Ormat Technologies, Inc.: Form 10-Q for the period ended Sep 30, 2024

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”, “contemplate”, or “target” 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, 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 insufficient prospects to support our growth, 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.
• Our investments in BESS technology involves new technologies and expected advanced technologies with relatively limited history with respect to reliability and performance and may not perform as expected. In addition, our investments and profitability may be negatively affected by a number of factors, including increases in storage costs, risk of fire and volatility in merchant prices.
• 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, including Israel, 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, including the ongoing military conflicts on the borders of Israel, may adversely affect our operations and may limit our ability to produce and sell our products, and support our Electricity segment.
• Responses in various countries where we have business operations to Israel’s ongoing war with Hamas and military conflicts on some of its borders or future similar conflicts may adversely affect our operations and may limit our ability to produce and sell our products.
• Reduction in our Products segment 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.
• 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.
• We could be negatively impacted by regulatory and other responses to climate change.
• 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 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 or recontracted 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 lose their current Qualifying Facility status under the U.S. Public Utility Regulatory Policies Act of 1978 (“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.
• The reduction, elimination or inability to monetize government incentives could adversely affect our business, financial condition, future results and cash flows.
• 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 reform 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, into which we entered in connection with the issuance of the June 2022 convertible notes, 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 costs 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.

Risks Related to Force Majeure

• 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 Ownership of our Common Stock

• Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.
• 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, 2023 (the “2023 Annual Report”) and any updates contained herein as well as those set forth in our reports and other filings made with the SEC.

Company Contact and Sources of Information

Our website is www.ormat.com (http://www.ormat.com). Information contained on our website is not part of this quarterly report. Information that we furnish to or file with 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 (http://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 (http://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 leverage 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 Solar plus Energy Storage). Our objective is to become a leading global provider of renewable energy and help to mitigate climate change by providing a replacement to carbon-intensive energy sources. 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, 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, 2024, we derived 71.0% of our Electricity segment revenues from our operations in the United States and 29.0% from the rest of the world.
• Product Segment. In the Product segment, we design, manufacture and sell equipment for geothermal and recovered energy-based electricity generation 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, 2024, we derived 8.6% of our Product segment revenues from our operations in the United States and 91.4% from the rest of the world.
• Energy Storage Segment. In the Energy Storage segment, we own and operate grid connected In Front of the Meter BESS, which provide capacity, energy and/or ancillary services directly to the electric grid. In the three months ended September 30, 2024, we derived all of our Energy Storage segment revenues from our operations in the United States.

Our current generating portfolio of approximately 1.4 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.

Recent Developments

The most significant developments in our Company and business since January 1, 2024 are described below.

