30, 2020 will be sufficient to meet our currently anticipated cash requirements for at least the period from October 1, 2020 to November 6, 2021.

 

At September 30, 2020, we had working capital (current assets less current liabilities) of $54.9 million.

 

 

 

Nine Months Ended
September 30,

 


 

2020

 

 

2019

 

 

 

(in thousands)

 

Cash flows provided by (used in):

 

 

 

 

 

 

Operating activities

 

$

24,038

 

$

15,937

 

Investing activities

 

 

(1,863)

 

 

(2,996

)

Financing activities

 

 

(11,496)

 

 

(11,842

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(3)

 

 

 

12

Increase in cash, cash equivalents, and restricted cash

 

$

10,676

 

$

1,111

 

Operating Activities

 

Cash, cash equivalents and restricted cash provided by operating activities was $24.0 million compared to net cash provided by operating activities of $15.9 million in the nine months ended September 30, 2020 and 2019, respectively. Net income after non-cash adjustments increased cash flows by $16.7 million for the nine months ended September 30, 2020, compared to the same period in 2019. The increase in operating cash flows is primarily the result of favorable results of operations in nine months ended September 30, 2020 compared to the same period in 2019.

 

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 $10.9 million for the nine months ended September 30, 2020, compared to the same period in 2019. Changes in other assets increased cash flows by $2.3 million for the nine months ended September 30, 2020, compared to the same period in 2019. 

 

37


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, 2020, we were in compliance with such covenants. At September 30, 2020, restricted cash—short-term of $23.9 million and trade accounts receivable of $44.6 million were pledged to BP as collateral for the payment of trade accounts payable to BP of $14.8 million at September 30, 2020.


We had purchase commitments of $155.6 million at September 30, 2020, of which $99.5 million was for purchases of electricity.


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 $0.1 million in the nine months ended September 30, 2020 compared to $0.3 million in the nine months ended September 30, 2019. We currently anticipate that our total capital expenditures in the twelve months ending December 31, 2020 will be approximately $0.2 million.


We received a minimal amount and $0.1 million from an employee for the repayment of notes receivable in the nine months ended September 30, 2020 and 2019, respectively.


On January 2, 2019, we completed the purchase of an 80.0% controlling interest in Lumo. We paid the sellers a total of €1.6 million (equivalent to $1.9 million at that time). The Company contributed €1.3 million (equivalent to $1.5 million at that time) as a capital loan to fund Lumo's working capital requirements. We also provided Lumo with a secured loan for €2.0 million (equivalent to $2.3 million at that time) to pay off and replace its remaining debt. In November 2019 and January 2020, we acquired additional 9.0% and 3.5% interest in Lumo, respectively, increasing our total interest to 92.5%


The remaining 7.5% noncontrolling interest retained by the sellers is subject to restrictions, which will lapse in two installments on the second and third anniversaries of the Lumo Closing Date, subject to employment and service conditions. The Company has a conditional continuing call option to purchase a portion or the entire noncontrolling interest from the sellers during the period beginning at the third anniversary of the Lumo Closing Date and ending three years later.

 

The sellers of Lumo, as a group, have a one-time option to sell a portion or all of their Lumo interest to the Company, which subject to certain conditions, may be exercised on one occasion only, at any time during the two-year period beginning at the fourth anniversary of the closing date of the acquisition.


In the nine months ended September 30, 2020 and 2019, we contributed $2.7 million and $1.3 million, respectively, to Shoreditch, which increased our total contribution to $8.0 million as of September 30, 2020. The Company owned 77.0% of the equity of Shoreditch as of September 30, 2020.


On October 8, 2020, we entered into an agreement (the “Purchase Agreement”) with Energy Global Pty Ltd ("EGC") under which we purchased EGC’s remaining interest in Shoreditch, in exchange for a cash payment of £1.3 million, (equivalent to $1.7 million on the date of closing) offset by £0.2 million (equivalent to $0.2 million on the date of closing) in amounts owing from EGC to the Company under a loan provided to EGC in 2018 related to EGC’s capital contributions to Shoreditch. Following the transaction, Shoreditch is our wholly-owned subsidiary.

 

Following the transaction, EGC has no rights in management of Shoreditch and GEUK has complete control over the activities of Shoreditch. 


38


 Financing Activities

 

In each of the nine months ended September 30, 2020 and 2019, 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 21, 2020, our Board of Directors declared a quarterly Base Dividend of $0.1594 per share on our Preferred Stock. The dividend will be paid on or about November 16, 2020 to stockholders of record as of the close of business on November 6, 2020.

