Ormat Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with the three months ended March 31, 2020. Ormat develops, owns and operates renewable power plants and sells generation equipment and energy-storage services. Its reporting segments are Electricity, Product and Energy Storage.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $166.4 million | $192.1 million |
| Gross profit / margin | $73.6 million / 44.3% | $81.8 million / 42.6% |
| Operating income / margin | $49.9 million / 30.0% | $61.1 million / 31.8% |
| Net income attributable to Ormat shareholders | $15.3 million; diluted EPS $0.27 | $26.0 million; diluted EPS $0.51 |
| Cash provided by operating activities | $68.9 million | $79.8 million |
| Capital expenditures | $87.9 million | $80.4 million |
| Adjusted EBITDA (non-GAAP) | $99.2 million | $106.0 million |
At March 31, 2021, cash and cash equivalents were $376.6 million, marketable securities were $27.7 million and restricted cash was $88.4 million. The company reported $384.9 million of unused corporate borrowing capacity. Carrying-value debt was approximately $1.43 billion, excluding lease liabilities and other obligations; current debt maturities were approximately $87.4 million. Total equity was $1.95 billion. Cash, cash equivalents and restricted cash together declined $71.7 million during the quarter.
Material changes from the prior comparable period
- Revenue fell 13.4%, principally because Product revenue declined 81.8% to $8.6 million. The company attributed this to a lower backlog and the completion or reduced activity of projects that had contributed substantially in 2020.
- Electricity revenue increased 1.5% to $145.0 million. Higher generation from the Steamboat Hills enhancement and Puna’s partial restart was partly offset by lower Olkaria resource performance and customer curtailments in Kenya. Electricity generation increased 1.9%.
- Energy Storage revenue rose to $12.7 million from $1.8 million, including revenue from the Pomona acquisition and elevated Texas market prices. The Texas event also generated substantial hedge losses and a receivables provision.
- Gross margin improved, but operating margin and shareholder net income declined. Lower Product activity, higher electricity costs, increased interest expense, and derivative losses contributed to the earnings decline. Q1 2020 also included $2.4 million of business-interruption insurance income; none was recorded in Q1 2021.
- Operating cash flow decreased by $10.8 million, while investing cash outflow increased, largely reflecting capital spending and a $27.8 million marketable-securities purchase. Financing cash flow was a $22.8 million use in Q1 2021, versus $168.1 million provided in Q1 2020, which included net revolving-credit proceeds.
Outlook, risks and unusual items
- Management estimated 2021 capital expenditures of approximately $360 million and debt repayments of $62 million for the remainder of the year. It expects to fund needs through liquidity on hand, operating cash flows, and project financing and refinancing. The filing does not provide a clear annual revenue or earnings guidance figure.
- Product backlog was $37.2 million as of May 5, 2021, compared with $96.5 million as of May 3, 2020. Management cited pandemic-related uncertainty and customers’ reluctance to make new commitments. Delays in permits, supply-chain constraints and project cost increases could also affect growth and results.
- In February’s Texas power crisis, restrictions on charging the Rabbit Hill battery facility limited its ability to provide reserve services. Ormat reported an approximately $9.1 million net loss on the related hedge transaction that it does not expect to recover, and a roughly $3.0 million provision for potentially uncollectible demand-response imbalance receivables. The filing also reports $14.5 million of losses on the RRS price swap in derivative and foreign-currency results; the swap was terminated effective April 1, 2021. Ormat was discussing certain charges and revenue allocations with ERCOT.
- Puna was operating at approximately 20 MW. Management expected additional injection wells and turbine repairs to increase capacity toward prior levels by mid-2021, subject to successful well connections. Hawaii’s utility regulator suspended review of the proposed amended PPA pending environmental review and ordered rate renegotiations; reconsideration motions were pending. The existing PPA remained in effect.
- COVID-19 effects included continued Olkaria curtailments, potential collection delays and operating or permitting constraints. Management said most Electricity revenue was supported by long-term contracts, and it identified no asset impairment trigger at quarter-end. KPLC receivables overdue at quarter-end were $47.3 million, of which $10.7 million was paid in April; ENEE overdue receivables were $5.5 million, of which $2.4 million was paid in April.
- Three shareholder-related cases and derivative litigation stemming from earlier reporting matters were settled or dismissed during the quarter for immaterial payments. A separate Israeli class-action claim seeks approximately $100 million; the company says it has strong defenses, but the potential loss cannot be reasonably estimated. A board Special Committee was investigating short-seller allegations concerning anti-corruption compliance, and the company said it was providing information requested by the SEC and DOJ. These matters remain important uncertainties.
- Sarulla, an unconsolidated investment, failed its debt-service-coverage ratio test in March and was negotiating with lenders for a waiver and pursuing a remediation plan. Ormat said it was monitoring the plan and its potential accounting implications.
Important facts for investors to verify
- Whether Product backlog stabilizes and converts into revenue, and whether the reported project delays and cost increases continue.
- Actual 2021 capital spending, financing availability and debt repayments versus management’s estimates; covenant compliance and refinancing needs.
- Collections from KPLC and ENEE, further curtailments, and the outcome of discussions with ERCOT concerning imbalance charges and revenue allocation.
- Rabbit Hill’s post-crisis economics and the effect of the terminated hedge, alongside future market-price exposure in merchant energy storage.
- Progress at Puna, regulatory review and renegotiation of its proposed PPA, and the timing and results of the SEC/DOJ information requests and Special Committee investigation.
- Sarulla’s waiver and remediation outcome, and any resulting effect on Ormat’s investment or earnings.