Ormat Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Ormat operates electricity generation, product, and energy storage businesses, with an approximately 1.1 GW generating portfolio.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $146.9m | $174.9m | $313.3m | $367.0m |
| Gross profit / margin | $52.0m / 35.4% | $65.4m / 37.4% | $125.6m / 40.1% | $147.2m / 40.1% |
| Operating income / margin | $28.6m / 19.5% | $48.1m / 27.5% | $78.5m / 25.1% | $109.1m / 29.7% |
| Net income attributable to shareholders | $13.0m | $23.0m | $28.3m | $49.1m |
| Diluted EPS | $0.23 | $0.45 | $0.50 | $0.95 |
| Adjusted EBITDA | $84.5m | $97.9m | $183.8m | $203.9m |
Revenue mix in Q2 was electricity $133.9m, products $7.4m, and energy storage $5.6m. Electricity generation increased 2.4% in Q2 and 2.2% in the first half year over year.
Cash flow, liquidity, and debt
- First-half operating cash flow was $98.8m, down from $154.4m. Capital expenditures were $207.9m, resulting in operating cash flow less capital expenditures of approximately negative $109.0m.
- Investing cash outflow was $254.5m; financing cash outflow was $51.0m. Cash, cash equivalents, and restricted cash declined $206.9m to $329.9m. At June 30, cash and cash equivalents were $250.0m, marketable securities were $46.0m, and unused committed corporate borrowing capacity was $386.2m.
- Debt outstanding in the filing’s debt table totaled approximately $1.43bn, comprising $644.3m of limited-/non-recourse debt and $790.3m of full-recourse debt. The balance sheet reports $1.42bn of current and long-term debt carrying amounts, excluding lease liabilities.
- Management reported covenant compliance at June 30: equity of $1.96bn, equity-to-assets ratio of 51.3%, and net debt to adjusted EBITDA ratio of 2.8. Approximately 97.4% of consolidated long-term debt was fixed-rate.
Changes versus prior comparable periods
- Q2 revenue fell 16.0% and first-half revenue fell 14.6%, principally because product revenue declined 83.0% in Q2 and 82.4% in the first half. Prior-year product revenue included large projects in Turkey, New Zealand, and Chile.
- Electricity revenue rose 4.0% in Q2 and 2.7% in the first half, supported by resumed partial Puna operations and plant enhancements; higher operating costs reduced electricity gross margin.
- Energy storage revenue increased 123.8% in Q2 and 320.8% in the first half, including contributions from acquired Pomona assets and unusually high Texas market prices.
- General and administrative expense rose to $18.2m in Q2 and $36.8m in the first half, including acquisition-related and Special Committee legal costs; first-half expense also included a $3.0m provision for potentially uncollectible Texas grid charges.
- First-half derivatives and foreign-currency results were a $16.2m loss, versus a $1.1m gain in 2020, including $14.5m of losses from the Rabbit Hill hedge transaction. No business interruption insurance income was recorded in 2021, compared with $3.0m in the first half of 2020.
Outlook, management commentary, and risks
- No specific revenue or earnings guidance is provided. Management estimated $278.0m of capital expenditures for the remainder of 2021 and $42.2m of debt repayments, and said available liquidity, operating cash flow, and expected project financing would fund anticipated needs.
- Product backlog was $59.1m as of August 4, 2021, versus $66.0m a year earlier. Management attributed the decline mainly to pandemic-related effects and customer reluctance to commit; it noted a limited recovery in Q2. Remaining product performance obligations were $58.6m, expected to be recognized over the next 24 months.
- COVID-19 restrictions, permitting delays, supply-chain constraints, and higher material and shipping costs remain risks. Most electricity revenue is under long-term contracts, predominantly with fixed energy rates, limiting direct pandemic and power-price exposure. Storage-market revenue is more exposed to market prices.
- KPLC curtailments and weaker resource performance reduced Olkaria output. KPLC receivables overdue at quarter-end were $43.5m, of which $13.2m was paid in July; $7.4m was overdue from Honduras utility ENEE, with no July payment. Ormat said it expected to collect the past-due amounts.
- Puna operated at about 25 MW in Q2 and approximately 28 MW after turbine repairs; management expected about 30 MW by year-end, with additional wells needed for full capacity. Approval of the proposed amended PPA remains delayed: the Hawaii regulator ordered environmental review and rate renegotiation, and reconsideration motions were pending.
- February’s Texas power crisis caused approximately $9.1m of net hedge losses and a $3.0m receivables provision. Billing disputes with ERCOT could affect the final amount.
- After quarter-end, Ormat acquired two Nevada geothermal plants with 67.5 MW net capacity for approximately $171m cash and assumed debt and lease obligations with a June 30 book value of about $206m. It also entered into $175m of seven-year corporate loans at 3.45%, used to fund the acquisition.
- A Special Committee is investigating short-seller allegations concerning anti-corruption compliance; the company is responding to SEC and DOJ information requests. A separate Israeli class-action claim seeks approximately $100m; Ormat said it considered its defenses strong and could not reasonably estimate potential exposure. Earlier shareholder and derivative cases were settled for immaterial amounts. Other disclosed risks include customer concentration, foreign operations, operational disruptions, and project execution.
Important facts for investors to verify
- Whether product backlog stabilizes and converts into revenue, and whether project delays or rising costs pressure margins.
- Progress on the Puna PPA approval, environmental review, drilling, and restoration of generating capacity.
- Collection of overdue KPLC and ENEE receivables, and the resolution and ultimate financial impact of ERCOT disputes.
- Updates from the Special Committee, SEC, and DOJ processes, and the status and potential exposure of the approximately $100m class-action claim.
- Acquisition integration, assumed obligations, capital spending, and financing needs; assess debt and liquidity against project commitments and covenants.