 

In the nine months ended September 30, 2020 and 2019, we paid aggregate quarterly dividends of $0.245 per share and $0.225 per share, respectively, to stockholders of our Class A common stock and Class B common stock. The Company paid $6.4 million and $6.1 million in aggregate dividends on our common stock for the nine months ended September 30, 2020 and 2019, respectively. In the second quarter of 2020, we increased the quarterly dividends from $0.075 to $0.085 per share on our Class A common stock and Class B common stock. On November 4, 2020, our Board of Directors declared a quarterly dividend of $0.085 per share on our Class A common stock and Class B common stock. The dividend will be paid on or about December 11, 2020 to stockholders of record as of the close of business on December 4, 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 nine months ended September 30, 2020, the Company acquired 213,206 shares of Class B common stock under the stock repurchase program for an aggregate amount of $1.5 million. In the nine months ended September 30, 2019, the Company acquired 470,147 shares of Class B common stock under the stock repurchase program for an aggregate amount of $3.4 million. At September 30, 2020, 5.9 million shares of Class B common stock remained available for repurchase under the stock repurchase program.


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 mature on November 13, 2020. At September 30, 2020, $1.4 million was outstanding under the May 2020 Loan. At September 30, 2020, the effective interest rate was 3.0%.


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 was due on the maturity date of April 3, 2020. The borrowers are required to comply with various affirmative and negative covenants, including maintaining a target tangible net worth during the term of the credit agreement. At September 30, 2020, we were in compliance with such covenants. In April 2020, the revolving line of credit expired and the Company paid outstanding balance of $3.5 million.


On December 5, 2019, we entered into an amendment of its existing Credit Agreement with JPMorgan Chase Bank (“Credit Agreement”) to extend the maturity date to December 31, 2020. 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, 2020, JP Morgan Chase Bank issued $2.3 million letter of credit from the Credit Line. As of September 30, 2020, none of the letters of credits were drawn upon. At September 30, 2020, the cash collateral of $5.2 million was included in restricted cash—short-term in the consolidated balance sheet.


In December 11, 2019, the Company refinanced the 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 will be payable in equal monthly installments for period of ten years starting January 2020. The outstanding principal amount incurs fixed interest at 4.75% per annum. The notes payable are 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 as described above. At September 30, 2020, the outstanding balance of liabilities held for sale was $0.9 million.


In the nine months ended September 30, 2020, we received minimal amount from the exercise of stock option for which we issued 2,533 shares of Class B common stock. In the nine months ended September 30, 2019, we received proceeds of $1.4 million from the exercise of stock options for which we issued 205,350 shares of our Class B common stock. 


In the nine months ended September 30, 2020, we paid $0.3 million to purchase 32,907 shares of our Class B common stock, and, in the nine months ended September 30, 2019, we paid $0.3 million to repurchase 28,004 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.


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, 2020, the Company had outstanding aggregate performance bonds of $13.3 million and $2.3 million of unused letters of credit. 


39


Item 3            Quantitative and Qualitative Disclosures About Market Risks.

 

Our primary market risk exposure is the price applicable to our natural gas and electricity purchases and sales. The sales price of our natural gas and electricity is primarily driven by the prevailing market price. Hypothetically, for our GRE segment, if our gross profit per unit in the three months ended September 30, 2020 had remained the same as in the three months ended September 30, 2019, our gross profit from electricity sales would have increased by $4.1 million and our gross profit from natural gas sales would have increased by $0.1million in the three months ended September 30, 2020. Hypothetically, for our GRE segment, if our gross profit per unit in the nine months ended September 30, 2020 had remained the same as in the nine months ended September 30, 2019, our gross profit from electricity sales would have increased by $3.9 million and our gross profit from natural gas sales would have decreased by $2.2 million in the nine months ended September 30, 2020.


Hypothetically, for our GRE International segment, if our gross profit per unit in the three months ended September 30, 2020 had remained the same as in the three months ended September 30, 2019, our gross profit from electricity sales would have decreased by $0.3 million in the three months ended September 30, 2020. Hypothetically, for our GRE International segment, if our gross profit per unit in the nine months ended September 30, 2020 had remained the same as in the nine months ended September 30, 2019, our gross profit from electricity sales would have decreased by $2.4 million in the nine months ended September 30, 2020.


The energy markets have historically been very volatile, and we can reasonably expect that electricity and natural gas prices will be subject to fluctuations in the future. In an effort to reduce the effects of the volatility of the price of electricity and natural gas on our operations, we have adopted a policy of hedging electricity and natural gas prices from time to time, at relatively lower volumes, primarily through the use of put and call options and swaps. While the use of these hedging arrangements limits the downside risk of adverse price movements, it also limits future gains from favorable movements. We do not apply hedge accounting to these options or swaps, therefore the mark-to-market change in fair value is recognized in cost of revenue in our consolidated statements of operations. Refer to Note 7 – Derivative Instruments, for details of the hedging activities.

 

Item 4            Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2020.


Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

40


 

PART II. OTHER INFORMATION

 

Item 1.         Legal Proceedings


 

Legal proceedings in which we are involved are more fully described in Note 17 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

 

Item 1A.       Risk Factors

 

The risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the periods ended March 31, 2020 and June 30, 2020, have not materially changed except the following:


Our business, results of operation and financial conditions could be adversely affected by the coronavirus COVID-19 pandemic and the restrictions put in place in connection therewith.


