Ormat Technologies, Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing was signed February 26, 2015. Ormat is a vertically integrated geothermal and recovered-energy power company, with Electricity and Product segments. Financial statements received an unqualified audit opinion; the auditor also reported effective internal control over financial reporting.
Financial performance
| Metric | FY 2014 | FY 2013 | Change |
|---|---|---|---|
| Revenue | $559.5 million | $533.2 million | +4.9% |
| Electricity revenue | $382.3 million | $329.7 million | +15.9% |
| Product revenue | $177.2 million | $203.5 million | -12.9% |
| Gross margin | $203.8 million; 36.4% | $159.8 million; 30.0% | Margin +6.4 percentage points |
| Operating income | $143.5 million; 25.6% margin | $97.0 million; 18.2% margin | +48.0% |
| Net income attributable to shareholders | $54.2 million; diluted EPS $1.18 | $41.2 million; diluted EPS $0.91 | +31.4% |
| Cash from operating activities | $213.2 million | $86.8 million | Up substantially |
| Adjusted EBITDA (non-GAAP) | $272.7 million | $241.0 million | +13.2% |
Electricity revenue growth reflected higher generation from Olkaria III expansions and Don A. Campbell, higher California SO#4 energy rates, and a $5.7 million net gain on oil and natural-gas derivatives, versus a $5.0 million loss in 2013. Total generation rose 4.6% to 4.45 million MWh. Product revenue fell mainly because of timing and mix of contract revenue recognition, though Product operating income increased to $53.1 million from $42.7 million.
Fourth-quarter snapshot: Revenue was $149.2 million, gross margin $54.9 million, operating income $34.8 million, and net income attributable to shareholders $7.0 million (diluted EPS $0.15). Third-quarter revenue was $140.2 million and attributable net income was $16.5 million.
Liquidity, debt and capital
- Year-end cash and cash equivalents were $40.2 million, down from $57.4 million; restricted cash was $93.2 million. Working capital was $68.1 million, versus $103.0 million.
- Operating cash flow of $213.2 million was offset by $129.2 million of net investing outflows and $101.2 million of financing outflows. Capital expenditures were $151.2 million; cash dividends paid were $9.6 million.
- Long-term debt, including its current portion, was $1.001 billion, compared with $1.078 billion a year earlier. The company reported $250.3 million of 7% senior unsecured bonds due in 2017. Approximately 96% of consolidated long-term debt was fixed-rate.
- Committed corporate credit capacity was $555.2 million, with $357.2 million utilized, leaving $198.0 million unused at year-end. Letters of credit are a material use of facilities.
- Management estimated 2015 capital needs of approximately $250 million and debt repayments of $71.5 million, to be funded from available liquidity, operating cash flow, and project financing/refinancing. This is a spending estimate, not earnings guidance.
Material changes and significant developments
- Electricity became a larger share of revenue (68.3%, versus 61.8% in 2013), while Product revenue declined. Overall cost of revenue fell to 63.6% of revenue from 70.0%, supporting higher gross and operating margins.
- Olkaria III Plant 3 and Don A. Campbell entered commercial operation during 2014. McGinness Hills Phase 2 began commercial operation February 1, 2015, bringing the complex to about 72 MW. The Olkaria III expansion is expected to add 24 MW, with operation targeted for the second half of 2016.
- Product backlog was approximately $325.8 million as of February 26, 2015, versus $165.0 million a year earlier; the backlog includes a $254 million Sarulla equipment supply contract. Sarulla is a 330-MW Indonesian project in which Ormat holds a 12.75% interest; first-phase operation was expected in 2016.
- On February 12, 2015, after year-end, Ormat completed its share exchange acquisition of former parent Ormat Industries. It issued approximately 30.2 million shares to Ormat Industries shareholders; net shares outstanding rose by about 3.0 million to approximately 48.5 million. Public float increased from about 40% to 76%.
- A separate Northleaf transaction was agreed in February 2015, not yet closed at the filing date. Northleaf was to acquire about 40% of ORPD, holding Puna, Don A. Campbell, and OREG 1–3, for approximately $175 million, subject to adjustments and closing conditions; Ormat expected to retain operational control and consolidate the entity.
Outlook, risks and unusual items
- Management emphasized growth through geothermal development, plant expansions, international projects, and Product business orders. No consolidated revenue or earnings guidance is provided in the supplied filing text.
- FY 2014 included a $15.4 million write-off of unsuccessful exploration costs, primarily Wister ($8.1 million) and Mount Spurr ($7.3 million). A $7.6 million pretax gain arose from the Heber Solar project sale for $35.25 million. The Amatitlan loan repayment generated a one-time $1.1 million interest charge. Foreign-currency translation and transaction losses were $5.8 million, compared with gains of $5.1 million in 2013.
- Geothermal resource, plant reliability, construction, permitting, transmission access, financing, and political risks are central exposures. North Brawley remained limited to approximately 18 MW versus its original 50-MW design; the company reported a 2012 impairment charge of $229.1 million and described further resource and operating challenges. Resource cooling was also reported at Brady, Steamboat, and Jersey Valley.
- Puna lost approximately 5 MW after Hurricane Iselle in August 2014, when a production well did not fully recover; replacement drilling was underway. The Puna area also faces volcanic and transmission-line risks, although the filing said the plant and lines were operating normally at the report date.
- About 70% of 2014 Electricity revenue came from PPAs with fixed energy rates. Some California and Hawaii PPAs remain exposed to natural-gas or oil-linked avoided-cost pricing. The company used derivatives to reduce price exposure; the filing reported a $5.7 million 2014 electricity-revenue gain.
- Other risks include customer concentration, project debt covenants and restricted subsidiary distributions, expiration or loss of qualifying-facility status, environmental compliance, and foreign-exchange exposure. Named legal matters include a Clean Air Act case involving Mammoth plants, a Hawaii drilling-hours suit, and a False Claims Act qui tam complaint; management disputed the allegations. The filing states ordinary-course proceedings are not expected to be material, but outcomes remain uncertain.
Important facts for investors to verify
- Whether the Northleaf transaction closed on the expected terms and how proceeds and partial ownership affect cash flow, debt, and reported results.
- Whether McGinness Hills, Olkaria III, Sarulla, and other projects meet construction, permitting, financing, and commercial-operation schedules and budgets.
- Actual sustainable output and repair costs at North Brawley, Puna, Steamboat, Brady, and Jersey Valley, including resource temperature and well-field trends.
- How much 2015 capital spending and debt repayment is funded from operating cash versus additional borrowing, and whether liquidity and covenant headroom remain adequate.
- Product backlog conversion, contract margins, customer financing, and the effect of competition on equipment pricing.
- Changes in PPA pricing exposure, major utility counterparties’ credit quality, and any material developments in the disclosed litigation or regulatory matters.