# Ormat Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2022 - Company: [Ormat Technologies, Inc.](/companies/ora.md) (CIK 1296445) - Form: 10-Q - Filed: 2022-11-03 - Accepted by EDGAR: Nov 3, 2022, 10:03 ET - Period: 2022-09-30 - Accession: 0001437749-22-025661 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1296445/000143774922025661/ora20220930_10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1296445/000143774922025661/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2022-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2022-07-01 to 2022-09-30 | $175.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Revenue | 9 months, 2022-01-01 to 2022-09-30 | $528.7m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax | | Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $114.8m | us-gaap:CostOfGoodsAndServicesSold | | Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $340.1m | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $61.1m | us-gaap:GrossProfit | | Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $188.6m | us-gaap:GrossProfit | | Research and development | 3 months, 2022-07-01 to 2022-09-30 | $1.2m | us-gaap:ResearchAndDevelopmentExpense | | Research and development | 9 months, 2022-01-01 to 2022-09-30 | $3.7m | us-gaap:ResearchAndDevelopmentExpense | | Operating income | 3 months, 2022-07-01 to 2022-09-30 | $38.9m | us-gaap:OperatingIncomeLoss | | Operating income | 9 months, 2022-01-01 to 2022-09-30 | $122.6m | us-gaap:OperatingIncomeLoss | | Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $22.4m | us-gaap:InterestExpense | | Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $63.9m | us-gaap:InterestExpense | | Income tax | 3 months, 2022-07-01 to 2022-09-30 | $7.2m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2022-01-01 to 2022-09-30 | $23.5m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2022-07-01 to 2022-09-30 | $18.1m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2022-01-01 to 2022-09-30 | $47.8m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.32 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.85 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | $0.32 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.85 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 56,457,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 56,479,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $206.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $408.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 9 months, 2022-01-01 to 2022-09-30 | $20.2m | us-gaap:PaymentsOfDividendsCommonStock | | Share repurchases | 9 months, 2022-01-01 to 2022-09-30 | $18.0m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2022-09-30 | $154.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2022-09-30 | $475.0m | us-gaap:AssetsCurrent | | Total assets | at 2022-09-30 | $4.52bn | us-gaap:Assets | | Current liabilities | at 2022-09-30 | $372.0m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2022-09-30 | $2.52bn | us-gaap:Liabilities | | Shareholders' equity | at 2022-09-30 | $1.85bn | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 117,946 characters. ### Cautionary Note Regarding Forward-Looking Statements This quarterly report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this quarterly report that address activities, events or developments that we expect or anticipate will or may occur in the future, including such matters as our projections of annual revenues, expenses and debt service coverage with respect to our debt securities, future capital expenditures, business strategy, competitive strengths, goals, development or operation of generation assets, market and industry developments and the growth of our business and operations, are forward-looking statements. When used in this quarterly report on Form 10-Q, the words “may”, “will”, “could”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “projects”, “potential”, or “contemplate” or the negative of these terms or other comparable terminology are intended to identify forward-looking statements, although not all forward-looking statements contain such words or expressions. The forward-looking statements in this quarterly report are primarily located in the material set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Risk Factors”, and “Notes to Condensed Consolidated Financial Statements”, but are found in other locations as well. These forward-looking statements generally relate to our plans, objectives and expectations for future operations and are based upon management’s current estimates and projections of future results or trends. Although we believe that our plans and objectives reflected in or suggested by these forward-looking statements are reasonable, we may not achieve these plans or objectives. You should read this quarterly report on Form 10-Q completely and with the understanding that actual future results and developments may be materially different from what we expect attributable to a number of risks and uncertainties, many of which are beyond our control. These forward-looking statements are made only as of the date hereof, and, except as legally required, we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. A summary of the risks that may cause actual results to differ from our expectations include, but are not limited to the following: ***Risks Related to the Company’s Business and Operation*** - Our financial performance depends on the successful operation of our geothermal, REG and Solar PV power plants under the Electricity segment as well as our energy storage facilities, which are subject to various operational risks. - Our exploration, development, and operation of geothermal energy resources are subject to geological risks and uncertainties, which may result in decreased performance or increased costs for our power plants. - We may decide not to implement, or may not be successful in implementing, one or more elements of our multi-year strategic plan, and the plan may not achieve its goal of enhancing shareholder value. - Concentration of customers, specific projects and regions may expose us to heightened financial exposure. - Our international operations expose us to risks related to the application of foreign laws and regulations. - Political, economic and other conditions in the emerging economies where we operate may subject us to greater risk than in the developed U.S. economy. - Conditions in and around Israel, where the majority of our senior management and our main production and manufacturing facilities are located, may adversely affect our operations and may limit our ability to produce and sell our products or manage our power plants. - Reduction in our Products backlog may affect our ability to fully utilize our main production and manufacturing facilities. - Some of our leases will terminate if we do not extract geothermal resources in “commercial quantities” or if we fail to comply with the terms or stipulations of such leases or any of the provisions of the Geothermal Steam Act or if the lessor under any such lease defaults on any debt secured by the relevant property, thus requiring us to enter into new leases or secure rights to alternate geothermal resources, none of which may be available on terms as favorable to us as any such terminated lease, if at all. - Reduced levels of recovered energy required for the operation of our REG power plants may result in decreased performance of such power plants. - Our business development activities may not be successful and our projects under construction or facilities undergoing enhancement and repowering may encounter delays. - Our future growth depends, in part, on the successful enhancement of a number of our existing facilities. - We rely on power transmission facilities that we do not own or control. - Our use of joint ventures may limit our flexibility with jointly owned investments. - Our operations could be adversely impacted by climate change. - Geothermal projects that we plan to develop in the future may operate as "merchant" facilities without long-term PPAs and therefore such projects will be exposed to market fluctuations. - We may not be able to successfully complete acquisitions, and we may not be able to successfully integrate, or realize anticipated synergies from, companies that we have acquired and may acquire in the future. - We may not be able to successfully conclude transactions and integrate companies that we acquired previously and may acquire in the future. - We encounter intense competition from electric utilities, other power producers, power marketers, developers and third-party investors. - Changes in costs and technology may significantly impact our business by making our power plants and products less competitive, resulting in our inability to sign new PPAs for our Electricity segment and new supply and EPC contracts for our Products segment. - Our intellectual property rights may not be adequate to protect our business. - We may experience difficulties implementing and maintaining our new enterprise resource planning system. - We may experience a cyber-incident, cyber security breach, severe natural event or physical attack on our operational networks and information technology systems. ### Risks Related to Governmental Regulations, Laws and Taxation - Our financial performance could be adversely affected by changes in the legal and regulatory environment affecting our operations. - Pursuant to the terms of some of our PPAs with investor-owned electric utilities and publicly-owned electric utilities in states that have renewable portfolio standards, the failure to supply the contracted capacity and energy thereunder may result in the imposition of penalties. - If any of our domestic power plants loses its current Qualifying Facility status under PURPA, or if amendments to PURPA are enacted that substantially reduce the benefits currently afforded to Qualifying Facilities, our domestic operations could be adversely affected. - We may experience a reduction or elimination of government incentives. - We are a holding company and our cash depends substantially on the performance of our subsidiaries and the power plants they operate, most of which are subject to restrictions and taxation on dividends and distributions. - The costs of compliance with federal, state, local and foreign environmental laws and our ability to obtain and maintain environmental permits and governmental approvals required for development, construction and/or operation may result in liabilities, costs and delays in construction (as well as any fines or penalties that may be imposed upon us in the event of any non-compliance or delays with such laws or regulations). - We could be exposed to significant liability for violations of hazardous substances laws because of the use or presence of such substances at our power plants. - U.S. federal, state and foreign country income tax law changes could adversely affect us. ### Risks Related to Economic and Financial Conditions - We may be unable to obtain the financing we need on favorable terms to pursue our growth strategy and any future financing we receive may be less favorable to us than our current financing arrangements. - We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results. - Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase. - The Capped Call Transactions may affect the value of the Notes and our common stock and we are subject to counterparty risk with respect to the Capped Call Transactions. - Our foreign power plants and foreign manufacturing operations expose us to risks related to fluctuations in currency rates, which may reduce our profits from such power plants and operations. - Our power plants have generally been financed through a combination of our corporate funds and limited or non-recourse project finance debt and lease financing. If our project subsidiaries default on their obligations under such limited or non-recourse debt or lease financing, we may be required to make certain payments to the relevant debt holders, and if the collateral supporting such leveraged financing structures is foreclosed upon, we may lose certain of our power plants. - We may experience fluctuations in the cost of construction, raw materials, commodities and drilling. - Our commodity derivative activity may limit potential gains, increase potential losses, result in earnings volatility and involve other risks. - We are exposed to swap counterparty credit risk. - We may not be able to obtain sufficient insurance coverage to cover damages resulting from any damages to our assets and profitability including, but not limited to, natural disasters such as volcanic eruptions, lava flows, wind and earthquakes. ### Risks Related to Force Majeure - The global spread of a public health crisis, including the COVID-19 pandemic may have an adverse impact on our business. - The existence of a prolonged force majeure event or a forced outage affecting a power plant, or the transmission systems could reduce our net income. - Threats of terrorism may impact our operations in unpredictable ways and could adversely affect our business, financial condition, future results and cash flow. ### Risks Related to Our Stock - A substantial percentage of our common stock is held by stockholders whose interests may conflict with the interests of our other stockholders. - The price of our common stock may fluctuate substantially, and your investment may decline in value. - We may issue additional shares of our common stock in connection with conversions of the Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock. - The fundamental change provisions of the Notes may delay or prevent an otherwise beneficial takeover attempt of us. Investors are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Other than as required by law, we undertake no obligation to update forward-looking statements even though our situation may change in the future. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the Securities and Exchange Commission (the “SEC”). ### Company Contact and Sources of Information Our website is www.ormat.com. Information contained on our website is not part of this quarterly report. Information that we furnish to or file with the U.S. Securities and Exchange Commission (the “SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are made available for download, free of charge, through our website as soon as reasonably practicable. Our SEC filings, including exhibits filed therewith, are also available directly on the SEC’s website at www.sec.gov. We may use our website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through our website at www.ormat.com. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls and webcasts. ### General ### Overview We are a leading vertically integrated company that is primarily engaged in the geothermal energy power business. We are leveraging our core capabilities and global presence to expand our activity in recovered energy generation and into different energy storage services and solar PV (including hybrid geothermal and solar PV as well as energy storage plus solar PV). Our objective is to become a leading global provider of renewable energy and we have adopted a strategic plan to focus on several key initiatives to expand our business. We currently conduct our business activities in three business segments: - *Electricity Segment.