• In October 2024, we announced the successful commencement of commercial operations for our largest energy storage facility, the Bottleneck project. This 80MW/320MWh Battery Energy Storage System (“BESS”), located in the Central Valley of California, will provide ancillary services to San Diego Gas & Electric (“SDG&E”) under the 15-year Tolling Agreement signed in 2022.
• In October 2024, we announced that we successfully secured multiple land parcels in Nevada’s Annual Bureau of Land Management (BLM) Auction. We believe that these lease acquisitions will significantly support Ormat's ongoing exploration and expansion efforts in the state, further strengthening the Company's commitment to advancing renewable energy solutions and meeting Nevada's increasing demand for sustainable energy.
• In August 2024, we signed two seven-year tolling agreements with Equilibrium Energy for the Lower Rio 60MW/120MWh and Bird Dog 60MW/120MWh Energy Storage facilities in Texas. The Lower Rio project is expected to come online in the second quarter of 2025, while the Bird Dog facility is anticipated to be operational in the fourth quarter of 2025. Both projects are entitled to receive a 40% investment tax credit under the Inflation Reduction Act. The tolling agreements secure fixed revenues for the energy and ancillary services provided by the facilities.
• In July 2024, we issued an additional $45.2 million aggregate principal amount of our 2.50% Convertible Senior Notes due 2027. The Additional Notes were issued as additional notes pursuant to the indenture, dated June 27, 2022, as supplemented by the first supplemental indenture, dated July 15, 2024. The proceeds were used for refinancing current debt.
• In July 2024, we announced the signing of a 15-year Resource Adequacy Purchase and Sale Agreement (“RA Agreement”) with the City of Riverside, for the 80MW/320MWh Shirk Battery Energy Storage System (BESS) located in Visalia, California. The RA Agreement includes a guaranteed commercial operation date (“COD”) for March 1, 2026, that we believe can be achieved by the end of 2025.
• In the second quarter of 2024, we commenced the operation of the 6MW Beowawe Repower geothermal power plant.
• On March 4, 2024, we announced the signing of a 30-year PPA with Electricité de France (“EDF”) for the development of a new 10MW geothermal power plant on the island of Guadeloupe, in which we own a 63.75% equity interest. The new plant development will be added to Ormat’s existing 15MW Bouillante geothermal power plant. The project’s field development is completed with resource secured and is expected to be operational by the end of 2025.
• On February 12, 2024, we announced that the Hawai`i Public Utilities Commission (“HPUC”) approved two final amendments to the PPA between our subsidiary, Puna Geothermal Venture (“PGV”), and Hawaiian Electric. This decision enables PGV to contribute up to an additional 8 megawatts of clean, dispatchable renewable power to the Island of Hawai`i, elevating the contract maximum capacity to 46 MW, with a minimum contracted capacity set at 30 MW. The approval follows PGV’s completion and submission of its final Environmental Impact Study (“EIS”) for operations in Puna, Hawai`i. The EIS was a condition set by the HPUC for approval of an amended and restated PPA that was submitted to the HPUC in December 2019.
• On January 4, 2024 we announced the closing of the acquisition of a portfolio of geothermal and solar assets from Enel Green Power North America (“EGPNA”), a subsidiary of Enel SpA (ENEL.MI, LLC), that was announced in October 2023. Under the agreement, Ormat paid $272 million for 100% of the equity interest in the portfolio assets. The acquired portfolio includes two contracted operating geothermal power plants and one triple hybrid geothermal, solar PV and solar thermal power plant with a total geothermal capacity of approximately 40 MW and Solar PV of 20MW, two Solar assets with a total nameplate capacity of 40 MW, and two greenfield development assets.

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 2023 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.

Revenues

For the nine months ended September 30, 2024, 91.9% of our Electricity segment revenues were from PPAs with fixed energy rates, which are not affected by fluctuations in energy commodity prices. We have a variable price PPA in Hawai`i, which provides 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. In Hawai`i, the prices paid for electricity pursuant to the 25 MW PPA for the Puna Complex in Hawai`i change primarily as a result of variations in the price of oil as well as other commodities. In 2019, we signed a new PPA related to Puna with fixed prices, increased capacity and extended the term until 2052. In February 2024, the HPUC approved two final amendments to the PPA that we expect will be in effect by the end of 2026.

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, or as related to the Dominica project, under a BOT agreement with the Commonwealth of Dominica. 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:

(Dollars in thousands)

(Dollars in thousands)

35

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)

In the nine months ended September 30, 2024 and 2023, 36% and 38% of our total revenues, respectively, were derived from foreign locations. In the three months ended September 30, 2024 and 2023, 39% and 41% of our total revenues, respectively, were derived from foreign locations. Our foreign operations had higher Electricity gross margins than our U.S. operations in each of those periods. A substantial portion of Electricity segment foreign revenues came from Kenya and to a lesser extent, from Honduras, Guadeloupe and Guatemala. 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, as summarized below.

Electricity Segment. Our Electricity segment domestic revenues were approximately 73% and 70% of our total Electricity segment revenues for the nine months ended September 30, 2024 and 2023, respectively, and 71% and 69% of our total Electricity segment revenues for the three months ended September 30, 2024 and 2023. Our Electricity segment foreign revenues were approximately 27% and 30% of our total Electricity segment revenues for the nine months ended September 30, 2024 and 2023, respectively, and 29% and 31% of our total Electricity segment revenues for the three months ended September 30, 2024 and 2023. 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, maintenance expenses and 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, 2024 and 2023, our foreign operations of the segment accounted for 40% and 49% of our total gross profits, 80% and 76% of our net income (assuming the majority of corporate operating expenses and financing are recorded under our domestic jurisdiction) and 31% and 39% of our EBITDA, respectively.

