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Note 1 - General and Basis of Presentation | 3 Months Ended
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Mar. 31, 2024
Notes to Financial Statements |
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block] | NOTE 1 — GENERAL AND BASIS OF PRESENTATION These unaudited condensed consolidated interim financial statements of Ormat Technologies, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s condensed consolidated financial position as of March 31, 2024, the condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2024 and 2023 and the condensed consolidated statements of cash flows and the condensed consolidated statements of equity for the three months ended March 31, 2024 and 2023. The financial data and other information disclosed in the notes to the condensed consolidated financial statements related to these periods are unaudited. The results for the periods presented are not necessarily indicative of the results to be expected for the year. These condensed unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The condensed consolidated balance sheet data as of December 31, 2023 was derived from the Company’s audited consolidated financial statements for the year ended December 31, 2023 but does not include all disclosures required by U.S. GAAP. Dollar amounts, except per share data, in the notes to these financial statements are rounded to the closest $1,000. Business combination - Enel purchase transaction On January 4, 2024, the Company closed a purchase transaction with Enel Green Power North America ("EGPNA"), a subsidiary of Enel SpA (ENEL.MI) to acquire a portfolio of assets which includes two contracted geothermal power plants, one triple hybrid power plant which consists of geothermal, solar PV and solar thermal units, two stand alone solar power plants, and two greenfield development assets, for a total cash consideration of $274.6 million (including customary post-closing working capital adjustment to the purchase price, based on the levels of net working capital of the acquired companies) for 100% of the equity interests in the entities holding those assets. The geothermal power plants include the Cove Fort power plant located in Beaver County, Utah, which sells electricity under a long-term power purchase agreement with Salt River Project and the Salt Wells power plant located in Churchill County, Nevada, which sells electricity under a long-term power purchase agreement ("PPA") with NV Energy. The Stillwater triple hybrid geothermal, solar PV and solar thermal power plant is located in Churchill County, Nevada, and sells electricity to NV Energy under a power purchase agreement. The Solar assets of Stillwater Solar PV II in Churchill County, Nevada, and Woods Hill in Windham County, Connecticut, sell their electricity under power purchase agreements, respectively. As a result of the acquisition, the Company expanded its overall generation capacity and expects to improve the profitability of the purchased assets through cost reduction, synergies and development of the greenfield assets. The Company accounted for the transaction in accordance with Accounting Standard Codification ("ASC") 805, Business Combinations, and following the transaction, the Company consolidates the power plants and all other assets included in the transaction in accordance with ASC 810, Consolidation. In the first quarter of 2024, and during annual 2023, the Company incurred $1.3 million and $1.1 million of acquisition-related costs, respectively. Such costs are included under "General and administrative expenses" in the consolidated statements of operations and comprehensive income for the respective periods. Accounting guidance provides that the allocation of the purchase price may be adjusted for up to one year from the date of the acquisition to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. The primary area of the purchase price allocation that is not yet finalized is related to intangible assets, property, plant and equipment, and certain tax matters and the related impact on goodwill. The following table summarizes the purchase price allocation to the fair value of the assets acquired and liabilities assumed (in millions):
Trade receivables and others (1) |  | $ | 4.4 |
Deferred income taxes |  |  | 3.1 |
Property, plant and equipment and construction-in-process (2) |  |  | 197.7 |
Operating lease right of use |  |  | 1.2 |
Other long-term assets |  |  | 0.2 |
Intangible assets (3) |  |  | 23.6 |
Goodwill (4) |  |  | 60.7 |
Total assets acquired |  | $ | 290.9 |
Accounts payable, accrued expenses and others |  | $ | 1.5 |
Other current liabilities |  |  | 1.8 |
Operating lease liabilities |  |  | 1.2 |
Other long-term liabilities |  |  | 5.0 |
Asset retirement obligation |  |  | 6.8 |
Total liabilities assumed |  | $ | 16.3 |
Total assets acquired, and liabilities assumed, net |  | $ | 274.6 |
(1) The gross amount of trade receivables was fully collected subsequent to acquisition date. (2) The fair value of Property, Plant and equipment was estimated by applying the income approach and utilizing the discounted cash flow method. This methodology assesses the value of tangible assets by computing the anticipated cash flows expected to be generated by the respective assets. (3) Intangible assets are related to the long-term electricity PPAs described above and are amortized over the term of those PPAs. The fair value of the intangible assets was estimated by applying the income approach and utilizing the With and Without method. (4) Goodwill is primarily related to the expected synergies, potential cost savings in operations as a result of the purchase transaction as well as potential future development of the greenfield assets. The goodwill is allocated to the Electricity segment and is deductible for tax purposes. For the period from acquisition date to March 31, 2024, the acquired portfolio of assets contributed $9.4 million to the Company's Electricity revenues, and $3.3 million to the Company's earnings, which were included in the Company’s condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2024. The following unaudited pro forma summary presents condensed consolidated information of the Company as if the business combination had occurred on January 1, 2023. The pro forma results below include the impact of certain adjustments related to the depreciation of property plant and equipment, amortization of intangible assets, transaction-related costs, and the related income tax effects. This pro forma presentation does not include any impact from transaction synergies or any other material, nonrecurring adjustments directly attributable to the business combination.