We are responding to the global outbreak of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread and the impact of the restrictions put in place by governments to protect the population. We continue to execute our business continuity plan and have implemented a comprehensive set of actions for the health and safety of our customers, employees and business partners We have implemented work from home policies where appropriate.

 

We continue to implement strong physical and cyber-security measures to ensure our systems remain functional to both serve our operational needs with a remote workforce and to provide uninterrupted service to our customers. We face challenges due to the need to operate with the remote workforce and are addressing those challenges so as to minimize the impact on our ability to operate.


For the three and nine months ended September 30, 2020, the impacts of COVID-19 on our operations and financial results have been mixed. Our consolidated revenues for the three months ended September 30, 2020, compared to the same period in 2019, increased by $10.6 million equivalent to 12.4%. Our consolidated revenues for the nine months ended September 30, 2020, compared to the same period in 2019, increased by $43.1 million equivalent to 18.5%. At September 30, 2020, global total meters served increased to 558,000 and RCEs increased to 442,000 (including Shoreditch) representing increases of 15% and 13% respectively, compared to September 30, 2019. U.S. domestic meters served decreased to 376,000 representing a 3.1% decrease and RCE increased to 350,000 representing a 7.0% increase compared to September 30, 2019 levels. 


We benefited from the increased demand for electricity when residential 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 slight reduction in the U.S. domestic meters served. The reduction in gross meter acquisitions decreased our customer acquisition expense in the second quarter of 2020. Churn for the second quarter of 2020 decreased as our competitors suspended their face to face marketing programs. 


Much of the World has recently experienced a surge in new COVID-19 cases and the impact of that increase and public health measures that may be instituted or reinstituted are difficult to predict. If the COVID-19 pandemic continues for a prolonged period, or impact the territories we serve more significantly than it has today, our business, operations and financial condition could be impacted in more significant ways. The continued spread of COVID-19 and efforts to contain the virus could have the following impacts, in addition to exacerbating the impacts described above:

 

 

Adversely impact our strategic business plans and growth strategy;

 

 

Result in increases in purchase of receivable, or POR fees and allowance for credit bad debt expense as a result of delayed or non-payment from our customers, both of which could be magnified by Federal or state government legislation that requires us to extend suspensions of disconnections for non-payment;

 

 

Reduce the availability and productivity of our employees and third-party resources;

 

 

Cause us to experience an increase in costs as a result of our emergency measures;

 

 

Cause a deterioration of the credit quality of our counterparties, including power purchase agreement counterparties, contractors or retail customers, that could result in credit losses

 


Cause impairment of long-lived assets; and



Cause a deterioration in our financial metrics or the business environment that adversely impacts our credit ratings.


The situation remains fluid and it is difficult to predict with certainty the potential impact of COVID-19 on our business, results of operations, financial condition and cash flows.


 

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table provides information with respect to purchases by us of shares of our Class B common stock during the first quarter of 2020:

 

 

 

Total
Number of
Shares
Purchased

 

 

Average
Price
per Share

 

 

Total Number
of Shares
Purchased as
part of
Publicly
Announced
Plans or
Programs

 

 

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs (1)

 

July 1–31, 2020

 

 

9,391

 

 

$

7.34

 

 

 

9,391

 

 

 

5,942,303

 

August 1–31, 2020 

 

 

32,907

 (2)

 

 

8.12

 

 

 

 

 

 

5,942,303

 

September 1–30, 2020

 

 

2,347

 

 

 

8.05

 

 

 

2,347

 

 

 

5,939,956

 

Total

 

 

44,645

 

 

$

7.95

 

 

 

11,738

 

 

 

   

 

 

(1)

Under our existing stock repurchase program, approved by our Board of Directors on March 11, 2013, we were authorized to repurchase up to an aggregate of 7.0 million shares of our Class B common stock.


(2)


Refers to Class  B Common stock that were tendered by the employees of ours to satisfy the tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based on their fair market value on the trading day immediately prior to the vesting date.

 

 

Item 3.         Defaults upon Senior Securities

 

None

 

Item 4.          Mine Safety Disclosures

 

Not applicable

 

Item 5.           Other Information

 

None 


41


 

Item 6.       Exhibits

 

Exhibit
Number

 

Description

 

 

 

31.1*

 

Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.



 

32.1*

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.



101.SCH*
XBRL Taxonomy Extension Schema Document



101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document



101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document



101.LAB*
XBRL Taxonomy Extension Label Linkbase Document



101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document



104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*

Filed or furnished herewith.

 

42


SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Genie Energy Ltd.

 

 

 

November 6, 2020

By:

/s/ Michael M. Stein

 

 

Michael M. Stein
Chief Executive Officer

 

 

 

November 6, 2020

By:

/s/ Avi Goldin

 

 

Avi Goldin
Chief Financial Officer


43