Ormat Technologies, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Ormat develops, owns and operates geothermal and recovered-energy power plants and sells power-generation equipment and related services. Its two segments are Electricity and Product.
Financial performance and position
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Revenue | $437.0 million | $373.2 million |
| Electricity revenue | $323.8 million | $291.8 million |
| Product revenue | $113.2 million | $81.4 million |
| Gross profit / margin | $116.9 million / 26.8% | $77.6 million / 20.8% |
| Operating income / margin | $64.0 million / 14.7% | $23.6 million / 6.3% |
| Net income (loss) attributable to shareholders | ($43.1) million; EPS ($0.95) | $37.3 million; EPS $0.82 |
| Operating cash flow | $132.7 million | $101.4 million |
| Capital expenditures | $269.7 million | $283.3 million |
| Adjusted EBITDA | $166.7 million | $164.3 million |
- Q4 2011 revenue was $123.7 million, including $77.6 million Electricity and $46.2 million Product revenue. The quarter’s shareholder net loss was approximately $43.1 million, largely reflecting a $49.3 million income-tax provision.
- Cash and cash equivalents were $99.9 million; marketable securities were $18.5 million. Working capital was $98.4 million. Total assets were $2.315 billion and equity was $906.6 million at year-end.
- Total debt, including current portions, was approximately $1.025 billion, up from $789.7 million. The company reported a 5.42 net-debt-to-EBITDA covenant ratio. It reported $75.1 million of unused corporate borrowing capacity at year-end.
- 2011 cash flow from investing activities was negative $341.0 million and financing activities provided $225.3 million. Operating cash flow did not cover capital expenditures.
Material changes versus prior year
- Revenue rose 17.1%: Electricity revenue increased 11.0% and Product revenue 39.0%. Generation increased 4.1% to 3.92 million MWh; the average electricity portfolio rate rose from $78 to $83 per MWh.
- Gross margin improved to 26.8% from 20.8%, and operating income increased substantially, helped by higher revenue and no 2011 exploration write-offs (versus $3.1 million in 2010).
- Despite stronger operations, the company moved from profit to loss. Key drivers included a $61.5 million valuation allowance against U.S. deferred tax assets, a $16.4 million loss on interest-rate-lock transactions, higher interest expense, and the absence of 2010’s $36.9 million acquisition gain.
- Interest expense, net, increased 71.6% to $69.5 million. Cash and marketable securities increased to $118.4 million, while debt and construction spending also increased.
Outlook, commentary and risks
- Management estimated 2012 capital expenditures of approximately $367 million and debt repayments of $55.6 million. It expected to fund these needs with existing liquidity, operating cash flow, project financing or refinancing, and eligible grants; this is a financing plan, not earnings guidance.
- Management described approximately 175 MW of its share of geothermal capacity expected to come online over the following two years, plus approximately 42 MW of its share in Sarulla. Timing and completion depend on resource results, permits, financing and construction. The 10 MW Heber Solar project was under construction, with commercial operation expected in 2013 subject to interconnection.
- California PPAs for Ormesa, Mammoth, Heber 1 and Heber 2 were scheduled to shift from fixed energy prices to SRAC-based pricing in May 2012. Management warned that lower natural-gas price forecasts could reduce revenues under these formulas. Puna’s variable-rate energy revenue is also affected by oil-linked avoided costs.
- North Brawley continued to operate below its intended capacity: demonstrated capacity was 33 MW versus 50 MW designed, with difficult well-field operation and elevated operating costs. No impairment was recorded, but management said a material write-down could be required if future generation is below approximately 37 MW or costs exceed estimates.
- Other execution and operating risks include geothermal resource uncertainty and decline, construction delays and cost overruns, transmission constraints, permitting and environmental obligations, counterparty concentration, foreign political and currency exposure, and dependence on renewable-energy incentives. California utilities’ future procurement and pricing obligations under PURPA are also relevant.
- Legal matters include a proposed $3.1 million securities-class-action settlement funded by insurers, still subject to final documentation and court approval; derivative cases were stayed pending that matter. FERC determined a settlement amount was due for REG facilities, with an immaterial effect on the 2011 statements. A 2012 petition challenging California permitting jurisdiction over North and East Brawley was described by the company as without merit.
- PricewaterhouseCoopers issued an unqualified audit opinion and concluded internal control over financial reporting was effective as of year-end. The filing discusses an earlier restatement of exploration-cost accounting that gave rise to securities litigation.
Important facts for investors to verify
- Whether 2012 capital spending, scheduled project additions and financing plans were achieved, especially Olkaria III expansion and the McGinness Hills and Tuscarora projects.
- Actual 2012 SRAC prices and the resulting revenue and margin effect on the California plants as fixed-price periods expired.
- North Brawley’s sustainable output, operating costs, transmission arrangements and impairment sensitivity.
- Debt maturities, covenant headroom, restricted project cash and the availability of stated borrowing capacity; project financing is not necessarily freely available to the parent.
- Use and realizability of U.S. tax attributes following the $61.5 million valuation allowance, including the assumptions supporting future taxable income.
- Resolution and financial effect of the securities settlement, derivative cases, FERC matter and California permitting petition.
- Customer concentration: Southern California Edison accounted for 27.7% of 2011 revenue; the filing also identifies substantial exposure to NV Energy utilities and HELCO.