Business context and reporting period
Ormat Technologies, Inc. develops, owns and operates geothermal, recovered-energy, solar and battery-storage assets, and sells power-generation equipment and related services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. The company reported approximately 1.3 GW of generating capacity across its portfolio.
Financial results and liquidity
Dollar amounts are in millions except per-share data. Q2 means three months ended June 30; YTD means six months ended June 30.
| Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Revenue | $194.8 | $169.1 | $380.0 | $352.8 |
| Gross profit / margin | $49.5 / 25.4% | $57.6 / 34.1% | $125.6 / 33.0% | $127.5 / 36.1% |
| Operating income / margin | $24.2 / 12.4% | $38.6 / 22.8% | $77.4 / 20.4% | $83.7 / 23.7% |
| Net income attributable to Ormat shareholders | $24.2 | $11.3 | $53.2 | $29.7 |
| Diluted EPS | $0.40 | $0.20 | $0.90 | $0.53 |
| Adjusted EBITDA (non-GAAP) | $100.9 | $100.7 | $224.4 | $208.5 |
Q2 revenue grew 15.2%, led by Product segment growth of 222.0%; Electricity revenue increased 2.7%, while Energy Storage revenue fell 19.7%. YTD revenue rose 7.7%. Electricity generation increased 13.0% in Q2 and 11.2% YTD. Despite higher revenue, gross profit and operating income declined as costs rose; higher operating costs at new and upgraded plants and the absence of prior-year business-interruption insurance proceeds affected comparisons. Product margins improved year over year, while lower merchant-market rates weighed on Energy Storage revenue.
YTD net cash from operations was $130.5, versus $115.3 a year earlier; investing cash outflow was $274.9, including $266.7 of capital expenditures. Financing provided $313.1, principally including $341.7 net proceeds from common-stock offerings and $99.9 from a new loan, partly offset by debt repayments and dividends. Cash and cash equivalents were $275.1 at June 30, plus $120.3 of restricted cash. Current assets of $686.0 exceeded current liabilities of $383.2. Reported current and long-term debt totaled approximately $1.77 billion; the balance sheet also reports a $236.1 financing liability.
Ormat reported $390.8 of unused corporate borrowing capacity. Its disclosed net-debt-to-adjusted-EBITDA covenant ratio was 3.56, and equity-to-assets was 48.0%; the company said it met applicable covenants, except that DAC 1 subsidiary distribution restrictions applied because dividend-distribution criteria were not met. Management estimated $328.0 of capital expenditures and $80.2 of long-term debt repayments for the remainder of 2023. Operating cash flow less capital expenditures was approximately negative $136.2 for the first half.
Material changes, outlook and risks
- Funding and dilution: A March-April public offering of 4.14 million shares generated approximately $341.7 net proceeds. Common shares outstanding at June 30 were 60.26 million, compared with 56.10 million at year-end 2022.
- Debt: The company borrowed $100 million from Hapoalim Bank at a fixed 6.45% rate, with a 10-year term and semiannual principal repayments beginning August 2023. It prepaid the $11.1 million Plumstriker loan. Management said 99.3% of consolidated long-term debt was fixed rate.
- Projects and operations: North Valley geothermal began commercial operation in April; Heber 1 resumed operations in May; and new battery-storage facilities entered operation during the period. Pomona began commercial operation in July. The Heber complex was expected to ramp to approximately 87 MW by the end of Q3 2023.
- Outlook: The filing provides project and capital-spending expectations but no clear consolidated annual revenue or earnings guidance. Management expects seasonal patterns generally to favor Q1 and Q4 over Q2 and Q3. Most Electricity revenue is supported by PPAs with fixed or escalating rates, while Energy Storage revenue is exposed to merchant-market price volatility.
- Dixie Meadows contingency: Construction is temporarily paused while the company undertakes additional NEPA review and ESA consultation concerning the Dixie Valley toad and related litigation. The project’s net book value was $84.7 million. Ormat said it could not estimate a possible loss; delay or mitigation could raise costs, delay revenue or affect PPA terms.
- Other exposures: KPLC in Kenya had $42.7 million overdue at quarter-end, of which $7.8 million was paid in July; ENEE in Honduras had $10.7 million overdue, of which $2.3 million was paid in July. The company cited possible further collection delays in Honduras and ongoing Kenyan reviews of power-purchase agreements that could lead to tariff renegotiations. A special committee is investigating short-seller allegations concerning anti-corruption compliance, and the company is responding to SEC and DOJ information requests.
- Additional risks and unusual items: The filing identifies heightened political, security and operating risks in Israel, where senior management and principal manufacturing facilities are located. Kenya’s 2023 Finance Law became implementable after a court suspension was lifted in July; potential effects were still being evaluated. Transferable production tax credits contributed $2.7 million of Q2 and $4.5 million of YTD income. Q2 tax benefit was $4.0 million, versus a $6.1 million provision in Q2 2022.
Important facts for investors to verify
- Whether revenue growth converts into sustained gross and operating margin recovery, particularly in Electricity and Energy Storage.
- Execution, cost and timing of the planned $328 million remaining-2023 capital program and the projects under construction.
- Collection of overdue Kenyan and Honduran receivables, and any impact of Kenyan tariff or tax changes.
- Progress and outcome of Dixie Meadows NEPA/ESA reviews and litigation, including implications for the $84.7 million project asset.
- Resolution and any resulting disclosure from the anti-corruption investigation and SEC/DOJ inquiries.
- Debt-service and covenant headroom, restricted project cash, future financing needs, and the effect of the equity issuance on per-share results.
- How much reported earnings and cash generation depend on transferable tax credits, tax-equity transactions, and other non-operating items.