|  | Pro forma for the Three Months Ended March 31, |
|  | 2024 |  |  | 2023 |
|  | (Dollars in millions) |
Electricity revenues |  | $ | 191.3 |  |  | $ | 179.8 |
Total revenues |  | $ | 224.2 |  |  | $ | 194.7 |
Net income attributable to the Company's stockholders |  | $ | 39.9 |  |  | $ | 27.7 |
Hapoalim 2024 Loan Concurrently with the purchase transaction with EGPNA, on January 2, 2024, the Company entered into a definitive loan agreement (the "BHI Loan Agreement 2024") with Hapoalim Bank. The BHI Loan Agreement 2024 provides for a loan by Hapoalim Bank to the Company in an aggregate principal amount of $75 million (the “Hapoalim 2024 Loan”). The outstanding principal amount of the Hapoalim 2024 Loan will be repaid in 32 quarterly payments of $2.3 million each, commencing on April 1, 2024. The duration of the Hapoalim 2024 Loan is 8 years and it bears interest of 6.6%, payable every three months. The BHI Loan Agreement 2024 includes various affirmative and negative covenants, including a requirement that the Company maintain (i) a financial debt to adjusted EBITDA ratio not to exceed 6.0, (ii) a minimum equity capital amount of not less than $750 million, and (iii) an equity capital to total assets ratio of not less than 25%. The BHI Loan Agreement includes other customary affirmative and negative covenants, including nonpayment and noncompliance events of default. HSBC Bank 2024 Loan Concurrently with the purchase transaction with EGPNA, on January 2, 2024, the Company entered into a definitive loan agreement (the "HSBC Loan Agreement 2024") with HSBC Bank. The HSBC Loan Agreement 2024 provides for a loan by HSBC Bank to the Company in an aggregate principal amount of $125 million (the “HSBC Bank 2024 Loan”). The outstanding principal amount of the HSBC Bank 2024 Loan will be repaid in 7 semi-annual payments of $12.5 million each, commencing on July 1, 2024, and an additional final principal payment on January 1, 2028 of $37.5 million. The duration of the HSBC Bank 2024 Loan is 4 years and it bears interest of 3-month Secured Overnight Financing Rate ("SOFR") plus 2.25%, payable quarterly. The HSBC Loan Agreement 2024 includes various affirmative and negative covenants, including a requirement that the Company maintain (i) a financial debt to adjusted EBITDA ratio not to exceed 6.0, (ii) a minimum equity capital amount of not less than $750 million, and (iii) an equity capital to total assets ratio of not less than 25%. The HSBC Loan Agreement 2024 includes other customary affirmative and negative covenants, including nonpayment and noncompliance events of default. Interest Rate Swap Concurrently with the issuance of the HSBC Bank 2024 Loan, the Company entered into a long-term interest rate swap ("IR Swap") transaction with the objective of hedging the variable interest rate fluctuations related to the HSBC Bank 2024 Loan at a fixed 3-month SOFR of 3.9%. The terms of the IR Swap match those of the HSBC Bank 2024 Loan, including the notional amount of the principal and interest payment dates. The Company designated the IR Swap as a cash flow hedge as per ASC 815, Derivatives and Hedging, and accordingly measures the IR Swap instrument at fair value. The changes in the IR Swap fair value are initially recorded in Other Comprehensive Income (Loss) and reclassified to Interest expense, net in the same period or periods during which the hedged transaction affects earnings. The hedged transaction and the IR Swap effect in earnings are presented in the same line item in the consolidated statements of operations and comprehensive income. Mammoth Senior Secured Notes On March 28, 2024, Mammoth Pacific, LLC (the “Issuer”), a wholly owned indirect subsidiary of the Company, entered into a note purchase agreement with the Prudential Insurance Company of America, pursuant to which the Issuer issued approximately $135.1 million principal amount of senior secured notes (the “Mammoth Senior Secured Notes”). The note purchase agreement also includes an approximately $9 million tranche of floating rate notes to be issued in the event of a shortfall in debt service with respect to the Mammoth Senior Secured Notes. The Issuer shall pay a commitment fee on the revolving note tranche at a rate of 0.5% per annum. If drawn, the revolving notes shall bear interest at a rate equal to Term SOFR plus 1.25%. The Mammoth Senior Secured Notes are secured by the equity interests in the Issuer, and by the Issuer’s 100% ownership interests in its project subsidiaries including four geothermal power plants known as the G1, G2, G3 and CD4 projects. The