Product Segment. Our Product segment foreign revenues were approximately 94% and 93% of our total Product segment revenues for the nine months ended September 30, 2024 and 2023, respectively.

Energy Storage Segment. Our Energy Storage segment domestic revenues were 100% of our total Energy storage segment revenues for each of the three and nine months ended September 30, 2024 and 2023.

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 as the prices under many of our contracts are fixed throughout the year with no time-of-use impact. The prices paid for electricity under the PPAs for 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 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 attributable to a higher ambient temperature. 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 2023 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 2023 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 U.S. 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 or enhancement of power plants; and (ii) fluctuation in revenues related to our Product segment.

(Dollars in thousands, except per share data)

(Dollars in thousands, except per share data)

38

Operating results as a percentage of total revenues:

39

Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023

Total Revenues

The table below compares revenues for the three months ended September 30, 2024 to the three months ended September 30, 2023.

(Dollars in millions)

Electricity Segment

Revenues attributable to our Electricity segment for the three months ended September 30, 2024 were $164.6 million, compared to $157.2 million for the three months ended September 30, 2023. This increase of $7.4 million was mainly attributable to: (i) $7.5 million related to the geothermal and solar power plants included in the Enel purchase transaction which were consolidated by the Company starting the first quarter of 2024; (ii) $1.8 million related to the Heber 1 power plant which resumed operations in May 2023 after a temporary shutdown due to a fire incident that occurred in February 2022; and (iii) $7.4 million related to the Puna power plant due to its higher power generation in 2024. This increase was partially offset by lower revenues of $4.2 million in the Dixie Valley power plant due to an unscheduled outage during the period in 2024, $1.8 million in the Guadeloupe power plant due to maintenance issues, as well as decreases in power generation in lesser amounts at a number of other power plants.

Power generation in our power plants increased by 1.4% from 1,651,880 MWh in the three months ended September 30, 2023 to 1,675,164 MWh in the three months ended September 30, 2024. The increase in the quarter was primarily due to the inclusion of the new projects acquired early in the year, the contribution of the Heber complex repowering and the improved operation at our Puna power plant. This increase was offset by curtailments in our Olkaria complex and lower generation at Dixie Valley as a result of an unplanned outage.

Product Segment

Revenues attributable to our Product segment for the three months ended September 30, 2024 were $37.4 million, compared to $39.8 million for the three months ended September 30, 2023. This decrease of $2.5 million, or 6.2%, is primarily related to the progress in our projects and timing of when revenues are recognized during the period. During the three months ended September 30, 2024, Product revenues included projects primarily in New Zealand and Dominica, and during the three months ended September 30, 2023, Product revenues included projects primarily in New Zealand and Indonesia.

Energy Storage Segment

Revenues attributable to our Energy Storage segment for the three months ended September 30, 2024 were $9.8 million compared to $11.0 million for the three months ended September 30, 2023. This decrease is primarily related to lower prices in Texas in the third quarter of 2024 due to mild weather conditions, partially offset by the East Flemington energy storage facility which commenced commercial operations in the first quarter of 2024.

Total Cost of Revenues

The table below compares cost of revenues for the three months ended September 30, 2024 to the three months ended September 30, 2023.

(Dollars in millions)

Electricity Segment

Total cost of revenues attributable to our Electricity segment for the three months ended September 30, 2024 was $114.9 million, compared to $107.2 million for the three months ended September 30, 2023. This increase of $7.8 million was primarily attributable to $6.9 million related to the geothermal and solar power plants included in the Enel purchase transaction which were consolidated by the Company starting the first quarter of 2024, and $1.5 million related to the Puna power plant due to its higher power generation in 2024. This increase was partially offset by lower costs across the Company’s other power plants in the three months ended September 30, 2024, compared to the same period in the previous year.