* In the Electricity segment, which contributed 86.9% of our total revenues in the three months ended September 30, 2022, we develop, build, own and operate geothermal, solar PV and recovered energy-based power plants in the United States and geothermal power plants in other countries around the world and sell the electricity they generate. In the three months ended September 30, 2022, we derived 69.7% of our Electricity segment revenues from our operations in the United States and 30.3% from the rest of the world. - *Product Segment.* In the Product segment, which contributed 8.1% of our total revenues in the three months ended September 30, 2022, we design, manufacture and sell equipment for geothermal and recovered energy-based electricity generation and remote power units and provide services relating to the engineering, procurement and construction of geothermal and recovered energy-based power plants. In the three months ended September 30, 2022, we derived 8.9% of our Product segment revenues from our operations in the United States and 91.1% from the rest of the world. - *Energy Storage Segment.* In the Energy Storage segment, which contributed 5.0% of our total revenues in the three months ended September 30, 2022, we own and operate grid connected In Front of the Meter Battery Energy Storage Systems ("BESS"), which provide capacity, energy and/or ancillary services directly to the electric grid. In the three months ended September 30, 2022, we derived all of our Energy Storage segment revenues from our operations in the United States. Our current generating portfolio of approximately 1.1 GW includes geothermal power plants in the United States, Kenya, Guatemala, Honduras, Guadeloupe and Indonesia, as well as energy storage facilities, recovered energy generation and Solar PV power plants in the United States. ### COVID-19 Update In March 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Since that time and through the date of this quarterly report, the Company has implemented significant measures and continues to make efforts in order to meet government requirements and preserve the health and safety of its employees. The Company's preventative measures against COVID-19 and the recent spread of variant strains include working remotely when needed and adopting separate shifts in its power plants, manufacturing facilities and other locations while working to continue operations at close to full capacity in all locations. Since the end of the second quarter of 2021, the Company experienced an easing of government restrictions in areas it operates in, but uncertainty around the impact of COVID-19 continues in addition to supply chain challenges and rising interest rates. The Company has not laid-off or furloughed any employees due to COVID-19 and has continued to pay full salaries. We will continue to monitor developments affecting both our workforce and our customers, and we have taken, and will continue to take, health and safety measures that we determine are necessary in order to mitigate the impacts. To date, as a result of these business continuity measures, we have not experienced material disruptions in our operations due to COVID-19, but have nevertheless experienced the following impacts on our segment operations: - In our Electricity segment, almost all of our revenues in the nine months ended September 30, 2022, were generated under long term contracts and the majority of contracts have a fixed energy rate. As a result, despite logistical and other challenges, COVID-19 caused limited impact on our Electricity segment. Nevertheless, growth in the Electricity segment was and may continue to be adversely impacted by delays in receiving the required development and construction permits, as well as the implications of global and local restrictions on our ability to procure and transport raw materials and increases in the cost of raw materials and transportation. - Our Product segment revenues are generated from sales of products and services pursuant to contracts, under which we have a right to payment for any product that was produced for the customer. Recognition of revenue under these contracts is impacted by delays in the progress of the third-party projects, into which our products and services are incorporated. COVID-19 outbreaks resulted in the extended shutdown of certain businesses in certain regions, delays in the supply and increases in the cost of raw materials and components that we purchased for our equipment manufacturing, and increases in the cost of marine transportation. The cost increases limited our ability to secure new purchase orders from potential customers and led to a reduction in our operating margins, which in turn negatively impacted our profitability. Over the last few months we have experienced higher demand for our product segment resulting in increased backlog and improved profitability. We had a product backlog of $137.1million as of November 3, 2022, which includes revenue recognition for the period between October 1, 2022 and November 3, 2022, compared to $66.9 million as of November 3, 2021. - Our Energy Storage segment generates revenues mainly from participating in the energy and ancillary services markets, run by regional transmission operators and independent system operators in the various markets where our assets operate. Therefore, the revenues these assets generate are directly impacted by the prevailing market prices for energy and/or ancillary services. Nevertheless, we have experienced and are experiencing supply chain difficulties, as well as an increase in the cost of raw materials and batteries, which caused delays in commercial operation of some of our energy storage facilities and may impact our ability to complete other future projects on time and increase overall project costs. - In addition, we experience delays in the permitting for new projects in all segments that may result in contractual penalties and cause a delay in those projects. ### Recent Developments The most significant developments in our Company and business since January 1, 2022 are described below. - In October 2022, we signed a fixed price 15-year Energy Storage Power Purchase Agreement (ESPPA) with San Diego Gas & Electric (SDG&E) for the 80MW (320MWH) Bottleneck Battery Energy Storage System (BESS) located in the Central Valley of California. The ESPPA is subject to CPUC approval. This project, once in operation, is expected to increase 2022 revenues by 50%. - In August 2022, we signed with Contact Energy of New Zealand an EPC contract for a new maximum continuous performance 59MW geothermal power plant in New Zealand and signed a 6MW supply contract with Sarulla Operations Ltd. in Indonesia. The combined expected revenue of the two contracts is approximately $100 million. - In July 2022, we announced the commercial operation of the CD4 30 MW geothermal power plant. The CD4 facility provides 7 MW of geothermal power to two Community Choice Aggregators, Silicon Valley Clean Energy and Central Coast Community Energy, each under a 10-year power purchase agreement (“PPA”), with a total of 14MW. In addition, the facility provides 16 MW of geothermal power to the Southern California Public Power Authority ("SCPPA") under a 25-year agreement. - In July 2022, we completed two Solar PV power plants: (1) the 5 MW Steamboat Hills Solar plant in Nevada that is used for the ancillary needs of the Steamboat Hills geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA; and (2) the 20MW Wister power plant in California that sells power under a long-term contract with San Diego Gas & Electric. - In June 2022, the Company issued $375.0 million aggregate principal amount of its 2.5% convertible senior notes due 2027 (the “Notes”). The Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, pursuant to an indenture between the Company and U.S. Bank National Association, as trustee. Additionally, the Company granted the initial purchasers an option to purchase up to an additional $56.25 million aggregate principal amount of the Notes. The initial purchasers executed their option on June 27, 2022, and by that, increased the total aggregated principal amount of the Notes issued to $431.25 million. The Notes will mature on July 15, 2027, unless earlier converted, redeemed or repurchased. Interest will accrue on the Notes at a rate of 2.50% per year and will be payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2023. The Notes are convertible at the option of the holders, prior to the close of business on the business day immediately preceding January 15, 2027, only under certain circumstances and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. The initial conversion rate for the Notes will be 11.0776 shares of the Company’s common stock for each $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $90.27 per share of the Company’s common stock). The initial conversion price of the Notes represents a premium of approximately 30% over the last reported sales price of the Company’s common stock on the New York Stock Exchange on June 22, 2022. Upon conversion, the Company will pay cash up to the aggregate principal amount of the Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Notes being converted. The Notes will not be redeemable at the Company’s option prior to July 21, 2025. On or after July 21, 2025 and on or prior to the 41st scheduled trading day immediately preceding the maturity date, the Notes will be redeemable at the Company’s option if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The net proceeds from the sale of the Notes were approximately $419.7 million. The Company used (1) approximately $18.0 million of the net proceeds from this offering to repurchase concurrently with the closing of the offering shares of its common stock in privately negotiated transactions at a price per share equal to $69.45, (2) approximately $24.5 million of the net proceeds from this offering to pay the cost of the capped call transactions (as described below), (3) approximately $221.9 million to fund the prepayment of its Series 3 Bonds, and accrued and unpaid interest thereon, and make-whole payments, and (4) the remainder for general corporate purposes. The Company intends to allocate an amount equivalent to the net proceeds from this offering to finance and/or refinance, in whole or in part, one or more "eligible green projects" in accordance with the Company’s Green Finance Framework, which is available on our website under “Sustainability—Ormat Polices. In addition to proceeds from the offering, the Company may use cash from operations or borrowings under its credit facilities in order to effect such allocation. Information on our website is not incorporated by reference in this Quarterly Report. In connection with the issuance of the convertible notes described above, the Company entered into capped call transactions (the "Capped Calls") with certain counterparties. The capped call transactions is described in details under Item 1 - Financial Statements. - In June 2022, we announced the commercial operation of the 5 MW/20 MWh Tierra Buena Battery Energy Storage System (Tierra Buena BESS). The Tierra Buena BESS will provide local resource adequacy to two Community Choice Aggregators (CCAs), Redwood Coast Energy Authority and Valley Clean Energy, at 2.5 MW each, under 10-year agreements. In addition, the facility will provide ancillary services and energy optimization through participation in merchant markets run by the California Independent System Operator (CAISO). The facility will connect to the adjacent Pacific Gas & Electric distribution circuit. - In June 2022, we paid $221.9 million to prepay our senior unsecured Series 3 Bonds. The payment included the outstanding amount that was due in September 2022 and the interest related to the prepayment make-whole. - In June 2022, we announced the election of Michal Marom and Karin Corfee to the Company’s Board of Directors, effective immediately. Ms. Marom will also serve as the Chair of the Audit Committee and a member of the Compensation Committee. Ms. Marom and Ms. Corfee replaced the departing Board members Dan Falk and Albertus Bruggink, respectively. With these new additions, one third of Ormat’s Board of Directors will be represented by women. - In June 2022, we announced the execution of a PPA with California Community Power (CC Power), a Joint Powers Agency consisting of numerous CCAs. Energy deliveries under the portfolio PPA are expected to start in the second quarter of 2024, with the expectation that the entire portfolio covered under the new PPA will be online by the end of 2026. The portfolio PPA covers up to 125MW for a term of 20 years and is comprised entirely of new projects currently under construction or in development in Nevada and California. CC Power has the right for one time adjustment to the maximum portfolio within 120 days from signing. Capacity is subject to CAISO connection approval. - In May 2022, we announced the execution of two PPAs with NV Energy. Under the first PPA, signed in 2021, NV Energy will purchase 25 MW of power over 25 years generated by the North Valley Geothermal Project, a new facility expected to come online by early 2023. Additionally, NV Energy will purchase up to 135 MW of power generated by a portfolio of the Company's new and existing geothermal power plants under a PPA signed in May. The portfolio PPA is subject to Public Utility Commission’s approval. - In April 2022, we commenced the commercial operation of the Tungsten Mountain 2 geothermal power plant, which sells an additional 13 MW to the Southern California Public Power Authority ("SCPPA") under the SCPPA portfolio PPA. The addition of Tungsten Mountain 2 to our existing Tungsten geothermal power plant increased our total Tungsten complex geothermal capacity to 42 MW. - In March 2022, we signed a 15-year PPA with Peninsula Clean Energy, a CCA that provides more than 3,500 gigawatt hours of electricity to San Mateo County and the City of Los Banos in California. Under the terms of the PPA approved by Peninsula Clean Energy’s Board of Directors, effective January 1, 2023, the Peninsula Clean Energy will purchase 26 MW of clean, renewable energy from Ormat’s Heber 2 geothermal facility located in Imperial Valley, CA. This PPA marks the successful completion of Ormat’s first ever solicitation for bids, with a request for bids (RFB) on the Heber 2 facility issued in July of 2021. - Our 40 MW Heber 1 geothermal power plant located in California is experiencing an outage following a fire on February 25, 2022, that caused damage primarily to the steam turbine-generator area. The Heber 1 power plant is part of the 81 MW Heber complex and sells its electricity under a long-term contract with the Southern California Public Power Authority. The Company is still evaluating the cost and the time to restore all or part of the Heber 1 power plants back to operation. In mid-April, the Company gradually re-started operation of the binary units and the Heber 1 power plant is currently running at approximately 