remaining classes of ownership interests in CD4 are owned by an unrelated third party and are not part of the collateral security package for the Mammoth Senior Secured Notes. The Mammoth Senior Secured Notes will be repaid in 46 semi-annual payments, commencing on November 30, 2024. The Mammoth Senior Secured Notes bear interest at a fixed rate of 6.73% per annum and have a final maturity date of July 14, 2047. The Company has provided a limited guarantee with respect to certain obligations of the Issuer as a member of CD4. There are various restrictive covenants under the Mammoth Senior Secured Notes, including limitations on additional indebtedness of the Issuer and its subsidiaries. Failure to comply with these and other covenants will, subject to customary cure rights, constitute an event of default by the Issuer. In addition, there are restrictions on the ability of the Issuer to make distributions to its shareholders. Among other things, the distribution restrictions include both a historical and projected minimum debt service coverage ratio requirement. As part of the security package, the note purchase agreement states the Issuer shall establish and maintain customary reserve accounts which include a debt service reserve account, a make-up well reserve account and a maintenance reserve account. War in Israel On October 7, 2023, Hamas terrorists and members of other terrorist organizations infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets, including widespread killings and kidnappings. They also launched extensive rocket attacks on the Israeli civilian population. Shortly following the attack, Israel declared war against Hamas. The majority of the Company's senior management and its main Product segment production and manufacturing facilities are located in Israel approximately 26 miles from the border with the Gaza Strip. More recently, the Houthi movement, which controls parts of Yemen, launched a number of attacks on marine vessels in the Red Sea. The Red Sea is an important maritime route for international trade. These disruptions have resulted, and may continue to result in, delayed deliveries of several key components used in the manufacturing of the Company's products and could impact its ability to timely deliver products to its customers under the Product Segment. This has also resulted in an increase in insurance premium costs for shipments into and out of the sea port. As of the date of these condensed consolidated financial statements, none of the Company's facilities or infrastructure have been damaged nor have its supply chains been significantly impacted since the war broke out. However, a prolonged war could result in further military reserve duty call-ups as well as irregularities to the Company's supply chain and to its ability to ship its products from Israel, which could disrupt the operations of the Company's Product segment and potentially delay some of its growth plans in the Electricity segment. Management continuously monitors the effect of the war on the Company's financial position and results of operations. Equity Offering On March 14, 2023, the Company entered into an underwriting agreement with Goldman Sachs & Co. LLC, as the sole underwriter (the “Underwriter”), in connection with a public offering, pursuant to which the Company agreed to issue and sell 3,600,000 shares of common stock, par value $0.001 per share, and the Underwriter agreed to purchase these shares at a price of $82.60 per share. In addition, the Company granted the Underwriter a 30-day option to purchase up to an additional 540,000 shares of common stock at the same price per share, which was fully exercised by the Underwriter on April 3, 2023. The total net proceeds from the offering, including the option, were approximately $341.7 million, after deducting offering expenses. Write-offs of unsuccessful exploration activities There were no write-offs of unsuccessful exploration activities during the three months ended March 31, 2024 and 2023. Reconciliation of cash and cash equivalents and restricted cash and cash equivalents The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents as reported on the balance sheet to the total of the same amounts shown on the statement of cash flows:
|  | March 31, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
|  | (Dollars in thousands) |
Cash and cash equivalents |  | $ | 201,506 |  |  | $ | 195,808 |
Restricted cash and cash equivalents |  |  | 97,455 |  |  |  | 91,962 |
Total Cash and cash equivalents and restricted cash and cash equivalents |  | $ | 298,961 |  |  | $ | 287,770 |
