Ormat Technologies, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results are compared with Q1 2023 unless otherwise noted. Ormat develops, owns and operates renewable power and energy-storage facilities and sells power-generation equipment and services.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $224.2 million | $185.2 million | +21.0% |
| Gross profit / margin | $78.8 million / 35.2% | $76.1 million / 41.1% | Profit +3.6%; margin down 5.9 points |
| Operating income / margin | $52.6 million / 23.5% | $53.2 million / 28.7% | Income down 1.1% |
| Net income attributable to Ormat stockholders | $38.6 million | $29.0 million | +32.9% |
| Diluted EPS | $0.64 | $0.51 | +25.5% |
| Adjusted EBITDA (non-GAAP) | $141.2 million | $123.5 million | +14.4% |
| Cash from operations | $115.2 million | $56.5 million | +$58.8 million |
Interest expense, net, increased to $31.0 million from $23.6 million, mainly reflecting newer borrowings. Income attributable to sale of tax benefits rose to $17.5 million from $12.6 million. The effective tax rate was a benefit of 0.4%, compared with a 21.1% provision, primarily reflecting investment tax credits and the mix of earnings by jurisdiction.
Business changes and operating performance
- Electricity: Revenue increased 12.3% to $191.3 million. Higher U.S. revenue reflected the Enel assets, Heber 1’s return to operation, North Valley’s start-up and increased Puna generation. Total generation rose 7.9% to 2.03 million MWh; 71% of the increase came from acquired assets. Electricity gross margin declined to 39.0% from 44.4%, with costs affected by acquisition-related operations, the prior-year Puna insurance proceeds and higher depreciation in Kenya and Guadeloupe.
- Products: Revenue increased 147.3% to $24.8 million, mainly due to project progress and revenue-recognition timing. Product gross margin improved to 14.8% from 6.9%, reflecting the different profitability of projects.
- Energy storage: Revenue increased 65.6% to $8.1 million, supported by facilities placed in service during 2023 and higher market rates. The segment reported $0.6 million gross profit versus a $0.2 million gross loss.
- Enel acquisition: Ormat closed the $274.6 million cash acquisition on January 4, adding contracted geothermal, hybrid and solar assets and two development assets. The acquired portfolio contributed $9.4 million in electricity revenue and $3.3 million in earnings from acquisition through quarter-end. Purchase-price allocation, including certain asset, intangible and tax matters, remains subject to adjustment.
Cash, debt and liquidity
- March 31 cash and cash equivalents were $201.5 million; restricted cash was $97.5 million, for combined cash and restricted cash of $299.0 million. Ormat also reported $324.3 million of unused corporate borrowing capacity under committed credit and letter-of-credit facilities.
- Operating cash flow was $115.2 million. Investing used $377.8 million, including $274.6 million for the Enel acquisition and $103.4 million of capital expenditures. Financing provided $273.9 million, including proceeds from new loans and Mammoth notes; the prior-year quarter included $297.1 million of net equity-offering proceeds.
- At quarter-end, balance-sheet debt included $68.2 million of current limited/non-recourse debt, $150.8 million of current full-recourse debt, $100.0 million of commercial paper, $557.9 million of long-term limited/non-recourse debt, $835.8 million of long-term full-recourse debt and $423.7 million of convertible notes. These amounts exclude financing liabilities and leases.
- Q1 financing included $75 million of Hapoalim debt at 6.6%, a $125 million HSBC loan at three-month SOFR plus 2.25% (hedged to fixed three-month SOFR of 3.9%), and $135.1 million of Mammoth secured notes at 6.73%. A further $30 million DEG loan was drawn in April.
- Management reported covenant compliance, with a 4.13 net-debt-to-adjusted-EBITDA ratio against a 6.0 maximum and a 44.9% equity-to-assets ratio against a 25% minimum. The DAC 1 subsidiary did not meet its distribution criteria, restricting distributions from that subsidiary. Long-term debt and other obligation minimum payments total $2.47 billion, including $177.4 million in 2024.
Outlook, risks and unusual items
- Ormat estimated $472 million of capital expenditures for the remaining three quarters of 2024 and $163.3 million of long-term debt repayment needs. It expects to fund requirements with available liquidity, operating cash flow and future project financings/refinancings. The filing provides no clear full-year revenue or earnings guidance.
- Management described liquidity as sufficient for current plans. Projects under development include geothermal, solar and storage facilities, with stated expected commercial-operation dates spanning 2024–2026. The company expects seasonal electricity revenue and gross profit to generally be stronger in Q1 and Q4 than Q2 and Q3.
- On April 23, 2024, Kenya’s revenue authority issued preliminary findings demanding approximately $79 million before possible interest and penalties for tax years 2017–2022. Ormat and its advisers said they believe the findings lack merit and intend to contest them.
- Customer and collection exposure is notable: SCPPA, NV Energy and Kenya Power represented 24.7%, 16.8% and 12.2% of Q1 revenue, respectively. KPLC had $40.0 million overdue at quarter-end, of which $12.4 million was paid in April. Honduras utility ENEE had $16.9 million overdue, with none paid as of the filing discussion; management warned of possible further delays.
- The filing says the Israel war had not damaged facilities or significantly disrupted supply chains as of the reporting date. However, the location of key management and manufacturing operations and Red Sea shipping disruptions could delay components, product deliveries or growth plans and increase shipping insurance costs.
- A special committee’s investigation into anti-corruption allegations raised in a short-seller report remains ongoing; the company is also providing information requested by the SEC and DOJ. Management said ordinary-course legal matters are not expected to be material. The filing reported effective disclosure controls and no material Q1 changes to internal control over financial reporting.
- The Board declared a $0.12-per-share quarterly dividend payable June 5, 2024. The filing also notes exposure to merchant electricity prices in storage markets, foreign-exchange movements, inflation, financing costs, operating and development risks, and dependence on government incentives.
Most important facts for investors to verify
- Whether the acquired Enel assets and planned project pipeline deliver expected operating performance, synergies and returns, and how the purchase-price allocation is finalized.
- Whether gross-margin pressure, higher interest expense and planned capital spending affect cash generation, leverage and covenant headroom.
- Progress in collecting overdue balances from KPLC and ENEE, and any developments in the Kenya tax authority’s approximately $79 million preliminary demand.
- Whether the Israel conflict and Red Sea disruptions materially affect manufacturing, component availability, shipping or project schedules.
- Storage-market revenue and project execution, and the outcome of the SEC/DOJ information requests and related special-committee investigation.