Ormat Technologies, Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023. This is an annual filing; the supplied text does not provide a clear set of standalone fourth-quarter financial results. Amounts below are in U.S. dollars unless stated otherwise.
Business context and reporting period
Ormat develops, owns and operates geothermal, recovered-energy and solar power plants; designs and sells power-generation equipment and EPC services; and owns and operates grid-connected battery energy storage systems (BESS). The company reports Electricity, Product and Energy Storage segments. At year-end it operated 32 power-plant complexes with 1,215 MW of generating capacity; geothermal represented 92% of capacity. Storage operations totaled 170 MW/298 MWh.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| Total revenue | $829.4 million | $734.2 million | Up 13.0% |
| Electricity revenue | $666.8 million | $631.7 million | Up 5.5% |
| Product revenue | $133.8 million | $71.4 million | Up 87.3% |
| Energy Storage revenue | $28.9 million | $31.0 million | Down 6.8% |
| Gross profit | $264.0 million | $268.8 million | Down 1.8%; gross margin fell to 31.8% from 36.6% |
| Operating income | $166.6 million | $152.8 million | Up 9.0%; operating margin was 20.1%, versus 20.8% |
| Net income | $133.1 million | $77.8 million | Net income attributable to shareholders was $124.4 million, versus $65.8 million |
| Diluted EPS | $2.08 | $1.17 | — |
| Adjusted EBITDA | $481.7 million | $435.5 million | Up 10.6%; non-GAAP measure |
| Cash from operations | $309.4 million | $281.0 million | Up $28.4 million |
| Capital expenditures | $618.4 million | $563.5 million | Operating cash flow less capex was approximately negative $309 million |
- Segment margins: Electricity gross profit was $244.2 million, with a 36.6% margin versus 39.8%. Product gross profit was $18.0 million, with a 13.4% margin versus 15.3%. Energy Storage gross profit was $1.8 million, with a 6.4% margin versus 21.0%.
- Profit drivers and items: Higher Product revenue, increased generation and new or returning plants supported growth. Net income also benefited from $61.2 million of income attributable to sale of tax benefits, up from $33.9 million, and a lower effective tax rate of 4.3% versus 15.4%. The filing says tax-benefit income includes tax-equity allocations and transferable credits; it should not be treated as equivalent to recurring operating profit.
- Year-end liquidity: Cash and cash equivalents were $195.8 million, restricted cash $92.0 million, and unused corporate borrowing capacity $307.8 million. Current assets were $646.0 million and current liabilities $537.0 million.
- Debt: At December 31, 2023, disclosed principal balances included approximately $512.9 million of limited/non-recourse debt, $817.8 million of full-recourse debt, $431.3 million of convertible notes and $225.8 million of financing liability, plus $100.0 million of commercial paper and $20.0 million of short-term bank credit. These categories total approximately $2.11 billion; balance-sheet carrying amounts differ. The company reported a covenant debt-to-Adjusted-EBITDA measure of 3.74 and said it was in compliance with applicable covenants, except for a project-level distribution restriction described below.
- Cash needs and shareholder returns: Management estimated approximately $550 million of 2024 capital expenditures and $179 million of long-term debt repayments. Supplier purchase commitments of $419.8 million were payable in 2024. Dividends paid in 2023 were $28.4 million ($0.48 per share); the stated policy targets distributing at least 20% of annual profits available for distribution, subject to the Board’s assessment of obligations and business plans.
Material changes versus the prior comparable period
- Total revenue increased, chiefly as Product revenue nearly doubled on New Zealand and Indonesian projects. Electricity revenue rose modestly, while Energy Storage revenue declined as lower merchant rates at PJM and CAISO offset new facilities.
- Electricity generation increased 8.0% to 7.20 million MWh, while average realized prices declined to $92.70/MWh from $94.80/MWh. Electricity costs rose 11.1%, faster than segment revenue; business-interruption insurance income was $6.3 million in 2023 versus $15.6 million in 2022.
- Gross profit declined despite revenue growth, reflecting higher costs and weaker segment margins. Product cost of revenue rose faster than Product sales, lowering its margin. Storage costs increased as new facilities entered service.
- Operating income increased partly because 2022 included a $32.6 million long-lived-asset impairment charge, primarily related to Brawley; there was no comparable impairment in 2023. 2023 included $3.7 million of unsuccessful exploration write-offs, versus $0.8 million in 2022.
