Ormat Technologies, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are noted where useful. Ormat develops, owns and operates geothermal and recovered-energy power plants and sells generation equipment and related services through its Electricity and Product segments.
Financial performance and liquidity
- Revenue: $594.6 million, up 6.3% from $559.5 million in 2014. Electricity revenue was $375.9 million, down 1.7%; Product revenue was $218.7 million, up 23.4%.
- Profit and margins: Gross margin was $218.3 million, or 36.7% of revenue, versus $203.8 million, or 36.4%, in 2014. Operating income rose 14.4% to $164.1 million; operating margin was 27.6%. Net income attributable to shareholders was $119.6 million, or $2.46 basic and $2.43 diluted EPS, versus $54.2 million, or $1.19 basic and $1.18 diluted EPS, in 2014. The 2015 result included a $49.4 million tax benefit from a Kenyan tax-law change.
- Cash flow: Operating cash flow was $190.0 million, down from $213.2 million. Capital expenditures were $152.5 million; investing cash outflow was $91.0 million, and financing cash inflow was $46.6 million. Adjusted EBITDA, a non-GAAP measure, was $291.3 million versus $272.7 million.
- Debt and liquidity: Long-term debt, including current portions, totaled $920.5 million, down from $1,001.4 million. Cash and equivalents were $185.9 million, versus $40.2 million; $170.7 million was held in foreign jurisdictions. Working capital was $186.6 million. The company reported $145.3 million of unused corporate borrowing capacity at year-end; committed lines totaled $532.5 million, with substantial capacity supporting outstanding letters of credit.
- Other operating indicators: Power generation increased 8.6% to 4.84 million MWh. Operating capacity was reported at 697 MW, with an 87% geothermal capacity factor and 77% recovered-energy capacity factor. Product backlog was $256.3 million as of February 23, 2016, down from $325.8 million a year earlier.
- Fourth quarter: Revenue was $171.1 million and net income attributable to shareholders was $23.0 million, or $0.47 basic EPS. Product revenue increased through the year and reached $73.3 million in Q4.
Material changes versus 2014
- Total revenue growth came from Product, while Electricity revenue declined. Management attributed the Electricity decrease mainly to approximately $30 million of lower revenue associated with lower oil and natural-gas prices and reduced Puna generation after a hurricane. New McGinness Hills and Don A. Campbell capacity partly offset the decline.
- Despite lower Electricity revenue, generation rose as new plant phases entered service. Electricity operating costs declined modestly; Product revenue and operating income increased, reflecting contract timing, product mix and manufacturing improvements.
- Net income more than doubled, but the increase was materially affected by the Kenyan tax benefit. Excluding the $49.4 million deferred tax benefit, management reported a 28.8% effective tax rate for 2015.
- Cash increased following operating cash generation, $156.6 million of net proceeds from Northleaf’s purchase of a minority interest in ORPD, and a $42.0 million Amatitlan loan. Cash generation from operations was lower than in 2014, and debt repayments continued.
- The February 2015 share exchange with former parent Ormat Industries increased public float from about 40% to about 76%; it also increased shares outstanding. Northleaf acquired a 36.75% interest in ORPD while Ormat retained control.
Outlook, risks and unusual items
- Outlook and investment: Management’s multi-year strategy targets geographic expansion, acquisitions, energy storage, solar and commercial-and-industrial customers, while continuing core geothermal and recovered-energy operations. Management gave no formal consolidated revenue or earnings guidance in the provided filing text. It estimated 2016 capital expenditures of approximately $264 million and debt repayment of $62.7 million; a separate liquidity discussion estimated 2016 capital needs of approximately $304 million. These estimates differ and should be reconciled against the detailed project plans.
- Projects: The 35 MW Platanares project in Honduras was under construction, with commercial operation expected by the end of 2017 and average annual revenue estimated by the company at approximately $33 million. Sarulla in Indonesia faced drilling and EPC delays and cost overruns that could affect financing draws and require additional consortium equity. Olkaria III Plant 4 in Kenya began commercial operation in January 2016, adding 29 MW.
- Operating and market risks: Geothermal resource decline, plant outages, water availability, project execution, transmission access, counterparty credit, foreign political and currency risks, changing renewable-energy incentives, and competition are material exposures. North Brawley remained below design capacity, with management limiting further investment pending geological analysis and/or improved energy rates. Some electricity PPAs remain exposed to avoided-cost pricing linked to oil or natural-gas prices, although most Electricity revenue came from fixed-rate PPAs.
- Legal and contingencies: Disclosed matters include a Hawaii drilling dispute, a Clean Air Act claim involving Mammoth-area facilities, a Puna labor-union dispute, and a qui tam suit alleging improper grant applications for Puna and North Brawley. The company disputed the allegations and said it would defend itself. Outstanding letters of credit were $399.1 million; supplier purchase commitments were $74.8 million, payable in 2016.
- Other unusual items: The Kenyan tax-law change released a valuation allowance and produced the $49.4 million tax benefit. The company also recorded $1.6 million of unsuccessful exploration write-offs, $3.8 million of share-exchange transaction costs, and a $1.7 million loss on repurchase of OFC notes. No impairment of long-lived assets was recorded for 2015. The independent auditor issued an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- How much of 2015 earnings growth is repeatable after excluding the $49.4 million Kenyan deferred-tax benefit and other non-operating items?
- Whether Sarulla’s drilling delays and cost overruns are contained, and whether they require additional equity or change the project’s commissioning timetable.
- Whether the stated 2016 capital-spending and total liquidity-need estimates reconcile, and how planned projects will be funded.
- Progress in stabilizing North Brawley and Puna generation, and the effects of resource performance, water constraints and commodity-linked PPA rates on revenue.
- The availability of cash held abroad, borrowing capacity after letters of credit and covenants, and the effect of debt maturities—particularly the approximately $312.9 million scheduled for 2017—on liquidity.
- Developments in the disclosed legal matters, the $399.1 million of letters of credit and other contingent obligations.