Ormat Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; financial statements are unaudited and prepared under U.S. GAAP. Ormat develops, owns and operates geothermal, recovered-energy, solar and battery-storage assets, and sells geothermal and recovered-energy equipment and services. Its segments are Electricity, Product and Energy Storage.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $185.2 million | $183.7 million |
| Gross profit / margin | $76.1 million / 41.1% | $69.9 million / 38.1% |
| Operating income / margin | $53.2 million / 28.7% | $45.1 million / 24.5% |
| Net income | $33.5 million | $22.8 million |
| Net income attributable to Ormat stockholders | $29.0 million; $0.51 diluted EPS | $18.4 million; $0.33 diluted EPS |
| Adjusted EBITDA | $123.5 million | $107.9 million |
| Cash provided by operating activities | $56.5 million | $81.8 million |
| Capital expenditures | $106.9 million | $137.2 million |
At March 31, 2023, cash and cash equivalents were $414.9 million, with another $107.5 million of restricted cash. The company also reported $391.0 million of unused corporate borrowing capacity under committed lines. Current assets were $811.0 million and current liabilities were $391.0 million.
Balance-sheet debt, including current and long-term limited/non-recourse debt, full-recourse debt and convertible notes, was approximately $1.84 billion net of deferred financing costs; financing liabilities were an additional $236.1 million. Total liabilities were $2.67 billion and total equity was $2.34 billion. The company reported covenant compliance, a 3.45x net-debt-to-adjusted-EBITDA ratio and a 46.6% equity-to-assets ratio. Certain project subsidiaries had restrictions on equity distributions.
Changes versus the prior comparable period
- Revenue increased 0.8%. Electricity revenue grew 4.8% to $170.3 million, supported by newly operating facilities and 3.4% higher generation; Product revenue fell 31.4% to $10.0 million, and Energy Storage revenue fell 25.6% to $4.9 million.
- Gross margin improved to 41.1% from 38.1%, and operating income rose 17.9%. Electricity cost of revenue included $4.5 million of business-interruption insurance proceeds related to the 2018 Puna volcanic eruption.
- Stockholder-attributable net income rose to $29.0 million from $18.4 million. Income attributed to sale of tax benefits increased to $12.6 million from $7.7 million, while net interest expense increased to $23.6 million from $21.1 million.
- Operating cash flow declined by $25.3 million, primarily reflecting working-capital movements, including higher receivables, inventory and supplier prepayments.
- Financing activities provided $350.4 million, versus $44.7 million used in Q1 2022. The quarter included $297.1 million net proceeds from a 3.6 million-share offering and $99.9 million from a new $100 million Hapoalim loan.
Outlook, commentary and material risks
- Management estimated $494.0 million of capital expenditures for the remainder of 2023, including construction, exploration, maintenance and energy-storage spending, and $143.1 million of long-term debt repayments. It expected to fund these needs with available liquidity, operating cash flow and project financings/refinancings. The filing gives no consolidated revenue or earnings guidance.
- Projects and developments include North Valley geothermal, which began commercial operation in April 2023, and two battery-storage facilities that began operating in April and May. Other construction, repowering and storage projects have stated expected commercial-operation dates, but remain subject to execution and permitting risks.
- The $100 million Hapoalim loan bears fixed interest of 6.45%, has a 10-year term, and requires semi-annual principal payments beginning August 2023. Its covenants include a maximum debt-to-adjusted-EBITDA ratio of 6.0x, minimum equity of $750 million and minimum equity-to-assets of 25%.
- The Dixie Meadows project remained subject to environmental and Endangered Species Act proceedings and a temporary construction pause while agency consultation continued. Ormat could not estimate a possible loss; delays or mitigation could increase costs, impede completion or affect the project’s power-purchase agreement. Its project assets in construction-in-process had a net book value of $84.3 million.
- A special committee continued investigating claims in a short-seller report concerning anti-corruption compliance; the company was also providing information requested by the SEC and Department of Justice. Separately, a Kenyan task force had recommended reviewing and seeking renegotiation of independent power producer tariffs, including Ormat’s Olkaria PPA; discussions were continuing.
- Customer and collection exposure is material: SCPPA, Sierra Pacific/Nevada Power and Kenya Power together represented 60.1% of Q1 revenue. Overdue receivables included $36.9 million from Kenya Power and $16.6 million from Honduras’s ENEE at quarter-end; some amounts were paid in April. Ormat cited potential further collection delays in Honduras.
- Management highlighted inflation, supply-chain constraints, higher borrowing costs, foreign-exchange fluctuations, merchant-market exposure in storage, operational and geothermal-resource risks, and concentration in customers and regions. It also added risks from financial-sector disruption, while stating it had no material deposits at the named failed or acquired banks.
- The company viewed the Inflation Reduction Act as favorable and recorded $1.8 million of income from expected sales of transferable production tax credits in Q1. On April 3, the underwriter exercised its option for 540,000 additional shares; the offering’s total net proceeds, including the option, were approximately $341.7 million. On April 4, Ormat prepaid the $11.1 million Plumstriker loan. A $0.12-per-share dividend was declared May 9, payable June 6.
Important facts for investors to verify
- Whether operating cash flow and working capital improve as growth investment continues, and how the $494.0 million remaining-2023 capital plan is funded.
- Progress, costs and timing for Dixie Meadows, including the outcome of agency consultation and litigation, and the status of the SEC/DOJ information requests and special-committee review.
- Collection of overdue Kenya and Honduras receivables, and any tariff or PPA changes affecting Kenya or other major customers.
- Energy Storage segment economics: Q1 revenue declined and segment gross profit was negative $0.2 million; assess the effect of market prices and new facilities entering service.
- Debt, covenant headroom, refinancing costs and dilution from the 4.14 million shares issued across the offering and exercised option.
- Timing and realization of tax-credit income and the expected operating contribution from new and repowered facilities; actual quarterly results may vary and management cautions that seasonal patterns affect electricity revenue and gross profit.