20 MW. We hold business interruption insurance subject to a 45-day deductible period in addition to property damage insurance with customary deductibles, and are working with insurers to collect under those policies. We estimate that the outage will reduce the monthly revenues by approximately $1.5 million. At this stage, we believe the insurance proceeds from the property damage will exceed the depreciated book value of the damaged property. ### Trends and Uncertainties Different trends, factors and uncertainties may impact our operations and financial condition, including many that we do not or cannot foresee. However, we believe that our results of operations and financial condition for the foreseeable future will be primarily affected by trends, factors and uncertainties discussed in our 2021 Annual Report under “Part II - Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operation”, in addition to the information set forth in this quarterly report. These trends, factors and uncertainties are, from time to time, also subject to market cycles. - Russia’s invasion of and military attacks on Ukraine, including indirect impacts as a result of sanctions and economic disruption, has complicated and may continue to further complicate existing supply chain constraints. Supply chain constraints may cause cost increases of raw materials, commodities and equipment that could adversely affect our profit margins. - In the markets in which we operate, particularly in the U.S, there have been higher rates of inflation in recent months. While our U.S. contracts are not indexed to inflation most of our international-based contracts are indexed to inflation. If inflation continues to increase in our markets, it may increase our expenses such that our profit margins could be adversely impacted. It may also increase the costs of some of our development projects that could negatively impact their competitiveness. - Interest rate increases for both short-term and long-term debt have increased sharply. Although our outstanding debt mostly bears fixed interest rates, as we refinance it, or borrow additional amounts, we may incur additional interest expense versus expiring loans. ### Revenues For the nine months ended September 30, 2022, 89.3% of our Electricity segment revenues were from PPAs with fixed energy rates, which are not affected by fluctuations in energy commodity prices. We have variable price PPAs in California and Hawaii, which provide for payments based on the local utilities’ avoided cost, which is the incremental cost that the power purchaser avoids by not having to generate such electrical energy itself or purchase it from others, as follows: - The energy rates under the PPAs in California for the 12MW Heber 2 power plant in the Heber Complex change primarily based on fluctuations in natural gas prices. We recently signed a new PPA for the Heber 2 plant, effective January 1, 2023, with a fixed energy rate. - The prices for electricity pursuant to the 25 MW PPA for the Puna Complex in Hawaii change primarily as a result of variations in the price of oil as well as other commodities. To comply with obligations under their respective PPAs, certain of our project subsidiaries are structured as special purpose, bankruptcy remote entities and their assets and liabilities are ring-fenced. Such assets are not generally available to pay our debt, other than debt at the respective project subsidiary level. However, these project subsidiaries are allowed to pay dividends and make distributions of cash flows generated by their assets to us, subject in some cases to restrictions in debt instruments, as described below. Electricity segment revenues are also subject to seasonal variations and are affected by higher-than-average ambient temperatures, as described below under “Seasonality”. Revenues attributable to our Product segment are based on the sale of equipment, engineering, procurement and construction contracts and the provision of various services to our customers. Product segment revenues vary from period to period because of the timing of our receipt of purchase orders and the progress of our equipment manufacturing and execution of the relevant project. Revenues attributable to our Energy Storage segment are generated by several grid-connected BESS facilities that we own and operate that sell energy, capacity and/or ancillary services in merchant markets like PJM Interconnect, ISO New England, ERCOT and CAISO. The revenues fluctuate over time since a large portion of such revenues are generated in the merchant markets, where price volatility is inherent. The following table sets forth a breakdown of our revenues for the periods indicated: | Revenues: | Revenue Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | Increase (decrease) Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Electricity | $152,820 | $142,651 | $466,540 | $421,503 | $10,169 | 7.1% | $45,037 | 10.7% | | Product | 14,217 | 10,527 | 39,237 | 26,580 | 3,690 | 35.1% | 12,657 | 47.6% | | Energy storage | 8,848 | 5,664 | 22,896 | 24,012 | 3,184 | 56.2% | (1,116) | (4.6)% | | Total | $175,885 | $158,842 | $528,673 | $472,095 | $17,043 | 10.7% | $56,578 | 12.0% | | Revenues: | % of Revenues for Period Indicated Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | ---: | ---: | | Electricity | 86.9% | 89.8% | 88.2% | 89.3% | | Product | 8.1 | 6.6 | 7.4 | 5.6 | | Energy storage | 5.0 | 3.6 | 4.3 | 5.1 | | Total | 100.0% | 100.0% | 100.0% | 100.0% | 38 The following table sets forth the geographic breakdown of the revenues attributable to our Electricity, Product and Energy Storage segments for the periods indicated: *(Dollars in thousands)* *(Dollars in thousands)* | Electricity Segment: | Revenue Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | Increase (decrease) Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | United States | $106,490 | $98,551 | $327,792 | $285,090 | $7,940 | 8.1% | $42,702 | 15.0% | | Foreign | 46,330 | 44,101 | 138,748 | 136,413 | 2,229 | 5.1 | 2,335 | 1.7 | | Total | $152,820 | $142,652 | $466,540 | $421,503 | $10,169 | 7.1% | $45,037 | 10.7% | | Product Segment: | | | | | | | | | | United States | $1,267 | $1,541 | $2,936 | $4,041 | $(274) | (17.8)% | $(1,105) | (27.3)% | | Foreign | 12,950 | 8,986 | 36,301 | 22,539 | 3,964 | 44.1 | 13,762 | 61.1 | | Total | $14,217 | $10,527 | $39,237 | $26,580 | $3,690 | 35.1% | $12,657 | 47.6% | | Energy Storage Segment: | | | | | | | | | | United States | $8,848 | $5,664 | $22,896 | $24,012 | $3,184 | 56.2% | $(1,116) | (4.6)% | | Total | $8,848 | $5,664 | $22,896 | $24,012 | $3,184 | 56.2% | $(1,116) | (4.6)% | | Electricity Segment: | % of Revenues for Period Indicated Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | ---: | ---: | | United States | 69.7% | 69.1% | 70.3% | 67.6% | | Foreign | 30.3 | 30.9 | 29.7 | 32.4 | | Total | 100.0% | 100.0% | 100.0% | 100.0% | | Product Segment: | | | | | | United States | 8.9% | 14.6% | 7.5% | 15.2% | | Foreign | 91.1 | 85.4 | 92.5 | 84.8 | | Total | 100.0% | 100.0% | 100.0% | 100.0% | | Energy Storage: | | | | | | United States | 100.0% | 100.0% | 100.0% | 100.0% | | Total | 100.0% | 100.0% | 100.0% | 100.0% | In the nine months ended September 30, 2022 and 2021, 33% and 34% of our total revenues, respectively, were derived from foreign locations, and our foreign operations were significantly more profitable than our U.S. operations in each of those periods. A substantial portion of international revenues came from Kenya and, to a lesser extent, from Honduras, Guadeloupe, Guatemala and other countries. Our operations in Kenya contributed disproportionately to gross profit and net income. The contribution to combined pre-tax income of our domestic and foreign operations within our Electricity segment and Product segment differ in a number of ways. *Electricity Segment.* Domestic revenues were approximately 70% and 68% of our total Electricity segment for the nine months ended September 30, 2022 and 2021, respectively. However, domestic operations have higher costs of revenues and expenses than our foreign operations. Our foreign power plants are located in lower-cost regions, like Kenya, Guatemala, Honduras and Guadeloupe, which favorably impact payroll, and maintenance expenses among other items. Our power plants in foreign locations are also newer than most of our domestic power plants and therefore tend to have lower maintenance costs and higher availability factors than our domestic power plants. Consequently, in the nine months ended September 30, 2022 and 2021, our Electricity segment foreign operations accounted for 46% and 47% of our total gross profits, 74% and 72% of our net income (assuming the majority of corporate operating expenses and financing are recorded under our domestic jurisdiction) and 39% and 47% of our EBITDA, respectively. *Product Segment.* Foreign revenues were approximately 93% and 85% of our total Product segment revenues for the nine months ended September 30, 2022 and 2021, respectively. *Energy Storage Segment.* Domestic revenues were 100% of our total Energy storage segment revenues for each of the three months ended September 30, 2022 and 2021. ### Seasonality Electricity generation from some of our geothermal power plants is subject to seasonal variations. In the winter, our power plants produce more energy primarily attributable to the lower ambient temperature, which has a favorable impact on the energy component of our Electricity segment revenues, and in the summer, our power plants produce less energy primarily attributable to the higher ambient temperature. The prices under many of our contracts are fixed throughout the year with no time-of-use impact, however, the prices paid for electricity under the PPAs for one of the Heber 2 power plants in the Heber Complex, the Mammoth Complex and the North Brawley power plant in California, the Raft River power plant in Idaho, the Neal Hot Springs power plant in Oregon and the recently acquired Dixie Valley power plant in Nevada are higher in the months of June through September. The higher payments payable under these PPAs in the summer months partially offset the negative impact on our revenues from lower generation in the summer. As a result, we expect the revenues and gross profit in the winter months to be higher than the revenues and gross profit in the summer months and in general we expect the first and fourth quarters to generate higher revenues than the second and third quarters. ### Breakdown of Cost of Revenues The principal cost of revenues attributable to our three segments are discussed in our 2021 Annual Report under “Part II - Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operation”. ### Critical Accounting Estimates and Assumptions A comprehensive discussion of our critical accounting estimates and assumptions is included in our 2021 Annual Report under “Part II — Item 7 — Management Discussion and Analysis of Financial Condition and Results of Operation.” ### New Accounting Pronouncements See Note 2 to our condensed consolidated financial statements set forth in Item 1 of this quarterly report for information regarding new accounting pronouncements. ### Results of Operations Our historical operating results in dollars and as a percentage of total revenues are presented below. A comparison of the different years described below may be of limited utility due to (i) our recent construction of power plants and enhancement of acquired power plants; (ii) fluctuation in revenues from our Product segment; and (iii) one-time events such as insurance proceeds that impact one period but not the other. *(Dollars in thousands, except per share data)* *(Dollars in thousands, except per share data)* | Statements of Operations Historical Data: Revenues: | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | ---: | ---: | | Electricity | $152,820 | $142,651 | $466,540 | $421,503 | | Product | 14,217 | 10,527 | 39,237 | 26,580 | | Energy storage | 8,848 | 5,664 | 22,896 | 24,012 | | Total Revenues | 175,885 | 158,842 | 528,673 | 472,095 | | **Cost of revenues:** | | | | | | Electricity | 97,053 | 81,549 | 287,091 | 245,136 | | Product | 11,664 | 9,182 | 35,644 | 23,180 | | Energy storage | 6,060 | 4,971 | 17,324 | 15,017 | | Total cost of revenues | 114,777 | 95,702 | 340,059 | 283,333 | | **Gross profit** | | | | | | Electricity | 55,767 | 61,102 | 179,449 | 176,367 | | Product | 2,553 | 1,345 | 3,593 | 3,400 | | Energy storage | 2,788 | 693 | 5,572 | 8,995 | | Total gross profit | 61,108 | 63,140 | 188,614 | 188,762 | | **Operating expenses:** | | | | | | Research and development expenses | 1,238 | 1,175 | 3,690 | 3,179 | | Selling and marketing expenses | 4,093 | 2,671 | 12,410 | 10,935 | | General and administrative expenses | 16,057 | 23,554 | 47,155 | 60,400 | | Business interruption insurance income | — | (248) | — | (248) | | Write-off of Energy Storage projects and assets | — | — | 1,954 | — | | Write-off of unsuccessful exploration activities | 827 | — | 827 | — | | Operating income | 38,893 | 35,988 | 122,578 | 114,496 | | **Other income (expense):** | | | | | | Interest income | 1,659 | 519 | 2,180 | 1,590 | | Interest expense, net | (22,403) | (22,230) | (63,902) | (59,872) | | Derivatives and foreign currency transaction gains (losses) | (293) | (21) | (4,031) | (16,229) | | Income attributable to sale of tax benefits | 9,113 | 7,879 | 26,345 | 21,654 | | Other non-operating income (expense), net | 673 | 44 | (512) | (308) | | Income from operations before income tax and equity in earnings (losses) of investees | 27,642 | 22,179 | 82,658 | 61,331 | | Income tax provision | (7,227) | (2,048) | (23,520) | (9,323) | | Equity in earnings (losses) of investees, net | (589) | 649 | (1,574) | 1,796 | | Net income | 19,826 | 20,780 | 57,564 | 53,804 | | Net income attributable to noncontrolling interest | (1,716) | (5,878) | (9,764) | (10,617) | | Net income attributable to the Company's stockholders | $18,110 | $14,902 | $47,800 | $43,187 | | Earnings per share attributable to the Company's stockholders: | | | | | | Basic: | $0.32 | $0.27 | $0.85 | $0.77 | | Diluted: | $0.32 | $0.26 | $0.85 | $0.77 | | Weighted average number of shares used in computation of earnings per share attributable to the Company's stockholders: | | | | | | Basic | 55,999 | 56,003 | 56,058 | 55,995 | | Diluted | 56,457 | 56,298 | 56,479 | 56,413 | 41 | Statements of Operations Data: Revenues: | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | ---: | ---: | | Electricity | 86.9% | 89.8% | 88.2% | 89.3% | | Product | 8.1 | 6.6 | 7.4 | 5.6 | | Energy storage | 5.0 | 3.6 | 4.3 | 5.1 | | Total Revenues | 100.0 | 100.0 | 100.0 | 100.0 | | **Cost of revenues:** | | | | | | Electricity | 63.5 | 57.2 | 61.5 | 58.2 | | Product | 82.0 | 87.2 | 90.8 | 87.2 | | Energy storage | 68.5 | 87.8 | 75.7 | 62.5 | | Total cost of revenues | 65.3 | 60.2 | 64.3 | 60.0 | | **Gross profit** | | | | | | Electricity | 36.5 | 42.8 | 38.5 | 41.8 | | Product | 18.0 | 12.8 | 9.2 | 12.8 | | Energy storage | 31.5 | 12.2 | 24.3 | 37.5 | | Total gross profit | 34.7 | 39.8 | 35.7 | 40.0 | | **Operating expenses:** | | | | | | Research and development expenses | 0.7 | 0.7 | 0.7 | 0.7 | | Selling and marketing expenses | 2.3 | 1.7 | 2.3 | 