Concentration of credit risk Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash investments and accounts receivable. The Company places its cash investments with high credit quality financial institutions located in the United States (“U.S.”) and in foreign countries. At March 31, 2024 and December 31, 2023, the Company had deposits totaling $68.2 million and $43.2 million, respectively, in ten U.S. financial institutions that were federally insured up to $250,000 per account. At March 31, 2024 and December 31, 2023, the Company’s deposits in foreign countries amounted to approximately $55.9 million and $57.5 million, respectively. At March 31, 2024 and December 31, 2023, accounts receivable related to operations in foreign countries amounted to approximately $98.1 million and $152.2 million, respectively. At March 31, 2024 and December 31, 2023, accounts receivable from the Company’s primary customers, which each accounted for revenues in excess of 10% of total consolidated revenues for the related period, amounted to approximately 61% and 57% of the Company’s trade receivables, respectively. The aggregate amount of notes receivable exceeding 10% of total receivables as of March 31, 2024 and December 31, 2023 is $85.3 million and $161.0 million, respectively. The Company's revenues from its primary customers as a percentage of total revenues are as follows:
|  | Three Months Ended March 31, |
|  | 2024 |  |  | 2023 |
Southern California Public Power Authority (“SCPPA”) |  |  | 24.7 | % |  |  | 26.7 | %
Sierra Pacific Power Company and Nevada Power Company |  |  | 16.8 |  |  |  | 18.9 |
Kenya Power and Lighting Co. Ltd. ("KPLC") |  |  | 12.2 |  |  |  | 14.5 |
The Company has historically been able to collect on substantially all of its receivable balances. As of March 31, 2024, the amount overdue from KPLC in Kenya was $40.0 million of which $12.4 million was paid in April 2024. The Company believes it will be able to collect all past due amounts in Kenya. This belief is supported by the fact that in addition to KPLC's obligations under its power purchase agreement, the Company holds a support letter from the Government of Kenya that covers certain cases of KPLC non-payment (such as non-payments that are caused by government actions and/or political events). In Honduras, as of March 31, 2024, the total amount overdue from Empresa Nacional de Energía Eléctrica ("ENEE") was $16.9 million of which none was paid to date. In addition, due to the financial situation in Honduras, the Company may experience further delays in collection. The Company believes it will be able to collect all past due amounts in Honduras. Allowance for credit losses The Company performs an analysis of potential credit losses related to its financial instruments that are within the scope of ASU 2018-19, Codification Improvements to Topic 325, Financial Instruments – Credit Losses, primarily cash and cash equivalents, restricted cash and cash equivalents, investment in marketable securities, receivables (excluding those accounted for under lease accounting) and costs and estimated earnings in excess of billings on uncompleted contracts, based on classes of financing receivables which share the same or similar risk characteristics such as customer type and geographic location, among others. The Company estimates the expected credit losses for each class of financing receivables by applying the related corporate default rate which corresponds to the credit rating of the specific customer or class of financing receivables. For trade receivables, the Company applied this methodology using aging schedules reflecting how long the receivables have been outstanding. The Company has also considered the existence of credit enhancement arrangements that may mitigate the credit risk of its financial receivables in estimating the applicable corporate default rate. The following table describes the changes in the allowance for expected credit losses for the three months ended March 31, 2024 and 2023 (all related to trade receivables):
|  | Three Months Ended March 31, |
|  | 2024 |  |  | 2023 |
|  | (Dollars in thousands) |
Beginning balance of the allowance for expected credit losses |  | $ | 90 |  |  | $ | 90 |
Change in the provision for expected credit losses for the period |  |  | 73 |  |  |  | — |
Ending balance of the allowance for expected credit losses |  | $ | 163 |  |  | $ | 90 |
