Business context and reporting period
Ormat Technologies, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company develops and operates geothermal, solar and recovered-energy power plants, sells power-generation equipment and services, and operates energy-storage facilities. Electricity supplied 89.4% of second-quarter revenue. Results are compared with the corresponding 2021 periods.
Financial performance
Amounts below are in U.S. dollars; financial statement amounts are in millions except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $169.1 | $146.9 | $352.8 | $313.3 |
| Gross profit / margin | $57.6 / 34.1% | $52.0 / 35.4% | $127.5 / 36.1% | $125.6 / 40.1% |
| Operating income / margin | $38.6 / 22.8% | $28.6 / 19.5% | $83.7 / 23.7% | $78.5 / 25.1% |
| Net income attributable to Ormat stockholders | $11.3 | $13.0 | $29.7 | $28.3 |
| Basic and diluted EPS | $0.20 | $0.23 | $0.53 / $0.53 | $0.51 / $0.50 |
| Operating cash flow | Not separately provided | Not separately provided | $115.3 | $98.8 |
| Capital expenditures | Not separately provided | Not separately provided | $263.4 | $207.9 |
- Second-quarter revenue increased 15.1%; electricity revenue rose 12.9%, product revenue 40.2%, and energy-storage revenue 33.1%. Electricity generation increased 1.5% year over year.
- For the first half, revenue increased 12.6% and stockholder-attributable net income increased 5.0%. Electricity and product revenue grew, while energy-storage revenue fell 23.4%, principally reflecting comparison with unusually high Texas market-related revenue in 2021.
- Margins were mixed: operating margin improved in Q2 but declined for the six-month period. Product gross margin fell to 0.2% in Q2 and 4.2% year to date, with higher raw-material and marine-transport costs contributing. Electricity cost pressure also reduced six-month gross margin.
Liquidity, debt and capital allocation
- At June 30, cash and cash equivalents were $263.4 million; restricted cash was $93.0 million. Total current assets were $585.6 million and current liabilities were $353.1 million. The company reported $386.9 million of unused corporate borrowing capacity.
- Six-month operating cash flow was $115.3 million; investing activities used $225.0 million, primarily for capital expenditures; financing activities provided $123.0 million. Cash and restricted cash together increased $12.9 million to $356.4 million.
- Balance-sheet debt carrying values totaled about $1.81 billion across limited/non-recourse, full-recourse and convertible debt, with a separate $249.1 million financing liability. Ormat issued $431.25 million principal of 2.5% convertible notes due 2027 and obtained a $75 million, eight-year Mizrahi loan at 4.1%. It used approximately $221.9 million of note proceeds to prepay Series 3 Bonds due in September 2022, and spent $24.5 million on capped calls and $18.0 million repurchasing shares.
- Management estimated $254 million of capital expenditures for the second half of 2022 and $72.9 million of long-term debt repayments for the remainder of the year. It said available liquidity, operating cash flow and expected project financing would meet anticipated needs. This is not a formal earnings forecast.
- The company reported compliance with applicable financial covenants overall, but a subsidiary did not meet the dividend-distribution test for its DAC 1 secured notes, restricting distributions from that subsidiary. The reported debt-to-adjusted-EBITDA ratio was 4.0, and equity-to-assets was 43.6%.
Outlook, material developments and risks
- Growth projects and expansions continued, including the April start of Tungsten Mountain 2 and June start of the Tierra Buena battery facility. CD4 and two solar projects entered commercial operation in July 2022. Management described multiple projects under construction or development, with expected completion dates extending into 2024; timelines remain subject to permitting, construction and interconnection.
- The Heber 1 plant was damaged by a February fire and was operating at approximately 20 MW after partial restart. The company estimated the outage would reduce monthly revenue by about $1.5 million and recorded $3.4 million of business-interruption insurance income in Q2. It expects insurance to cover property damage, but is working with insurers; full restoration cost and timing were not clearly established.
- Construction at the 12 MW Dixie Meadows project was temporarily paused during consultation concerning the endangered Dixie Valley Toad. The project had a $56.1 million net book value at quarter-end. Further delays or mitigation requirements could increase costs, defer revenue or affect project economics; the ultimate litigation outcome and potential loss were not estimable.
- Supply-chain constraints, higher raw-material, battery and transportation costs, inflation and rising interest rates could pressure margins, raise project costs and delay completion. Energy-storage revenue is exposed to merchant-market price volatility; most electricity revenue is supported by long-term contracts, and 90.7% of first-half electricity revenue came from fixed-rate PPAs.
- Customer concentration and collections warrant attention: three major customers represented a substantial share of revenue. Amounts overdue at June 30 included $27.2 million from Kenya Power (of which $9.6 million was paid in July) and $21.4 million from Honduras utility ENEE (of which $0.9 million was paid in July). The company believed the balances were collectible but noted possible delays.
- The company’s special committee investigation into short-seller allegations concerning anti-corruption compliance remained ongoing, and Ormat was providing information requested by the SEC and DOJ. A separate shareholder class-action certification motion was withdrawn, with immaterial costs to Ormat. Management also identified operational, geothermal-resource, regulatory, foreign-exchange, customer-credit, financing, cyber and insurance risks.
Most important facts for investors to verify
- Whether Heber 1 recovery and insurance proceeds offset the outage’s production and revenue impact, and whether the planned Heber repowering stays on schedule.
- Progress and permitting outcomes for Dixie Meadows, including the effects of species consultation on project costs and timing.
- Whether product-segment margins recover as input and shipping costs change, and whether product backlog converts into revenue; reported backlog was $54.9 million as of August 3, 2022.
- Collection of overdue receivables, especially from KPLC and ENEE, and any further customer-payment delays.
- Execution of the 2022 capital plan, debt repayments and project financing while maintaining covenant compliance and adequate liquidity.
- Developments in the SEC/DOJ information requests and the company’s special committee investigation.