2.3 | | General and administrative expenses | 9.1 | 14.8 | 8.9 | 12.8 | | Business interruption insurance income | — | (0.2) | — | (0.1) | | Write-off of Energy Storage projects and assets | — | — | 0.4 | — | | Write-off of unsuccessful exploration activities | 0.5 | — | 0.2 | — | | Operating income | 22.1 | 22.7 | 23.2 | 24.3 | | **Other income (expense):** | | | | | | Interest income | 0.9 | 0.3 | 0.4 | 0.3 | | Interest expense, net | (12.7) | (14.0) | (12.1) | (12.7) | | Derivatives and foreign currency transaction gains (losses) | (0.2) | — | (0.8) | (3.4) | | Income attributable to sale of tax benefits | 5.2 | 5.0 | 5.0 | 4.6 | | Other non-operating income (expense), net | 0.4 | — | (0.1) | (0.1) | | Income from operations before income tax and equity in earnings (losses) of investees | 15.7 | 14.0 | 15.6 | 13.0 | | Income tax provision | (4.1) | (1.3) | (4.4) | (2.0) | | Equity in earnings (losses) of investees, net | (0.3) | 0.4 | (0.3) | 0.4 | | Net income | 11.3 | 13.1 | 10.9 | 11.4 | | Net income attributable to noncontrolling interest | (1.0) | (3.7) | (1.8) | (2.2) | | Net income attributable to the Company's stockholders | 10.3% | 9.4% | 9.0% | 9.1% | 42 ### Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021 ### Total Revenues The table below compares revenues for the three months ended September 30, 2022 to the three months ended September 30, 2021. *(Dollars in millions)* | | Three Months Ended September 30, 2022 | 2021 | Change | | --- | ---: | ---: | ---: | | Electricity segment | $152.8 | $142.7 | 7.1% | | Product segment | 14.2 | 10.5 | 35.1 | | Energy Storage segment | 8.8 | 5.7 | 56.2 | | Total revenues | $175.9 | $158.8 | 10.7% | #### Electricity Segment Revenues attributable to our Electricity segment for the three months ended September 30, 2022 were $152.8 million, compared to $142.7 million for the three months ended September 30, 2021. This increase was mainly due to: (i) higher revenues in Puna of approximately $4.2 million primarily due to higher electricity rates; (ii) CD4 facility starting commercial operation in July 2022, which contributed approximately $3.5 million to Electricity revenues; and (iii) Tungsten Mountain 2 and Dixie Valley power plants, which contributed approximately $1.8 million each, as a result of the start of commercial operations of Tungsten Mountain 2 power plant in April 2022 and the inclusion of Dixie Valley power plant which was acquired in July 2021. This increase was partially offset by approximately $2.3 million due to a decrease in revenues as a result of a shutdown at the Heber 1 power plant following a fire that caused damage to the steam turbine. Power generation in our power plants increased by 6.6% from 1,523,897 MWh in the three months ended September 30, 2021 to 1,624,003 MWh in the three months ended September 30, 2022. #### Product Segment Revenues attributable to our Product segment for the three months ended September 30, 2022 were $14.2 million, compared to $10.5 million for the three months ended September 30, 2021, which represented a 35.1% increase. The increase in our Product segment revenues was primarily due to our project in New Zealand for which we started to record revenues in the third quarter of 2022 as well as other certain projects for which revenues were recognized during the three months ended September 30, 2022, compared to different projects for which revenues were recorded in the same period in 2021. #### Energy Storage Segment Revenues attributable to our Energy Storage segment for the three months ended September 30, 2022 were $8.8 million compared to $5.7 million for the three months ended September 30, 2021. The increase is mainly due to high energy rates at PJM and CAISO facilities increasing our revenues at most of our storage assets due to higher overall merchant prices. ### Total Cost of Revenues The table below compares cost of revenues for the three months ended September 30, 2022 to the three months ended September 30, 2021. *(Dollars in millions)* | | Three Months Ended September 30, 2022 | 2021 | Change | | --- | ---: | ---: | ---: | | Electricity segment | $97.1 | $81.5 | 19.0% | | Product segment | 11.7 | 9.2 | 27.0 | | Energy Storage segment | 6.1 | 5.0 | 21.9 | | Total cost of revenues | $114.8 | $95.7 | 19.9% | #### Electricity Segment Total cost of revenues attributable to our Electricity segment for the three months ended September 30, 2022 was $97.1 million, compared to $81.5 million for the three months ended September 30, 2021. This increase was primarily attributable to: (i) business interruption insurance income related to the Heber 1 fire of $4.0 million, which was included in the three months ended September 30, 2022, compared to $15.5 million of business interruption insurance income related to the lava eruption that damaged the Puna power plant in 2018, which was included in the three months ended September 30, 2021; and (ii) the commercial operation of CD4 and Tungsten Mountain 2 in July 2022 and April 2022, respectively, as well as the consolidation of Dixie Valley and Beowawe which were acquired in July 2021. This increase was partially offset as a result of a shutdown at the Heber 1 power plant following a fire that caused damage to the steam turbine. Our total Electricity segment cost of revenues for the three months ended September 30, 2022 was 63.5% of Electricity revenues, compared to 57.2% for the three months ended September 30, 2021, including the impact from business interruption insurance proceeds as described above. The cost of revenues attributable to our international power plants for the three months ended September 30, 2022 was 16.9% of our total Electricity segment cost of revenues for this period. #### Product Segment Total cost of revenues attributable to our Product segment for the three months ended September 30, 2022 was $11.7 million, compared to $9.2 million for the three months ended September 30, 2021, which represented a 27.0% increase. This increase was primarily attributable to the increase in Product segment revenues, as discussed above. As a percentage of total Product segment revenues, our total cost of revenues attributable to our Product segment for the three months ended September 30, 2022 and 2021, was 82.0% and 87.2%, respectively. #### Energy Storage Segment Cost of revenues attributable to our Energy Storage segment for the three months ended September 30, 2022 were $6.1 million compared to $5.0 million for the three months ended September 30, 2021. The Energy Storage segment includes cost of revenues related to the delivery of energy storage and energy management services. ### Research and Development Expenses, Net Research and development expenses for the three months ended September 30, 2022 were $1.2 million, compared to $1.2 million for the three months ended September 30, 2021. ### Selling and Marketing Expenses Selling and marketing expenses for the three months ended September 30, 2022 were $4.1 million compared to $2.7 million for the three months ended September 30, 2021. This increase is partially related to a new product contract that started in the third quarter of 2022 as well as to other marketing initiatives. Selling and marketing expenses for the three months ended September 30, 2022 constituted 2.3% of total revenues for such period, compared to 1.7% for the three months ended September 30, 2021. ### General and Administrative Expenses General and administrative expenses for the three months ended September 30, 2022 were $16.1 million compared to $23.6 million for the three months ended September 30, 2021. This decrease of $7.5 million was primarily attributable to $4.5 million of transaction costs, including $3.7 million related to the TG Geothermal Portfolio, LLC, acquisition included in the third quarter of 2021 as well as higher legal costs in 2021 mainly associated with the investigation by the Special Committee. General and administrative expenses for the three months ended September 30, 2022 constituted 9.1% of total revenues for such period, compared to 14.8% for the three months ended September 30, 2021. ### Business Interruption Insurance Income There was no business interruption insurance income classified under operating expenses for the three months ended September 30, 2022, compared to $0.2 million for the three months ended September 30, 2021. Business interruption insurance income for the three months ended September 30, 2021 is attributable to business interruption recovery proceeds relating to the Puna power plant. ### Write-off of Energy Storage Projects and Assets There were no write-offs of Energy Storage projects and assets for the three months ended September 30, 2022 and 2021. ### Write-off of Unsuccessful Exploration Activities Write-off of unsuccessful exploration activities for the three months ended September 30, 2022 were $0.8 million compared to none for the three months ended September 30, 2021. These write-offs are related to geothermal exploration projects that the company decided to no longer pursue. ### Interest Income Interest Income for the three months ended September 30, 2022 was $1.7 million, compared to $0.5 million for the three months ended September 30, 2021. This increase was primarily related to higher interest rates on cash and cash equivalents. ### Interest Expense, Net Interest expense, net for the three months ended September 30, 2022 was $22.4 million, compared to $22.2 million for the three months ended September 30, 2021. This increase of $0.2 million was primarily attributable to: (i) approximately $2.8 million related to the Convertible Senior Notes which we entered into in June 2022; and (ii) approximately $0.8 million related to Bank Mizrahi Loan which was received in April 2022. This increase was partially offset by $2.4 million related to the prepayment of Series 3 Bonds in June 2022 as well as to lower interest expenses on other long-term loans as a result of regular principal payments. ### Derivatives and Foreign Currency Transaction Gains (Losses) Derivatives and foreign currency transaction gains and losses for the three months ended September 30, 2022 was a loss of $0.3 million, compared to a loss of $0.0 million for the three months ended September 30, 2021. Derivatives and foreign currency transaction gains (losses) for the three months ended September 30, 2022 primarily includes losses from foreign currency forward contracts which were not accounted for as hedge transactions. ### Income Attributable to Sale of Tax Benefits Income attributable to the sale of tax benefits for the three months ended September 30, 2022 was $9.1 million, compared to $7.9 million for the three months ended September 30, 2021. This income primarily represents the value of production tax credits (“PTCs”) and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. This increase of $1.2 million is primarily related to the Steamboat Hills tax equity partnership entered into in October 2021. ### Other Non-Operating Income (Expense), Net Other non-operating income (expense), net for the three months ended September 30, 2022 was an expense of $0.7 million, compared to an expense of $0.0 million for the three months ended September 30, 2021. Other non-operating income (expense), net for the three months ended September 30, 2022, primarily consisted of a sale of certain equipment to a third party. ### Income Taxes Income tax provision for the three months ended September 30, 2022 was $7.2 million compared to income tax provision of $2.0 million for the three months ended September 30, 2021. Our effective tax rate for the three months ended September 30, 2022 and 2021, was 26.1% and 9.2%, respectively. The effective rate differs from the federal statutory rate of 21% primarily due to the jurisdictional mix of earnings at differing tax rates, movement in the valuation allowance and generation of production tax credits. ### Equity in Earnings (losses) of Investees, Net Equity in losses of investees, net for the three months ended September 30, 2022 was $0.6 million, compared to equity in earnings of investees of $0.6 million for the three months ended September 30, 2021. Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in the Sarulla Consortium ("Sarulla"). The increase in equity losses in investees, net between the reported periods is primarily related to our portion of the devaluation of the local currency against the U.S Dollar, lower net income in Sarulla as a result of lower generation as well as a write-down of assets expected to be uncollectible during the period. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant’s performance, the recovery plan is ongoing; however, uncertainty remains regarding Sarulla’s ability to meet the plan and we are evaluating the impact of the plan on future performance. As we determined that the current situation and circumstances related to our equity method investment in Sarulla are temporary, no impairment testing was required for the period. ***Net Income Attributable to the Company’s Stockholders*** Net income attributable to the Company’s stockholders for the three months ended September 30, 2022 was $18.1 million, compared to net income attributable to the Company’s stockholders of $14.9 million for the three months ended September 30, 2021, which represents an increase of $3.2 million. This increase was attributable to a decrease of $1.0 million in net income which was affected by the explanations described above, and a decrease of $4.2 million in net income attributable to noncontrolling interest in the three months ended September 30, 2022, compared to the three months ended September 30, 2021, mainly due to the impact of $15.8 million of business interruption insurance income which was recorded in the third quarter of 2021 in relation to the Puna power plant in Hawaii. ### Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021 ### Total Revenues The table below compares revenues for the nine months ended September 30, 2022 to the nine months ended September 30, 2021. *(Dollars in millions)* | | Nine Months Ended September 30, 2022 | 2021 | Change | | --- | ---: | ---: | ---: | | Electricity segment | $466.5 | $421.5 | 10.7% | | Product segment | 39.2 | 26.6 | 47.6 | | Energy Storage segment | 22.9 | 24.0 | (4.6) | | Total revenues | $528.7 | $472.1 | 12.0% | #### Electricity Segment Revenues attributable to our Electricity segment for the nine months ended September 30, 2022, were $466.5 million, compared to $421.5 million for the nine months ended September 30, 2021. The increase in our Electricity segment revenues was mainly due to: (i) higher revenues in Puna of approximately $18.0 million primarily due to higher electricity rates; (ii) start of commercial operation of our CD4 power plant facility in July 2022, which contributed $4.0 million to the increase in Electricity revenues; (iii) Dixie Valley and Beowawe power plants which contributed approximately $22.7 million, as a result of their inclusion in our condensed consolidated financial statements starting July 2021, as part of the Terra-Gen Transaction; and (iv) start of commercial operations of Tungsten Mountain 2 in April 2022, which contributed $2.7 million to this increase. This increase was partially offset by $8.8 million due to a