Revenues from contracts with customers Contract assets related to our Product segment reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities related to the Company's Product segment reflect payments received in advance of the satisfaction of performance under the contract. The Company receives payments from customers based on the terms established in the contracts. Total contract assets and contract liabilities as of March 31, 2024 and December 31, 2023 are as follows:
|  | March 31, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
|  | (Dollars in thousands) |
Contract assets (*) |  | $ | 23,616 |  |  | $ | 18,367 |
Contract liabilities (*) |  | $ | (21,376 | ) |  | $ | (18,669 | )
(*) Contract assets and contract liabilities are presented as "Costs and estimated earnings in excess of billings on uncompleted contracts" and "Billings in excess of costs and estimated earnings on uncompleted contracts", respectively, on the condensed consolidated balance sheets. The contract liabilities balance at the beginning of the year was not yet fully recognized as product revenues during the three months ended March 31, 2024 as a result of performance obligations having not been fully satisfied yet. On March 31, 2024, the Company had approximately $128.7 million of remaining performance obligations not yet satisfied or partly satisfied related to our Product segment. The Company expects to recognize approximately 100% of this amount as Product revenues during the next 24 months. Disaggregated revenues from contracts with customers for the three months ended March 31, 2024 and 2023 are disclosed under Note 8 - Business Segments, to the condensed consolidated financial statements. Leases in which the Company is a lessor The table below presents lease income recognized as a lessor:
|  | Three Months Ended March 31, |
|  | 2024 |  |  | 2023 |
|  | (Dollars in thousands) |
Lease income relating to lease payments from operating leases |  | $ | 147,101 |  |  | $ | 137,621 |
Derivative instruments Derivative instruments (including certain derivative instruments embedded in other contracts) are measured at their fair value and recorded as either assets or liabilities unless exempted from derivative treatment as a normal purchase and sale. Changes in the fair value of derivatives not designated as hedging instruments are recognized in earnings. Changes in the fair value of derivatives designated as cash flow hedging instruments are initially recorded in "Other comprehensive income (loss)" and a corresponding amount is reclassified out of "Accumulated other comprehensive income (loss)" to earnings to offset the remeasurement of the underlying hedge transaction which also impacts the same line item in the condensed consolidated statements of operations and comprehensive income. The Company maintains a risk management strategy that may incorporate the use of swap contracts, put options, forward exchange contracts, interest rate swaps, and cross-currency swaps to minimize significant fluctuation in cash flows and/or earnings that are caused by oil and natural gas prices, exchange rate or interest rate volatility. Transferable production and investment tax credits The Inflation Reduction Act (“IRA”) was signed into law in August 2022 and introduces a transferability provision for certain tax credits related to the clean production of energy. Under this provision, a reporting entity can monetize such credits through sale to a third party. The option for transferability of credits applies to taxable years beginning after December 31, 2022. Several of the Company’s projects, that are not currently part of a tax monetization transaction, generate eligible tax credits, such as investment tax credits (“ITCs”) and production tax credits (“PTCs”), that are eligible to be transferred to a third-party under the provisions of the IRA. The Company accounts for ITCs under ASC 740 through the “Income tax (provision) benefit” line in the condensed consolidated statement of operations and comprehensive income. PTC’s are accounted similarly to refundable or direct-pay credits outside of the “Income tax (provision) benefit” line with income recognized in the “Income attributable to sale of tax benefits” line in the consolidated statement of operations and comprehensive income. Income recognized related to the expected sale of such transferable PTC’s during the three months ended March 31, 2024, and 2023 was $4.4 million and $1.8 million, net of discount, respectively. Tax benefits recognized related to such transferable ITC’s during the three months ended March 31, 2024, and 2023 was $11.5 million and $1.6 million, net of discount, respectively.

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