- Cash from operations increased, but investing outflows rose to $628.3 million, principally reflecting $618.4 million of capital expenditures. Financing cash inflows included $341.7 million net proceeds from a share offering, new borrowing and commercial paper.
- Shares outstanding increased following the March 2023 public offering of 4.14 million shares, including the underwriters’ exercised option; net proceeds were approximately $341.7 million.
Outlook, management commentary, risks and unusual items
- Growth plans: Management expects to add 335–355 MW of Electricity-segment capacity from 2024 through 2026, targeting approximately 1.5 GW by year-end 2026. It targets 700–800 MW/1,900–2,300 MWh of storage by the same date. Projects depend on permitting, interconnection, equipment supply, financing and economic viability; these are targets, not guaranteed outcomes.
- Construction and backlog: The company reported 162 MW of Electricity projects released for construction. Product backlog was approximately $152 million in February 2024, with most attributed to New Zealand. Product delivery and revenue timing can fluctuate with project execution and customer financing.
- Acquisition after year-end: On January 4, 2024, Ormat closed a $272 million acquisition of geothermal and solar assets from Enel Green Power North America. The purchase-price allocation was still being evaluated in the filing. The company also entered into $200 million of new loans in January 2024 to support financing needs.
- Israel-related exposure: The filing describes the effects and potential consequences of the war beginning October 7, 2023, including employee military call-ups, shipping disruption, longer lead times and higher transportation and insurance costs. At the financial-statement approval date, the company reported no damage to its facilities or significant supply-chain impact, but warned that prolonged disruption could affect Product-segment delivery and growth.
- Customer collections and concentration: Three customers—SCPPA, NV Energy and Kenya Power and Lighting Company (KPLC)—accounted for 21.2%, 14.1% and 13.2% of 2023 revenue, respectively. KPLC overdue receivables were $62.8 million at year-end; $32.2 million was collected in January and February 2024. Honduras utility ENEE had $15.7 million overdue; $2.5 million was collected in that period. Ormat expects collection but flags potential delays. KPLC also requested more favorable rates on existing PPAs.
- Operating and market risks: Geothermal resource decline, wellfield performance, volcanic or seismic events, outages, transmission access, weather and water availability may affect generation. Storage revenue has merchant-market exposure, and battery reliability, fire risk, costs and project delays are additional risks. The company also cites rising financing costs, inflation, foreign exchange exposure, regulation and dependence on government incentives.
- Legal and regulatory matters: The Dixie Meadows project remains subject to supplemental environmental review and Endangered Species Act consultation; related litigation was administratively closed without prejudice while review proceeds. A special committee is investigating claims in a short-seller report concerning anti-corruption compliance, and the company is providing information requested by the SEC and DOJ. The filing does not state a resolution.
- Other notable items: The Brawley plant was impaired by $30.5 million in 2022 after wellfield problems; 2023 results had no impairment charge. Olkaria in Kenya and the Sarulla investment in Indonesia have faced operational/resource issues. A project-level covenant at the DAC 1 Senior Secured Notes restricted distributions at year-end. The auditor issued unqualified opinions on the financial statements and internal control; the audit highlighted estimates of future costs in Product-segment revenue recognition as a critical audit matter.
Important facts for investors to verify
- Whether the large increase in reported net income and EPS is sustainable, given the material contribution from tax-benefit transactions and the unusually low effective tax rate.
- Progress on collecting KPLC and ENEE overdue balances, KPLC’s rate request, and exposure to the largest customers and international markets.
- Whether Electricity and Product margins recover after 2023 cost increases, and whether storage revenue improves as new facilities operate and contracted revenues increase.
- Execution, permitting, financing and expected returns for the 2024–2026 construction and storage targets; the filing gives different storage pipeline figures in different sections (3.6 GW/13.1 GWh versus 2.9 GW/9.9 GWh), which should be reconciled.
- Funding capacity for planned capital spending, 2024 debt maturities and supplier commitments, including the impact of the post-year-end Enel acquisition and new loans.
- Developments in Israel-related supply and workforce disruption, the Dixie Meadows review, the SEC/DOJ information request, and geothermal resource remediation at Olkaria, Sarulla and other affected plants.