decrease in revenues as a result of a shutdown at the Heber 1 power plant following a fire that caused damage to the steam turbine. Power generation in our power plants increased by 5.7% from 4,679,959 MWh in the nine months ended September 30, 2021 to 4,945,315 MWh in the nine months ended September 30, 2022. #### Product Segment Revenues attributable to our Product segment for the nine months ended September 30, 2022 were $39.2 million, compared to $26.6 million for the nine months ended September 30, 2021, which represented an increase of 47.6%. The increase in our Product segment revenues was primarily due to certain new projects in New Zealand, Nicaragua and Indonesia for which we recorded revenues for in the first nine months of 2022 and which were higher than revenues related to different projects in New Zealand and Chile which were substantially completed in 2021. #### Energy Storage Segment Revenues attributable to our Energy Storage segment for the nine months ended September 30, 2022 were $22.9 million compared to $24.0 million for the nine months ended September 30, 2021. The decrease is mainly due to a decrease of $6.8 million in revenues from the Rabbit Hill battery energy storage facility primarily as a result of the February 2021 power crisis in Texas, which resulted in a record high increase in demand for electricity on the one hand and a significant decrease in electricity supply in the region on the other hand. This led to a significant increase in the Responsive Reserve Service market price during this weather event. This decrease from 2021 was offset by higher revenues at PJM and CAISO facilities due to high energy rates and increased performance of the assets in 2022. ### Total Cost of Revenues The table below compares cost of revenues for the nine months ended September 30, 2022 to the nine months ended September 30, 2021. *(Dollars in millions)* | | Nine Months Ended September 30, 2022 | 2021 | Change | | --- | ---: | ---: | ---: | | Electricity segment | $287.1 | $245.1 | 17.1% | | Product segment | 35.6 | 23.2 | 53.8 | | Energy Storage segment | 17.3 | 15.0 | 15.4 | | Total cost of revenues | $340.1 | $283.3 | 20.0% | #### Electricity Segment Total cost of revenues attributable to our Electricity segment for the nine months ended September 30, 2022 was $287.1 million, compared to $245.1 million for the nine months ended September 30, 2021. This increase was primarily attributable to: (i) the consolidation of Dixie Valley and Beowawe power plants which were acquired in July, 2021, and contributed a total of $23.2 million to the increase in cost of revenues; (ii) $7.1 million related to the Puna power plant resumption of operations; (iii) higher business interruption insurance income of $6.3 million related to the lava eruption at the Puna power plant and the fire at our Heber 1 power plant; and (vi) $5.2 million related to the expansion of the McGinness Hills complex in May 2021, Tungsten 2 in April 2022, and CD4 in July 2022. Our total Electricity segment cost of revenues for the nine months ended September 30, 2022 was 61.5% of Electricity revenues, compared to 58.2% for the nine months ended September 30, 2021, including the impact from business interruption insurance proceeds described above. The cost of revenues attributable to our international power plants for the nine months ended September 30, 2022 was 18.0% of our total Electricity segment cost of revenues for this period. #### Product Segment Total cost of revenues attributable to our Product segment for the nine months ended September 30, 2022 was $35.6 million, compared to $23.2 million for the nine months ended September 30, 2021, which represented a 53.8% increase. This increase was primarily attributable to the increase in Product segment revenues and higher costs, as discussed above. As a percentage of total Product segment revenues, our total cost of revenues attributable to our Product segment for the nine months ended September 30, 2022 and 2021, was 90.8% and 87.2%, respectively. #### Energy Storage Segment Cost of revenues attributable to our Energy Storage segment for the nine months ended September 30, 2022 were $17.3 million compared to $15.0 million for the nine months ended September 30, 2021. This increase was mainly due to the addition of the Vallecito battery energy storage system to our commercially operating sites in April 2021 and Tierra Buena in June 2022. The Energy Storage segment includes cost of revenues related to the delivery of energy storage and energy management services. ### Research and Development Expenses, Net Research and development expenses for the nine months ended September 30, 2022 were $3.7 million, compared to $3.2 million for the nine months ended September 30, 2021. The increase is mainly attributable to the timing of research and development projects that took place during the nine months ended September 30, 2022 compared to the corresponding period in 2021. ### Selling and Marketing Expenses Selling and marketing expenses for the nine months ended September 30, 2022 were $12.4 million compared to $10.9 million for the nine months ended September 30, 2021. Selling and marketing expenses for the nine months ended September 30, 2022, constituted 2.3% of total revenues for such period, compared to 2.3% for the nine months ended September 30, 2021, and the increase period over period is associated with the corresponding increase in total revenues. ### General and Administrative Expenses General and administrative expenses for the nine months ended September 30, 2022 were $47.2 million compared to $60.4 million for the nine months ended September 30, 2021. The decrease of $13.2 million was primarily due to $4.5 million of transaction costs, including $3.7 million related to the TG Geothermal Portfolio, LLC, acquisition included in the third quarter of 2021 as well as higher legal costs in 2021 mainly associated with the investigation by the Special Committee. Additionally, general and administrative expenses for the nine months ended September 30, 2021 include a provision for doubtful debts of $3.0 million relating to imbalance charges from the grid operator in respect of our demand response operations that we were unable to collect due to the February power crisis in Texas. General and administrative expenses for the nine months ended September 30, 2022 constituted 8.9% of total revenues for such period, compared to 12.8% for the nine months ended September 30, 2021. ### Business Interruption Insurance Income There was no business interruption insurance income classified under operating expenses for the nine months ended September 30, 2022, compared to $0.2 million for the nine months ended September 30, 2021. Business interruption insurance income in 2021 is attributable to business interruption recovery relating to the Puna power plant. ### Write-off of Energy Storage projects and assets Write-off of Energy Storage projects and assets for the nine months ended September 30, 2022 was $2.0 million compared to none for the nine months ended September 30, 2021. The write-off in 2022 is primarily related to accumulated costs of energy storage projects that the Company is no longer pursuing as well as specific certain customer related assets. ### Write-off of Unsuccessful Exploration Activities Write-offs of unsuccessful exploration activities for the nine months ended September 30, 2022 were $0.8 million compared to none for the nine months ended September 30, 2021. These write-offs are related to geothermal exploration projects that the Company decided to no longer pursue. ### Interest Income Interest Income for the nine months ended September 30, 2022 was $2.2 million, compared to $1.6 million for the nine months ended September 30, 2021. This increase was primarily related to higher interest rates on cash and cash equivalents. ### Interest Expense, Net Interest expense, net for the nine months ended September 30, 2022 was $63.9 million, compared to $59.9 million for the nine months ended September 30, 2021. This increase of $4.0 million was primarily due to: (i) $2.9 million related to the Convertible Senior Notes which we entered into in June 2022; (ii) higher $3.4 million of interest expenses related to the financing liability assumed as part of the business combination purchase transaction of the Terra-Gen geothermal assets in July 2021; and (iii) higher $4.8 million of interest expenses related to Bank Hapoalim Loan received in July 2021, HSBC Bank Loan received in July 2021, Bank Discount Loan received in September 2021 and Bank Mizrahi Loan received in April 2022. This increase was partially offset by an increase of $4.0 million in interest capitalized to projects under construction, $2.5 million related to the prepayment of Series 3 Bonds in June 2022, and lower interest expenses on other long-term loans as a result of regular principal payments. ### Derivatives and Foreign Currency Transaction Gains (Losses) Derivatives and foreign currency transaction losses for the nine months ended September 30, 2022 were $4.0 million, compared to losses of $16.2 million for the nine months ended September 30, 2021. Derivatives and foreign currency transaction losses for the nine months ended September 30, 2021 included $14.5 million in losses relating to the hedge transaction associated with our Rabbit Hill battery energy storage facility, due to extreme weather conditions in the area of Georgetown, Texas in February 2021. In addition, we recorded losses from foreign currency forward contracts which were not accounted for as hedge transactions. ### Income Attributable to Sale of Tax Benefits Income attributable to the sale of tax benefits for the nine months ended September 30, 2022 was $26.3 million, compared to $21.7 million for the nine months ended September 30, 2021. This income primarily represents the value of PTCs and taxable income or loss generated by certain of our power plants allocated to investors under tax equity transactions. This increase of $4.7 million is primarily related to the Steamboat Hills tax equity partnership entered into in October 2021. ### Other Non-Operating Income (Expense), Net Other non-operating income (expense), net for the nine months ended September 30, 2022 was an expense of $0.5 million, compared to an expense of $0.3 million for the nine months ended September 30, 2021. Other non-operating income (expense), net for the nine months ended September 30, 2022, primarily includes make-whole premium of $1.1 million from the prepayment of Series 3 Bonds during the second quarter of 2022, as further described under Note 1 to the condensed consolidated financial statements, net of gain from a sale of certain equipment to a third party. ### Income Taxes Income tax provision for the nine months ended September 30, 2022 was $23.5 million compared to $9.3 million for the nine months ended September 30, 2021. Our effective tax rate for the nine months ended September 30, 2022 and 2021, was 28.5% and 15.2%, respectively. The effective rate differs from the federal statutory rate of 21% for the nine months ended September 30, 2022 primarily due to the jurisdictional mix of earnings at differing tax rates from the federal statutory tax rate; movement in the valuation allowance; and generation of production tax credits. ### Equity in Earnings (losses) of Investees, Net Equity in losses of investees, net for the nine months ended September 30, 2022 was $1.6 million, compared to earnings of $1.8 million for the nine months ended September 30, 2021. Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in the Sarulla consortium. The change between the reported periods is primarily related to our portion in the lower net income in Sarulla as a result of lower generation as well as higher write-down of assets expected to be uncollectible during the period. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant’s performance, the recovery plan is ongoing; however, uncertainty remains regarding Sarulla’s ability to meet the plan and we are evaluating the impact of the plan on future performance. As we determined that the current situation and circumstances related to our equity method investment in Sarulla are temporary, no impairment testing was required for the period. ***Net Income Attributable to the Company’s Stockholders*** Net income attributable to the Company’s stockholders for the nine months ended September 30, 2022 was $47.8 million, compared to $43.2 million for the nine months ended September 30, 2021, which represents an increase of $4.6 million. This increase was attributable to the increase of $3.8 million in net income which was affected by the explanations described above, as well as a decrease in net income attributable to noncontrolling interest primarily due to the resumption of operations of the Puna power plant to 25MW in the third quarter of 2021, offset by business interruption insurance income related to the lava eruption in the Puna power plant of $15.8 million in the nine months ended September 30, 2021, compared to $1.8 million in the nine months ended September 30, 2022. ### Liquidity and Capital Resources Our principal sources of liquidity have been derived from cash flows from operations, proceeds from third party debt such as borrowings under our credit facilities, private or public offerings and issuances of debt or equity securities, project financing and tax monetization transactions, short term borrowing under our lines of credit, and proceeds from the sale of equity interests in one or more of our projects. We have utilized this cash to develop and construct power plants, fund our acquisitions, pay down existing outstanding indebtedness, and meet our other cash and liquidity needs. As of September 30, 2022, we had access to (i) $154.6 million in cash and cash equivalents, of which $40.7 million is held by our foreign subsidiaries; and (ii) $387.4 million of unused corporate borrowing capacity under existing committed lines of credit with different commercial banks. Our estimated capital needs for the remainder of 2022 include $160.0 million for capital expenditures on new projects under development or construction including energy storage projects, exploration activity and maintenance capital expenditures for our existing projects. In addition, $34.0 million will be needed for long-term debt repayment. We expect to finance these requirements with: (i) the sources of liquidity described above; (ii) positive cash flows from our operations; and (iii) future project financings and re-financings (including construction loans and tax equity). Management believes that, based on the current stage of implementation of our strategic plan, the sources of liquidity and capital resources described above will address our anticipated liquidity, capital expenditures, and other investment requirements. As of September 30, 2022, we continue to maintain our assertion to no longer indefinitely reinvest foreign funds held by our foreign subsidiaries, with the exception of a certain balance held in Israel, and have accrued the incremental foreign withholding taxes. Accordingly, during the nine months ended September 30, 2022, we included a foreign income tax expense of $1.4 million related to foreign