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Ormat reports Q2 2020 financial results and improved profitability for electricity segment

Geothermal plant by Ormat, Steamboat Hills, Nevada (source: ThinkGeoEnergy)
Alexander Richter 6 Aug 2020

In its second quarter 2020 financial results, Ormat Technologies reports on solid financial results, and good EBITDA numbers led by improved profitability of its geothermal electricity segment.

In a release, Ormat Technologies has released its financial results for the second quarter of 2020 with additional details on its business in an investor call. The following contains elements from the release. For the full release and details see the link below.

During the quarter, Ormat was able to successfully complete the enhancement of the Steamboat Hills geothermal plant near Reno, Nevada increasing its portfolio by 19 MW to 933 MW of geothermal power generation and also made significant progress to bring the Puna geothermal power plant on Hawaii online.

This was another solid quarter of strong execution led by the improved profitably of our Electricity segment,” commented Doron Blachar, Chief Executive Officer. “I am extremely proud of how our team is operating through  the challenging COVID-19 environment and how we were able to successfully complete the enhancement of our 19MW Steamboat Hills complex on time and make significant progress to bring Puna back online  by the end of the year.”

“We continue with our efforts to minimize the COVID-19 implication on our business, and while we did not experience material impact on our results so far, the continued outbreak of the COVID-19 may affect us more  in the future. Specifically, awarding contracts for significant projects in the Products segment is currently delayed. Nevertheless, our Product segment is currently on track to meet its revenue forecast for the full-year 2020,” added Mr. Blachar.

In the earnings call, Mr. Blachar reports further that the product segment is currently on track to meet revenue forecast for the full year 2020.

“Since March 31, 2020,” Mr. Blachar continues, “we have increased our liquidity by over $400 million through the issuance of long-term debt that gives us the flexibility to allocate our resources and manufacturing capabilities to support our organic growth. We are increasing and focusing our efforts on exploring and developing internal projects with a target to increase our geothermal portfolio in the US and globally by 2023 and beyond. This quarter reinforces our confidence that Ormat is on the right path to continue its growth trajectory by relying on Ormat’s integrated business model, our geographic and revenue diversity, and our excellent team.”

Financial highlights for the second quarter of 2020

  • Total revenues of $174.9 million, down 5.0% compared to Q2 2019;
    • Electricity segment revenues of $128.7 million compared to $129.1 million in Q2 2019;
    • Product segment revenues of $43.7 million, down 16.0% compared to Q2 2019;
    • Energy Storage & Management Services segment revenues of $2.5 million compared to $3.0 million in Q2 2019;
  • Total gross margin was 37.4%, compared to 35.4% in Q2 2019;
    • Electricity segment gross margin was 44.1% compared to 42.8% for Q2 2019;
    • The Company recorded business interruption insurance income of $3.3 million related to the 2018 volcanic eruption in Hawaii, which netted to zero Puna’s cost of revenues and reduced general and administrative costs by $0.6 million; In the second quarter 2019, the Company recorded business interruption insurance income of $6.8 million that resulted in a positive gross margin of $1.8 million.
  • Operating income increased 2.5% due to better gross margins and lower operating expenses;
  • Net income was $25.3 million compared to $36.2 million in Q2 2019; Q2 2019 net income included $13.3 million related to a one-time Tax benefit;
  • Net income attributable to the Company’s stockholders was $23.0 million, or $0.45 per diluted share, compared to $33.9 million, or $0.66 per diluted share in Q2 2019; adjusted net income attributable to the Company’s stockholders1 for Q2 2019 was $20.6 million  or $0.40 per diluted share;
  • Adjusted EBITDA1 increased 3.2% to $97.9 million, up from $94.9 million in Q2 2019;
  • Product segment backlog was approximately $66 million as of August 3, 2020; and
  • The Company declared a quarterly dividend of $0.11 per share for the second quarter of 2020.

1 Reconciliation is set forth below in this release

Recent developments

  • As of August 2020, Ormat continue its efforts to recommission its Puna power plant. The Company obtained all necessary permits to start operation, completed the construction of the substation and connected a new production well to the power plant. We expect to resume commercial operation during the fourth quarter with gradual increase of generation to 29MW by the end of the year, subject to on time completion of the transmission line by HELCO and additional field recovery work.
  • In July 2020, we completed the acquisition of the 20MW/80MWh Pomona energy storage asset in California from Alta Gas for a total net consideration of $43.9 million. The facility is our first battery storage asset in operation in California, increasing our existing operating portfolio to 73MW/136MWh and adding to our battery storage assets in New Jersey, New England and Texas.
  • In July, Ormat issued approximately $290.0 million of corporate bonds at an effective fixed interest rate of 4.34%. In April and May the Company has issued approximately $130 million of new corporate debt.
  • In June, Ormat completed the enhancement of its Steamboat Hills complex and increased its generating capacity by 19MW to a total of 84MW.

2020 Guidance

Mr. Blachar added, “We are narrowing the upper-end of the guidance for full-year 2020 and expect total revenues of between $710 million and $725 million with Electricity segment revenues between $550 million and $560 million. We expect Product segment revenues of between $140 million and $150 million. Revenues from Energy Storage and Management Services segment are expected to be between $15 million and $17 million. We expect 2020 Adjusted EBITDA of between $400 million and $410 million for the full year. We expect annual Adjusted EBITDA attributable to minority interest to be approximately $27 million.”

The Company provides a reconciliation of Adjusted EBITDA, a Non-GAAP financial measure for the three months ended June 30, 2020. However, the Company is unable to provide a reconciliation for its Adjusted EBITDA guidance range due to high variability and complexity with respect to estimating forward looking amounts for impairments and disposition and acquisition of business interests, income tax expense, and other non-cash expenses and adjusting items that are excluded from the calculation of Adjusted EBITDA.

Further notes from the earning call and accompanying presentation:

Puna geothermal plant in Hawaii

The construction of the substation was completed by Ormat with the local utility HELCO as offtaker now having to complete their part for the grid connection, which is expected in Q3 2020. The drilling of two production wells was completed, while one well blocked after flow test, one is a successful well. Cleanout and drilling of new wells continues.

Initial power generation is now expected to begin in Q4 2020 with gradual operation of 29 MW by the end of the year, all under the assumption that transmission line upgrades and field recovery is successfully achieved.

Further expansions

Beyond the expansion at Puna in Hawaii, the company is looking at adding 160 to 180 MW in power generation capacity by the end of 2022, of which 135 to 155 MW are geothermal projects. Of the latter, 10 MW are for the Guadeloupe-Bouillante geothermal plant in the Caribbean.

As of August 3, 2020, Ormat Technologies reports a backlog of turbine orders of $63 million, with the largest markets being New Zealand, Chile, Turkey, and the U.S.

Source: Company release; Seeking Alpha