Business Context and Reporting Period
Company: Ormat Technologies, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2009
Business Overview: Ormat is a vertically integrated company engaged in the geothermal and recovered energy power business. It operates two primary segments: the Electricity Segment (developing, building, owning, and operating power plants) and the Products Segment (designing, manufacturing, and selling equipment and providing engineering services).
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 |
|---|---|---|
| Total Revenues | $99,889 | $69,387 |
| Gross Margin | $31,762 | $22,661 |
| Operating Income | $19,125 | $12,419 |
| Net Income (Attributable to Stockholders) | $14,585 | $10,064 |
| Earnings Per Share (Diluted) | $0.32 | $0.24 |
| Cash and Cash Equivalents | $42,711 | $30,722 |
| Net Cash Provided by Operating Activities | $42,534 | $33,816 |
| Total Debt (Current + Long-Term) | $464,645 | $396,251 |
Note: Total Debt includes limited/non-recourse debt, senior secured notes, revolving credit lines, and notes payable to Parent.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 44.0% to $99.9 million. This was driven primarily by a 277.5% surge in the Products Segment ($37.3 million vs. $9.9 million) due to large EPC contracts (Blue Mountain and Centennial Binary Plant). The Electricity Segment grew modestly by 5.2% to $62.6 million.
- Profitability: Net income increased 45.2% to $14.6 million. Operating income rose 54.0% to $19.1 million, aided by improved gross margins in the Products Segment (34.9% vs. 18.4% in Q1 2008).
- Cost of Revenues: Increased 45.8% to $68.1 million, reflecting higher volume in both segments. However, the Products Segment cost of revenue as a percentage of revenue improved significantly (65.1% vs. 81.6%) due to lower commodity prices and product mix.
- Foreign Currency: Foreign currency translation and transaction losses increased significantly to $2.6 million (from $0.2 million), primarily due to losses on forward foreign exchange transactions.
- Debt Structure: The company closed a $105.0 million project financing loan for the Olkaria III power plant in Kenya in March 2009, with $90.0 million disbursed in Q1.
Guidance, Outlook, and Risks
- Capital Expenditures: Estimated capital needs for the remainder of 2009 are approximately $201 million for new projects and exploration, plus $34.8 million for debt repayment.
- Liquidity: Management believes current resources (cash, operating cash flow, and $241.1 million in unused borrowing capacity) are sufficient to fund 2009 activities. A shelf registration allows for up to $1.5 billion in additional capital raising.
- Market Risks:
- Global Recession: Potential decline in demand for energy and reduced ability of customers to pay.
- Commodity Prices: Lower oil prices reduced revenues from the Puna facility (variable rate based on avoided costs) but lowered construction costs.
- Financing: Credit market conditions may increase the cost of capital or limit availability for future projects.
- Unusual Items:
- Auction Rate Securities: Recorded a $0.3 million impairment charge. The fair value of these illiquid securities is $4.7 million, representing a $6.5 million decline from par value ($11.2 million).
- Accounting Change: Adopted SFAS No. 160, resulting in retrospective presentation changes regarding noncontrolling interests.
- Dividends: Declared a quarterly dividend of $0.07 per share for Q1 2009 and $0.06 per share for Q2 2009.
Investor Verification Checklist
- Products Segment Sustainability: Verify the backlog and timing of revenue recognition for the large EPC contracts driving the Products Segment's 277% growth.
- Auction Rate Securities: Assess the liquidity risk and potential for further impairment on the $11.2 million par value of failed auction rate securities.
- Foreign Exchange Exposure: Review the hedging strategy given the $2.6 million loss on currency translation/transactions in Q1.
- Debt Covenants: Confirm compliance with restrictive covenants on the new Olkaria III loan and existing senior secured notes, particularly regarding dividend payments and leverage ratios.
- Customer Concentration: Monitor credit risk regarding major customers (Southern California Edison, Hawaii Electric Light, NV Energy) which collectively accounted for a significant portion of revenues.