withholding taxes on accumulated earnings of all of our foreign subsidiaries. ### Letters of Credits Under Credit Agreements Some of our customers require our project subsidiaries to post letters of credit in order to guarantee their respective performance under relevant contracts. We are also required to post letters of credit to secure our obligations under various leases and licenses and may, from time to time, decide to post letters of credit in lieu of cash deposits in reserve accounts under certain financing arrangements. In addition, our subsidiary, Ormat Systems, is required from time to time to post performance letters of credit in favor of our customers with respect to orders of products. *(Dollars in millions)* | Credit Agreements | Amount Issued | Issued and Outstanding as of September 30, 2022 | Termination Date | | --- | ---: | ---: | --- | | Committed lines for credit and letters of credit | $468.0 | $80.6 | Mar 2023-July 2025 | | Committed lines for letters of credit | 155.0 | 107.8 | October 2022-August 2023 | | Non-committed lines | — | 14.9 | October 2022 | | Total | $623.0 | $203.3 | | ### Restrictive Covenants Our obligations under the credit agreements, the loan agreements, and the trust instrument governing the bonds described above, are unsecured, but we are subject to a negative pledge in favor of the banks and the other lenders and certain other restrictive covenants. These include, among other things, restraints on: (i) creating any floating charge or any permanent pledge, charge or lien over our assets without obtaining the prior written approval of the lender; (ii) guaranteeing the liabilities of any third party without obtaining the prior written approval of the lender; and (iii) selling, assigning, transferring, conveying or disposing of all or substantially all of our assets, or a change of control in our ownership structure. Some of the credit agreements, the term loan agreements, and the trust instrument contain cross-default provisions with respect to other material indebtedness owed by us to any third party. In some cases, we have agreed to maintain certain financial ratios, which are measured quarterly, such as: (i) equity of at least $750 million and in no event less than 25% of total assets; and (ii) 12-month debt, net of cash, cash equivalents, and short-term bank deposits to Adjusted EBITDA ratio not to exceed 6.0. As of September 30, 2022: (i) total equity was $1,992.3 million and the actual equity to total assets ratio was 44.0% and (ii) the 12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 4.12. During the nine months ended September 30, 2022, we distributed interim dividends in an aggregate amount of $20.2 million. The failure to perform or observe any of the covenants set forth in such agreements, subject to various cure periods, would result in the occurrence of an event of default and would enable the lenders to accelerate all amounts due under each such agreement. As described above, we are currently in compliance with our covenants with respect to the credit agreements, the loan agreements and the trust instrument, (except as described below), and believe that the restrictive covenants, financial ratios and other terms of any of our full-recourse bank credit agreements will not materially impact our business plan or operations. As of September 30, 2022, we did not meet the dividend distribution criteria related to the DAC 1 Senior Secured Notes, and the financing liability assumed as part of the Terra-Gen purchase transaction which resulted in certain equity distribution restrictions from these related subsidiaries. ### Future minimum payments Future minimum payments under long-term obligations (including long-term debt, lease obligations and financing liability), as of September 30, 2022, are as follows: *(Dollars in thousands)* | Year ending December 31: | | | --- | ---: | | 2022 | $35,663 | | 2023 | 204,499 | | 2024 | 266,946 | | 2025 | 178,128 | | 2026 | 178,905 | | Thereafter | 1,237,697 | | Total | $2,101,838 | ### Third-Party Debt Our third-party debt consists of (i) non-recourse and limited-recourse project finance debt or acquisition financing debt that we or our subsidiaries have obtained for the purpose of developing and constructing, refinancing or acquiring our various projects; (ii) full-recourse debt incurred by us or our subsidiaries for general corporate purposes; (iii) financing liability related to the business combination purchase transaction of the Terra-Gen geothermal assets and (iv) convertible senior notes issued in the second quarter of 2022 as further described under Note 1 to the condensed consolidated financial statements. ### Non-Recourse and Limited-Recourse Third-Party Debt *(Dollars in millions)* | Loan | Amount Issued | Amount Outstanding as of September 30, 2022 | Interest Rate | Maturity Date | Related Project | Location | | --- | ---: | ---: | ---: | --- | --- | --- | | OFC 2 Senior Secured Notes – Series A | $151.7 | $74.0 | 4.67% | 2032 | McGinness Hills phase 1 and Tuscarora | U.S. | | OFC 2 Senior Secured Notes – Series B | 140.0 | 88.3 | 4.61% | 2032 | McGinness Hills phase 2 | U.S. | | Olkaria III Financing Agreement with DFC – Tranche 1 | 85.0 | 38.9 | 6.34% | 2030 | Olkaria III Complex | Kenya | | Olkaria III Financing Agreement with DFC – Tranche 2 | 180.0 | 82.1 | 6.29% | 2030 | Olkaria III Complex | Kenya | | Olkaria III Financing Agreement with DFC – Tranche 3 | 45.0 | 22.2 | 6.12% | 2030 | Olkaria III Complex | Kenya | | Amatitlan Financing(1) | 42.0 | 16.6 | LIBOR+4.35% | 2027 | Amatitlan | Guatemala | | Don A. Campbell Senior Secured Notes | 92.5 | 64.1 | 4.03% | 2033 | Don A. Campbell Complex | U.S. | | Prudential Capital Group Idaho Loan(2) | 20.0 | 16.0 | 5.80% | 2023 | Neal Hot Springs and Raft River | U.S. | | U.S. Department of Energy Loan(3) | 96.8 | 36.1 | 2.60% | 2035 | Neal Hot Springs | U.S. | | Prudential Capital Group Nevada Loan | 30.7 | 24.3 | 6.75% | 2037 | San Emidio | U.S. | | Platanares Loan with DFC | 114.7 | 81.9 | 7.02% | 2032 | Platanares | Honduras | | Viridity - Plumstriker | 23.5 | 12.9 | LIBOR+3.5% | 2026 | Plumsted+Striker | U.S. | | Géothermie Bouillante(4) | 8.9 | 4.3 | 1.52% | 2026 | Géothermie Bouillante | Guadeloupe | | Géothermie Bouillante(4) | 8.9 | 5.4 | 1.93% | 2026 | Géothermie Bouillante | Guadeloupe | | **Total** | **$1,039.7** | **$567.1** | | | | | 1\. LIBOR cannot be lower than 1.25%. Margin of 4.35% as long as the Company’s guaranty of the loan is outstanding (current situation) or 4.75% otherwise. 2\. Secured by equity interest. 3\. Secured by the assets. 4\. Loan issued in total aggregate amount of EUR 8.0 million. ### Full-Recourse Third-Party Debt *(Dollars in millions)* | Loan | Amount Issued | Outstanding Amount as of September 30, 2022 | Interest Rate | Maturity Date | | --- | ---: | ---: | ---: | --- | | Mizrahi Loan | $75.0 | $75.0 | 4.10% | April 2030 | | Hapoalim Loan | 125.0 | 107.1 | 3.45% | June 2028 | | HSBC Loan | 50.0 | 42.9 | 3.45% | July 2028 | | Discount Loan | 100.0 | 87.5 | 2.90% | September 2029 | | Senior Unsecured Bonds Series 4 (1) | 289.8 | 254.0 | 3.35% | June 2031 | | Senior unsecured Loan 1 | 100.0 | 87.4 | 4.80% | March 2029 | | Senior unsecured Loan 2 | 50.0 | 43.7 | 4.60% | March 2029 | | Senior unsecured Loan 3 | 50.0 | 43.7 | 5.44% | March 2029 | | DEG Loan 2 | 50.0 | 30.0 | 6.28% | June 2028 | | DEG Loan 3 | 41.5 | 26.2 | 6.04% | June 2028 | | **Total** | **$931.3** | **$797.5** | | | (1 ) Bonds issued in total aggregate principal amount of NIS 1.0 billion. ### Financing Liability - Dixie Valley The financing liability is related to the business combination purchase transaction of the Terra-Gen geothermal assets. The financial liability outstanding amount as of September 30, 2022 is $242.0 million, it bears a fixed interest rate of 2.5% per annum, principal and interest are payable semi-annually, and matures in March 2033. ### Convertible Senior Notes The convertible senior notes ("Notes") were issued in June 2022 as further described under Note 1 to the condensed consolidated financial statements. The Notes bear annual interest of 2.5%, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2023. The Notes mature on July 15, 2027, unless earlier converted, redeemed or repurchased and the outstanding aggregate amount of the Notes as of September 30, 2022 is $431.3 million. ### Liquidity Impact of Uncertain Tax Positions The Company has a liability associated with unrecognized tax benefits and related interest and penalties in the amount of approximately $6.6 million as of September 30, 2022. This liability is included in long-term liabilities in our condensed consolidated balance sheet because we generally do not anticipate that settlement of the liability will require payment of cash within the next twelve months. We are not able to reasonably estimate when we will make any cash payments required to settle this liability. ### Dividends The following are the dividends declared by us since September 30, 2020: | Date Declared | Dividend Amount per Share | Record Date | Payment Date | | --- | ---: | --- | --- | | November 4, 2020 | $0.11 | November 18, 2020 | December 2, 2020 | | February 24, 2021 | $0.12 | March 11, 2021 | March 29, 2021 | | May 5, 2021 | $0.12 | May 18, 2021 | June 1, 2021 | | August 4, 2021 | $0.12 | August 18, 2021 | September 1, 2021 | | November 3, 2021 | $0.12 | November 17, 2021 | December 3, 2021 | | February 23, 2022 | $0.12 | March 9, 2022 | March 23, 2022 | | May 2, 2022 | $0.12 | May 16, 2022 | May 31, 2022 | | August 3, 2022 | $0.12 | August 17, 2022 | August 31, 2022 | | November 2, 2022 | $0.12 | November 16, 2022 | November 30, 2022 | ### Historical Cash Flows The following table sets forth the components of our cash flows for the periods indicated: *(Dollars in thousands)* | | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | | Net cash provided by operating activities | $206,247 | $144,791 | | Net cash used in investing activities | (369,577) | (509,945) | | Net cash provided by (used in) financing activities | 73,600 | 185,012 | | Net change in cash and cash equivalents and restricted cash and cash equivalents | (90,409) | (180,478) | #### For the Nine Months Ended September 30, 2022 Net cash provided by operating activities for the nine months ended September 30, 2022 was $206.2 million, compared to $144.8 million for the nine months ended September 30, 2021. The net increase of $61.5 million was primarily due to: (i) an increase in our operational activities as explained above, period over period; (ii) net increase in the change in accounts payable and accrued expenses of $29.2 million, mainly due to timing of payments to our supplier and construction of power plants; (iii) a decrease in the change in receivables of $3.4 million, as a result of the timing of collection from our customers; and (iv) a decrease in prepaid expenses and other of $11.6 million. The above increases were partially offset by: (i) a net increase of $22.7 million in costs and estimated earnings in excess of billings on uncompleted contracts, period over period, as a result of timing of billing to our customers. Net cash used in investing activities for the nine months ended September 30, 2022 was $369.6 million, compared to $509.9 million for the nine months ended September 30, 2021. The principal factors that affected our net cash used in investing activities during the nine months ended September 30, 2022 were: capital expenditures of $408.4 million, primarily for our facilities under construction that support our growth plan, net of proceeds received from sales and maturities of marketable securities. The principal factors that affected our net cash used in investing activities during the nine months ended September 30, 2021 were: (i) capital expenditures of $288.4 million, primarily for our facilities under construction that support our growth plan; (ii) cash of $171.0 million used in the Terra-Gen Transaction; and (iii) purchase of marketable securities of $49.3 million . Net cash provided by financing activities for the nine months ended September 30, 2022 was $73.6 million, compared to net cash used in financing activities of $185.0 million for the nine months ended September 30, 2021. The principal factors that affected the net cash provided by financing activities during the nine months ended September 30, 2022 were: (i) net proceeds of $419.7 million and $75.0 million from issuance of convertible notes and the Mizrahi Loan, respectively, primarily offset by: (i) prepayment of Series 3 Bonds in the amount of $219.1 million; (ii) repayment of long-term debt in the amount of $135.7 million; (iii) cash dividend payment of $20.2 million; (iv) purchase of capped call instruments in the amount of $24.5 million; (v) purchase of treasury stock in the amount of $18.0 million, and (vi) $5.9 million cash paid to noncontrolling interest. The principal factors that affected our net cash provided by financing activities during the nine months ended September 30, 2021 were proceeds from long-term loans of $275.0 million, partially offset by: (i) repayments of long-term debt in the amount of $58.4 million; (ii) cash paid to noncontrolling interest of $7.0 million; (iii) payments under finance lease obligations of $7.9 million, and (iv) a $19.9 million cash dividend paid. ### Non-GAAP Measures: EBITDA and Adjusted EBITDA We calculate EBITDA as net income before interest, taxes, depreciation and amortization. We calculate Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, adjusted for (i) mark-to-market gains or losses from accounting for derivatives, (ii) stock-based compensation, (iii) merger and acquisition transaction costs, (iv) gain or loss from extinguishment of liabilities, and (v) other unusual or non-recurring items. We adjust for these factors as they may be non-cash, unusual in nature and/or are not factors used by management for evaluating operating performance. We believe that presentation of these measures will enhance an investor’s ability to evaluate its financial and operating performance. EBITDA and Adjusted EBITDA are not measurements of financial performance or liquidity under accounting principles generally accepted in the United States, or U.S. GAAP, and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net earnings as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. Our Board of Directors and senior management use EBITDA and Adjusted EBITDA to evaluate our financial performance. