Ormat Technologies, Inc. — Q1 2022 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2022, compared with the same 2021 period. Ormat develops, owns and operates geothermal, recovered-energy and solar power plants, and has Product and Energy Storage businesses. Electricity accounted for 88.5% of quarterly revenue. The company reported a generating portfolio of approximately 1.1 GW.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $183.7 million | $166.4 million; up 10.4% |
| Gross profit / gross margin | $69.9 million / 38.1% | $73.6 million / 44.3% |
| Operating income / margin | $45.1 million / 24.5% | $49.9 million / 30.0% |
| Net income | $22.8 million | $17.8 million |
| Net income attributable to Ormat stockholders | $18.4 million; diluted EPS $0.33 | $15.3 million; diluted EPS $0.27 |
| Adjusted EBITDA (non-GAAP) | $107.9 million | $99.2 million |
| Operating cash flow | $81.8 million | $68.9 million |
| Capital expenditures | $137.2 million | $87.9 million |
Revenue by segment: Electricity $162.5 million, up 12.1%; Product $14.6 million, up 69.2%; Energy Storage $6.6 million, down 48.5%. Electricity generation rose 8.6% to 1,820,606 MWh. Higher Electricity and Product revenue was offset in gross profit by faster cost growth; Energy Storage gross profit fell to $0.9 million from $7.9 million.
Net cash used in investing activities was $139.3 million and net cash used in financing activities was $44.7 million. Cash and cash equivalents were $130.0 million at quarter-end, down from $239.3 million at year-end; restricted cash was an additional $111.1 million. Marketable securities were $42.9 million. The company reported $390.1 million of unused corporate borrowing capacity. Total debt on the balance sheet, including current and long-term full-recourse and limited/non-recourse debt, was approximately $1.61 billion; financing liabilities were approximately $249.1 million, separately presented.
Management reported a net-debt-to-Adjusted-EBITDA covenant ratio of 4.1 and equity-to-assets of 45.6%. The company did not meet covenants for the DAC 1 secured notes and Prudential Idaho non-recourse loan, restricting distributions from the related subsidiaries. It reported compliance with other applicable covenants.
Material changes versus prior period
- Electricity revenue growth reflected the 2021 acquisitions of Dixie Valley and Beowawe, increased Puna generation and energy rates, and the McGinness Hills expansion; the Heber 1 outage partly offset these gains.
- Product revenue rose as projects that began operating in 2021 contributed revenue. Product costs remained high amid raw-material and manufacturing inflation.
- Energy Storage revenue declined mainly because Q1 2021 included unusually high Rabbit Hill revenue associated with the Texas power crisis and because demand-response activity diminished.
- Operating income decreased despite revenue growth, with cost of revenue rising 22.8% and gross margin falling 6.2 percentage points. Q1 2022 also included a $1.8 million write-off of discontinued Energy Storage projects and certain customer assets.
- Net income benefited from a $17.1 million year-over-year improvement in derivatives and foreign-currency results, as Q1 2021 included $14.5 million of Rabbit Hill-related hedge losses. Higher interest expense and a higher effective tax rate partly offset the improvement.
Outlook, risks, contingencies and unusual items
- Capital and financing: Management estimated $379.0 million of capital expenditures for the remainder of 2022 and $346.6 million of long-term debt repayments during 2022. It expects to use available liquidity, operating cash flow and future project financing/refinancing, including tax equity, and said it believes resources will meet anticipated needs. A subsequent $75.0 million, eight-year Mizrahi Bank loan was agreed on April 12, at a fixed 4.1% rate. No specific consolidated earnings guidance was provided in the supplied filing text.
- Heber 1 fire: A February 25 fire damaged the turbine-generator area of the 40 MW plant. Binary units restarted gradually in mid-April, with the plant then operating at approximately 20 MW. Management estimated the outage would reduce monthly revenue by about $1.5 million. It expects property insurance to cover the damaged equipment loss; business-interruption coverage has a 45-day deductible. Restoration timing and cost were still under evaluation.
- Project pipeline: The filing describes multiple power and storage projects under construction, with expected commercial-operation dates spanning 2022–2023. Dixie Meadows construction and completion may be delayed by litigation and regulatory developments. The Product backlog was $45.7 million as of May 1, 2022, versus $37.0 million as of May 5, 2021.
- Supply and market risks: COVID-related disruptions, Russia’s invasion of Ukraine, and supply constraints may raise raw-material, battery, transportation and construction costs, delay projects and pressure margins. Merchant Energy Storage revenue is exposed to market-price volatility; most Electricity revenue is under long-term contracts, and 92.1% of Electricity revenue was under fixed-rate PPAs in the quarter.
- Collections and concentration: Three customers represented 55.5% of revenue: SCPPA 21.9%, Sierra Pacific/Nevada Power 19.5%, and Kenya Power and Lighting 14.1%. Overdue receivables included $19.8 million from KPLC and $20.5 million from Honduras’ ENEE; $9.4 million and $4.8 million, respectively, were collected in April. Management believed the remaining past-due amounts were collectible.
- Legal and regulatory matters: Dixie Meadows litigation challenges federal approvals; the court’s temporary construction injunction was set aside, but the Dixie Valley Toad was emergency-listed under the Endangered Species Act in April. The project had $68.3 million of net book value at March 31, and the company could not estimate a possible loss. Separately, a special committee was investigating short-seller allegations regarding anti-corruption compliance, and the company was providing information to the SEC and DOJ. A shareholder class-action certification motion was withdrawn in April for immaterial costs.
- Other items: The effective tax rate rose to 31.4% from 14.8%. A $10.2 million tax provision and $1.8 million Energy Storage write-off affected results. Sarulla, an unconsolidated investment, was evaluating remediation after a drilling campaign failed; the consortium did not meet its debt-service coverage ratio and was negotiating lender consent for remedial work.
Most important facts for investors to verify
- Heber 1 repair scope, operating capacity, insurance recovery and revenue impact.
- Progress, cost and commercial-operation timing for major construction and storage projects, particularly Dixie Meadows.
- Ability to fund the stated 2022 capital and debt-repayment needs, and compliance with debt covenants and distribution restrictions.
- Collections from KPLC and ENEE, customer concentration, and any change in credit-loss assumptions.
- Product and battery supply costs, backlog conversion, and whether margin pressure persists.
- Developments in the SEC/DOJ inquiry, Dixie Meadows proceedings, and Sarulla’s remediation and lender negotiations.