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do. Net income for the three and nine months ended September 30, 2022 was $19.8 million and $57.6 million, compared to $20.8 million and $53.8 million, for the three and nine months ended September 30, 2021 respectively. Adjusted EBITDA for the three and nine months ended September 30, 2022 was $102.2 million and $310.8 million, respectively, compared to $101.6 million and $285.4 million, for the three and nine months ended September 30, 2021, respectively. The following table reconciles net income to EBITDA and Adjusted EBITDA for the three and nine months period ended September 30, 2022 and 2021: *(Dollars in thousands)* *(Dollars in thousands)* | | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | ---: | ---: | | Net income | $19,826 | $20,780 | $57,564 | $53,804 | | Adjusted for: | | | | | | Interest expense, net (including amortization of deferred financing costs) | 20,744 | 21,711 | 61,722 | 58,282 | | Income tax provision (benefit) | 7,227 | 2,048 | 23,520 | 9,323 | | Adjustment to investment in an unconsolidated company: our proportionate share in interest expense, tax and depreciation and amortization in Sarulla | 3,150 | 2,889 | 9,441 | 8,253 | | Depreciation and amortization | 48,863 | 47,548 | 142,966 | 130,503 | | EBITDA | $99,810 | $94,976 | $295,213 | $260,165 | | Mark-to-market (gains) or losses from accounting for derivative | (1,234) | — | 2,677 | 1,096 | | Stock-based compensation | 2,816 | 2,120 | 8,629 | 6,840 | | Make-whole premium related to long-term debt prepayment | — | — | 1,102 | — | | Reversal of a contingent liability | — | — | — | (418) | | Allowance for bad debts | — | — | 115 | 2,980 | | Hedge losses resulting from the February power crisis in Texas | — | — | — | 9,133 | | Write-off related to Storage projects and activity | — | — | 1,954 | — | | Merger and acquisition transaction costs | — | 4,539 | 249 | 5,497 | | Other write-off | — | — | — | 134 | | Write-off of unsuccessful exploration activities | 827 | — | 827 | — | | Adjusted EBITDA | $102,219 | $101,635 | $310,766 | $285,427 | In May 2014, the Sarulla consortium closed $1,170 million in financing through SOL. As of September 30, 2022, the SOL credit facility had an outstanding balance of $876.2 million. Our proportionate share in the SOL credit facility is $111.7 million. In September 2022, the last calculation period, Sarulla was able to meet its historical debt service coverage ratio covenant under the credit facility agreement notwithstanding the lower performance of the power plants, and it was able to pay the entire current Extended Political Risk Guaranty (EPRG) premium due in September 2022 (but not to eliminate the overdue EPRG amount of approx. $1.5 million from past periods). However, the consortium projects that the minimum DSCR requirement for the next calculation period ending on March 2023 will not be met. During the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation work that is aimed to restore the plant’s performance, however, uncertainty remains regarding Sarulla’s ability to meet the plan and we are evaluating the impact of the plan on future performance. ### Capital Expenditures Our capital expenditures primarily relate to: (i) the development and construction of new power plants, (ii) the enhancement of our existing power plants; and (iii) investment in activities under our strategic plan. The following is an overview of projects that are fully released for construction. *Heber Complex (California).* We are currently in the process of repowering the Heber 1 and Heber 2 power plants. We are planning to replace the steam turbine and old OEC units with new advanced technology equipment that will add a net capacity of 11 MW. Following these enhancements, we expect the capacity of the complex to reach 92 MW. Construction of Heber 1 has started and construction of Heber 2 is near completion. We expect commercial operation of Heber 2 repowering in the fourth quarter of 2022 and Heber 1 repowering in the first half of 2023. *Dixie Meadows (Nevada).* We are developing the 12 MW Dixie Meadows geothermal power plant in Nevada. Construction commenced but has been temporarily paused by Ormat as it works collaboratively through the ESA consultation process with the relevant regulatory agencies. For more information, see Note 10 to the unaudited condensed consolidated financial statements contained in this quarterly report. *Steamboat Solar (Nevada).* We are currently developing a Solar PV power plant adjacent to our geothermal Steamboat complex in Nevada. The project is expected to generate approximately 5 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Construction commenced and we expect commercial operation of the Steamboat Solar PV in the first half of 2023. *Zunil Upgrade (Guatemala).* We are expanding the Zunil geothermal power plant in Guatemala to add 5 MW of additional capacity. We are planning to sell the electricity generated under the existing PPA with the local utility, Instituto Nacional de Electrification or “INDE”. Construction has been completed and drilling is still ongoing. Commercial operation is expected in the first half of 2023. *North Valley (Nevada).* We are developing the 25 MW North Valley geothermal power plant in Nevada. We recently signed a long term PPA with NV Energy. Construction is ongoing and commercial operation is expected in the first quarter of 2023. *Brady Solar (Nevada).* We are currently developing a Solar PV power plant adjacent to our Brady geothermal complex in Nevada. The project is expected to generate approximately 6 MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Construction commenced and equipment deliveries are ongoing. We expect commercial operation in Q1 2023. *North Valley Solar (Nevada).* We are currently developing a Solar PV power plant adjacent to our North Valley geothermal power plant in Nevada. The project is expected to generate approximately 6 AC MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Engineering and procurement are ongoing. We expect commercial operation in the first half of 2023. *Beowawe Upgrade (Nevada).* We are currently in the process of upgrading the Beowawe project that we recently acquired. We are planning to replace the old equipment with new advanced technology equipment that will add a net capacity of 9 MW. Engineering and procurement are ongoing and we expect commercial operation of 5MW in the second half of 2023 and the rest in 2024. *Steamboat Hills Solar (Nevada).* We are currently developing a Solar PV power plant adjacent to our geothermal Steamboat complex in Nevada. The project is expected to generate approximately 3.5 MW that will be used for the ancillary needs of the geothermal power plant and will free a similar amount of MW to be sold from the geothermal resource to SCPPA under the SCPPA portfolio PPA. Project released and we expect commercial operation in the second half of 2023. In addition, we are in the process of repowering Ormesa, Neal Hot Springs, Steamboat 2 and 3. In the Energy Storage segment, we are in the process of constructing several facilities as detailed below: | Project Name | Size | Location | Customer | Expected COD | | --- | --- | --- | --- | --- | | Upton | 25MW/25MWh | TX | ERCOT | Q4 2022 | | Andover | 20MW/20MWh | NJ | PJM | Q1 2023 | | Howell | 6.5MW/6.5MWh | NJ | PJM | Q1 2023 | | Bowling Green | 12MW/12MWh | OH | PJM | Q1 2023 | | Pomona 2 | 20MW/40MWh | CA | PG&E and CAISO | Q2 2023 | | Bottleneck | 80MW/320MWh | CA | CAISO | End 2023 | | East Flemington | 20MW/20MWh | NJ | PJM | Q3 2023 | 57 The following is an overview of projects that are in initial stages of construction: *Carson Lake Project.* We plan to develop between 10 MW to 15 MW at the Carson Lake project on BLM leases located in Churchill County, Nevada. We signed a Small Generator Interconnection Agreement with NV Energy in December 2017. As of September 30, 2022, we are planning to begin the drilling activity next year. We have budgeted approximately $600.0 million in capital expenditures for construction of new projects and enhancements to our existing power plants, of which we had invested $305.0 million as of September 30, 2022. We expect to invest approximately $88.0 million in the rest of 2022 and the remaining approximately $207.0 million thereafter. In addition, we estimate approximately $72.0 million in additional capital expenditures in 2022 to be allocated as follows: (i) approximately $32.0 million for the exploration, drilling and development of new projects and enhancements of existing power plants that are not yet released for full construction; (ii) approximately $15.0 million for maintenance capital expenditures for our operating power plants; (iii) approximately $23.0 million for the construction and development of energy storage projects; and (iv) approximately $2.0 million for enhancements to our production facilities. In the aggregate, we estimate our total capital expenditures for the last two quarters of 2022 to be approximately $160.0 million. ### Exposure to Market Risks Based on current conditions, we believe that we have sufficient financial resources to fund our activities and execute our business plans. However, the cost of obtaining financing for our project needs may increase significantly or such financing may be difficult to obtain. We, like other power plant operators, are exposed to electricity price volatility risk. Our exposure to such market risk is currently limited because the majority of our long-term PPAs have fixed or escalating rate provisions that limit our exposure to changes in electricity prices. Our energy storage projects sell primarily on a "merchant" basis and are exposed to changes in the electricity market prices. The energy payments under the PPAs of the Heber 2 power plant in the Heber Complex until the end of 2022, are determined by reference to the relevant power purchaser’s short run avoided cost. A decline in the price of natural gas will result in a decrease in the incremental cost that the power purchaser avoids by not generating its electrical energy needs from natural gas, or by reducing the price of purchasing its electrical energy needs from natural gas power plants, which in turn will reduce the energy payments that we may charge under the relevant PPA for these power plants. The Puna Complex is currently benefiting from energy prices which are higher than the floor under the 25 MW PPA for the Puna Complex. For both Heber 2 and Puna power plants we signed a new PPA with fixed energy rates, as discussed above. As of September 30, 2022, 98.6% of our consolidated long-term debt was fixed rate debt and therefore was not subject to interest rate volatility risk and 1.4% of our long-term debt was floating rate debt, exposing us to interest rate risk in connection therewith. As of September 30, 2022, $29.5 million of our long-term debt was subject to interest rate risk. We currently maintain our surplus cash in short-term, interest-bearing bank deposits, money market funds, corporate bonds and commercial paper (with a minimum investment grade rating of A+ by Standard & Poor’s Ratings Services). Our cash equivalents are subject to interest rate risk. Fixed rate securities may have their market value adversely impacted by a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. As a result of these factors, our future investment income may fall short of expectations because of changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value because of changes in interest rates. We are also exposed to foreign currency exchange risk, in particular the fluctuation of the U.S. dollar versus the New Israeli Shekels ("NIS") in Israel and the Euro. Risks attributable to fluctuations in currency exchange rates can arise when we or any of our foreign subsidiaries borrow funds or incur operating or other expenses in one type of currency but receive revenues in another. In such cases, an adverse change in exchange rates can reduce such subsidiary’s ability to meet its debt service obligations, reduce the amount of cash and income we receive from such foreign subsidiary, or increase such subsidiary’s overall expenses. In Kenya, the tax asset is recorded in Kenyan Shillings ("KES") similar to the tax liability, however any change in the exchange rate in the KES versus the U.S. dollar has an impact on our financial results. Risks attributable to fluctuations in foreign currency exchange rates can also arise when the currency denomination of a particular contract is not the U.S. dollar. Substantially all of our PPAs in the international markets are either U.S. dollar-denominated or linked to the U.S. dollar except for our operations on Guadeloupe, where we own and operate the Boulliante power plant which sells its power under a Euro-denominated PPA with Électricité de France S.A. Our construction contracts from time to time contemplate costs which are incurred in local currencies. The way we often mitigate such risk is to receive part of the proceeds from the contract in the currency in which the expenses are incurred. Currently, we have forward and cross-currency swap contracts in place to reduce our NIS/U.S. dollar currency exposure and expect to continue to use currency exchange and other derivative instruments to the extent we deem such instruments to be the appropriate tool for managing such exposure. On July 1, 2020, we concluded an auction tender and accepted subscriptions for senior unsecured bonds comprised of NIS 1.0 billion aggregate principal amount (the “Senior Unsecured Bonds - Series 4”). The Senior Unsecured Bonds - Series 4 were issued in NIS and converted to approximately $290 million using a cross-currency swap transaction shortly after the completion of such issuance. In June 2022, we issued $431.3 million aggregate principal amount of our 2.5% convertible senior notes due in 2027. The Notes bear annual interest of 2.5%, payable semiannually in arrears, and mature on July 15, 2027, unless earlier converted, redeemed or repurchased. We performed a sensitivity analysis on the fair value of our long-term debt obligations, and foreign currency exchange forward contracts. The foreign currency exchange forward contracts listed below principally relate to trading activities. The sensitivity analysis involved increasing and decreasing forward rates at September 30, 2022 and December 31, 2021 by a hypothetical 10% and calculating the resulting change in the fair values. At this time, the development of our strategic plan has not exposed us to any additional market risk. However, as the implementation of the plan progresses, we may be exposed to additional or different market risks. The results of the sensitivity analysis calculations as of September 30, 2022 and December 31, 2021 are presented below: *(Dollars in thousands)* | Risk | Assuming a 10% Increase in Rates September 30,2022 | December 31, 2021 | Assuming a 10% Decrease in Rates September 30,2022 | December 31, 2021 | Change in the Fair Value of | | --- | ---: | ---: | ---: | ---: | --- | | Foreign Currency | $(4,449) | $(2,719) | $5,437 | $3,324 | Foreign Currency Forward Contracts | | Interest Rate | (919) | — | 937 | — | Mizrahi Loan | | Interest Rate | (1,579) | (1,131) | 1,619 | 1,148 | Hapoalim Loan | | Interest Rate | (666) | (557) | 684 | 566 | HSBC Loan | | Interest Rate | (1,441) | (1,119) | 1,481 | 1,131 | Discount Loan | | Interest Rate | (4,286) | (3,394) | 4,429 | 3,465 | Financing Liability | | Interest Rate | (3,827) | (3,069) | 3,972 | 3,146 | OFC 2 Senior Secured Notes | | Interest Rate | (3,318) | (2,946) | 3,440 | 3,025 | DFC Loan | | Interest Rate | (264) | (226) | 272 | 231 | Amatitlan Loan | | Interest Rate | (3,581) | (3,833) | 3,653 | 3,880 | Senior Unsecured Bonds | | Interest Rate | (560) | (494) | 578 | 505 | DEG 2 Loan | | Interest Rate | (1,575) | (1,286) | 1,646 | 1,324 | DAC 1 Senior Secured Notes | | Interest Rate. | (4,013) | (3,135) | 4,160 | 3,214 | Migdal Loan and the Additional Migdal Loan and the Second Addendum Migdal Loan | | Interest Rate | (1,004) | (920) | 1,069 | 965 | San Emidio Loan | | Interest Rate | (766) | (539) | 794 | 550 | DOE Loan | | Interest Rate | (60) | (88) | 60 | 89 | Idaho Holdings Loan | | Interest Rate | (2,286) | (2,035) | 2,386 | 2,100 | Platanares DFC Loan | | Interest Rate | (461) | (389) | 475 | 397 | DEG 3 Loan | | Interest Rate | (158) | (121) | 161 | 123 | Plumstriker Loan | | Interest Rate | (93) | (81) | 94 | 82 | Other long-term loans | In July 2019, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR (London Interbank Offered Rate), announced that it intends to phase out LIBOR. LIBOR is still in use and being published until its phaseout in June 2023 in order to allow a transition period mainly for contracts that already exist using LIBOR. Additionally, the FCA has stated that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities ("SOFR"). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it would not take into account bank credit risk (as is the case with LIBOR). Therefore, the SOFR rate, if adopted, would likely be lower than LIBOR rates and is less likely to correlate with the funding costs of financial institutions. We have evaluated the impact of the transition from LIBOR, and currently believe that the transition will not have a material impact on our consolidated financial statements. ### Effect of Inflation We are seeing an increase in overall operating and other costs as the result of higher inflation rates, in particular in the United States. In addition, we are experiencing an increase in raw material cost and supply chain delays, which may put pressure on our operating margins in the Product segment and increase our cost to build our own power plants and energy storage assets. To address the possibility of rising inflation, some of our contracts include certain provisions that mitigate inflation risk. In connection with the Electricity segment, none of our U.S. PPAs, including the SCPPA Portfolio PPA, are directly linked to the Consumer Price Index ("CPI"). Inflation may directly impact an expense we incur for the operation of our projects, thereby increasing our overall operating costs and reducing our profit and gross margin. The negative impact of inflation would be partially offset by price adjustments built into some of our PPAs that could be triggered upon such occurrences. In addition to the Heber 2 and part of the Puna rates that are impacted by higher commodity prices, the energy payments pursuant to our PPAs for some of our power plants such as the Brady power plant, the Steamboat 2 and 3 power plants and the McGinness Complex increase every year through the end of the relevant terms of such agreements, although such increases are not directly linked to the CPI or any other inflationary index. Lease payments are generally fixed, while royalty payments are generally calculated as a percentage of revenues and therefore are not significantly impacted by inflation. In our Product segment, inflation may directly impact fixed and variable costs incurred in the construction of third party power plants, thereby lowering our profit margins at the Product segment. We are more likely to be able to offset long term, all or part of this inflationary impact through our project pricing. With respect to power plants that we build for our own electricity production, inflationary pricing may impact our operating costs which may be partially offset in the pricing of the new long-term PPAs that we negotiate. Interest rate increases for both short-term and long-term debt have increased sharply. Although our outstanding debt mostly bears fixed interest rates, as we refinance it, or borrow additional amounts, we may incur additional interest expense versus expiring loans. ### Contractual Obligations and Commercial Commitments We have various contractual obligations, which are recorded as liabilities in our consolidated condensed financial statements. Other items are not recognized as liabilities in our consolidated condensed financial statements but are required to be disclosed. There have been no material changes, outside of the ordinary course of business, to our contractual obligations as previously disclosed in our 2021 Annual Report. ### Concentration of Credit Risk Our credit risk is currently concentrated with the following major customers: Sierra Pacific Power Company and Nevada Power Company (subsidiaries of NV Energy), SCPPA and KPLC. If any of these electric utilities fail to make payments under its PPAs with us, such failure would have a material adverse impact on our financial condition. Also, as we implement our multi-year strategic plan we may be exposed, by expanding our customer base, to different credit profile customers than our current customers. The Company's revenues from its primary customers as a percentage of total revenues are as follows: | | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 | | --- | ---: | ---: | ---: | ---: | | Sierra Pacific Power Company and Nevada Power Company | 14.0% | 15.8% | 17.1% | 18.7% | | Southern California Public Power Authority (“SCPPA”) | 18.7% | 21.3% | 21.4% | 23.9% | | Kenya Power and Lighting Co. Ltd. ("KPLC") | 15.2% | 16.1% | 14.9% | 16.3% | We have historically been able to collect on substantially all of our receivable balances. As of September 30, 2022, the amount overdue from KPLC in Kenya was $20.6 million of which $2.7 million was paid in October 2022. In Honduras, as of September 30, 2022, the total amount overdue from Empresa Nacional de Energía Eléctrica ("ENEE") was $15.6 million of which none was paid to-date. In addition, due to continuing restrictive measures related to the COVID-19 pandemic 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. ### Government Grants and Tax Benefits A comprehensive discussion on government grants and tax benefits is included in our 2021 Annual Report. There has been some change to the comprehensive discussion as noted below. On August 16, 2022, the President of the United States signed into law the Inflation Reduction Act of 2022 (the “Act"), which is effective for taxable years beginning after December 31, 2022. The Act includes several tax incentives to promote climate change mitigation and clean energy, electric vehicles, battery and energy storage manufacture or purchase. Some of these measures may materially affect our consolidated financial statements, and we are in the process of evaluating the Act and identifying potential effects of the Act as more guidance is issued. Furthermore, the Act introduces the following: (i) a new corporate alternative minimum tax of 15% on adjusted financial statement income of corporations with profits greater than $1 billion over a three-year period; and (ii) an excise tax of 1% of the fair market value of any stock which is repurchased, reduced by any stock issued during the taxable year. The Act also includes significant tax incentives for energy and climate initiatives related to Production Tax Credits (“PTC”) and Investment Tax Credits (“ITC”), including extending ITC to energy storage projects for assets placed in service after December 31, 2022 and the ability to transfer or sell PTCs to other taxpayers. There is no immediate impact of the Act to the three or nine months ended September 30, 2022. The Company cannot reasonably estimate the potential impact that the Act’s tax incentives will have to its results of operations in future periods. The excise tax on stock repurchases and the new corporate alternative minimum tax are not expected to have a material impact on the Company’s results of operations. ## Market risk As filed, 199 characters. The information appearing under the headings “Exposure to Market Risks” and “Concentration of Credit Risk” in Part I, Item 2 of this quarterly report on Form 10-Q is incorporated by reference herein. ## Controls and procedures As filed, 1,779 characters. ### a. Evaluation of disclosure controls and procedures We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO (principal executive officer) and CFO (principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(e) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of our disclosure controls and procedures as of September 30, 2022. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022 to provide the reasonable assurance described above. ### b. Changes in internal control over financial reporting There were no changes in our internal controls over financial reporting in the third quarter of 2022 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. ## Risk factors As filed, 8,989 characters. A comprehensive discussion of our other risk factors is included in the “Risk Factors” section of our annual report on Form 10-K for the year ended December 31, 2021 which was filed with the SEC on February 26, 2021. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. ***Possible fluctuations in the cost of construction, raw materials, commodities and drilling may materially and adversely affect our business, financial condition, future results, and cash flow.*** Our manufacturing operations are dependent on the supply of various raw materials, including primarily steel and aluminum, commodities, vessels and industrial equipment components that we use. We currently obtain all such raw materials, commodities and equipment at prevailing market prices. We are not dependent on any one supplier and do not have any long-term agreements with any of our suppliers. Global events such as the ongoing COVID-19 outbreak that began in 2020 has resulted in the extended shutdown of certain businesses in the regions and resulted in delays in the supply and cost increase of raw materials and components that we purchased for our equipment manufacturing and in the cost increase of marine and other transportation. Additionally, Russia’s invasion of and military attacks on Ukraine, including indirect impacts as a result of sanctions and economic disruption, has complicated and may continue to further complicate existing supply chain constraints. Our development activity is also impacted by the supply delay and cost increase of storage batteries and Solar PV panels. Further cost increases of such raw materials, commodities and equipment could adversely affect our profit margins. ***We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results.*** In June 2022, we issued $431.25 million aggregate principal amount of 2.50% convertible senior notes due 2027, which we refer to as the Notes. As of September 30, 2022, we had $431.25 million outstanding aggregate principal amount of Notes. Our indebtedness may limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes, limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes, require us to use a substantial portion of our cash flow from operations to make debt service payments, limit our flexibility to plan for, or react to, changes in our business and industry, place us at a competitive disadvantage compared to our less leveraged competitors and increase our vulnerability to the impact of adverse economic and industry conditions. ***Our debt obligations may adversely affect our ability to raise additional capital and will be a burden on our future cash resources, particularly if we elect to settle these obligations in cash upon conversion or upon maturity or required repurchase.*** Our ability to meet our payment obligations under the Notes, depends on our future cash flow performance. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other factors that may be beyond our control. There can be no assurance that our business will generate positive cash flow from operations, or that additional capital will be available to us, in an amount sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs. If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. As a result, we may be more vulnerable to economic downturns, less able to withstand competitive pressures and less flexible in responding to changing business and economic conditions. ***We may issue additional shares of our common stock in connection with conversions of the Notes, and thereby dilute our existing stockholders and potentially adversely affect the market price of our common stock.*** In the event that the Notes are converted and the conversion value exceeds $1,000 per $1,000 principal amount of Notes, the ownership interests of existing stockholders will be diluted, and any sales in the public market of any shares of our common stock issuable upon such conversion could adversely affect the prevailing market price of our common stock. In addition, the anticipated conversion of the Notes could depress the market price of our common stock. ***The fundamental change provisions of the Notes may delay or prevent an otherwise beneficial takeover attempt of us.*** If the Company undergoes a “fundamental change”, subject to certain conditions, holders may require the Company to repurchase for cash all or part of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if such fundamental change also constitutes a “make-whole fundamental change”, the conversion rate for the Notes may be increased upon conversion of the Notes in connection with such “make-whole fundamental change”. Any increase in the conversion rate will be determined based on the date on which the “make-whole fundamental change” occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Any such increase will be dilutive to our existing stockholders. Our obligation to repurchase the Notes or increase the conversion rate upon the occurrence of a make-whole fundamental change may, in certain circumstances, delay or prevent a takeover of us that might otherwise be beneficial to our stockholders. ***The Capped Call Transactions may affect the value of the Notes and our common stock.*** In connection with the issuance of the Notes, we entered into Capped Call Transactions with certain financial institutions. The Capped Call Transactions are expected generally to reduce or offset the potential dilution upon conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap. From time to time, certain financial institutions (with which we entered into the Capped Call Transactions) or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could also cause or avoid an increase or a decrease in the market price of our common stock. The potential effect, if any, of these transactions and activities on the price of our common stock or Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock. ***We are subject to counterparty risk with respect to the Capped Call Transactions.*** All or some of the financial institutions (which are counterparties to the capped call transactions) might default under the Capped Call Transactions. Our exposure to the credit risk of the counterparties will not be secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial difficulties of many financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at the time under the capped call transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurance as to the financial stability or viability of the option counterparties. Filed Nov 3, 2022. Source: SEC EDGAR, the filing index for accession 0001437749-22-025661. Last ingested by Listed: Nov 5, 2026, 13:18 ET. No prices; not investment advice.