Our total Electricity segment cost of revenues for the three months ended September 30, 2024 was 69.8% of Electricity segment revenues, compared to 68.2% for the three months ended September 30, 2023. The cost of revenues attributable to our international power plants for the three months ended September 30, 2024 was 16.9% of our total Electricity segment cost of revenues for this period compared to 16.6% for the same period in the prior year.

Product Segment

Total cost of revenues attributable to our Product segment for the three months ended September 30, 2024 was $30.2 million, compared to $32.4 million for the three months ended September 30, 2023, which represented a 6.9% decrease. This decrease is primarily attributable to the decrease in Product segment revenues, as discussed above. As a percentage of total Product segment revenues, total cost of revenues attributable to our Product segment for the three months ended September 30, 2024, and 2023, was 80.8% and 81.3%, respectively, which results from the different profitability of the different projects included in each period.

Energy Storage Segment

Cost of revenues attributable to our Energy Storage segment for the three months ended September 30, 2024 were $7.8 million compared to $8.5 million for the three months ended September 30, 2023. This decrease is primarily related to timing of incurring certain expenses.

Research and Development Expenses, Net

Research and development expenses for the three months ended September 30, 2024 were $1.8 million, compared to $1.4 million for the three months ended September 30, 2023. The increase in research and development expenses, net is primarily related to the timing of when we allocate resources to research and development projects.

Selling and Marketing Expenses

Selling and marketing expenses for the three months ended September 30, 2024 were $4.2 million compared to $4.7 million for the three months ended September 30, 2023. Selling and marketing expenses for the three months ended September 30, 2024 and 2023 constituted 2.0% and 2.3% of total revenues, respectively.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2024 were $23.0 million compared to $14.0 million for the three months ended September 30, 2023. General and administrative expenses for the three months ended September 30, 2024 and 2023 constituted 10.8% and 6.8% of total revenues, respectively. The increase in general and administrative expenses is primarily attributable to consulting fees related to a settlement agreement with a third-party battery systems supplier of $4.8 million, insurance costs, amortization of stock-based awards, and timing of when we incur services from our vendors.

Other Operating Income

Other operating income for the three months ended September 30, 2024 was $6.3 million compared to none for the three months ended September 30, 2024. Other operating income represents the non-refundable portion of the recovery of damages received from a third-party battery systems supplier as part of a settlement agreement entered into in August 2024, for which contingency conditions have been met.

Write-off of long-lived assets

Write-off of long-lived assets for the three months ended September 30, 2024 was $0.3 million compared to none for the three months ended September 30, 2023. The write-off of long-lived assets is related to the termination of the waste heat agreement between the Company's wholly-owned subsidiary, OREG4, and Highline Electric Association, Inc., effective May 2024.

Write-off of unsuccessful exploration activities

Write-off of unsuccessful exploration activities for the three months ended September 30, 2024 was $0.1 million compared to $2.3 for the three months ended September 30, 2023. This write-off is related to exploration activities that the Company decided to no longer pursue.

Interest Income

Interest Income for the three months ended September 30, 2024 was $2.1 million, compared to $2.8 million for the three months ended September 30, 2023. Interest income is primarily related to interest earned on cash and cash equivalents held by the Company during the period. The decrease in interest income is primarily related to lower balances of cash and cash equivalents period over period.

Interest Expense, Net

Interest expense, net for the three months ended September 30, 2024 was $34.8 million, compared to $25.1 million for the three months ended September 30, 2023. This increase of $9.8 million was primarily attributable to interest expense relating to loan agreements entered into subsequent to the third quarter of 2023 such as: (i) the Mizrahi 2023 Loan entered into in November 2023; (ii) the short-term commercial paper entered into in October 2023; (iii) the Hapoalim 2024 Loan and the HSBC Bank 2024 Loan entered into in January 2024; (iv) the Mammoth Senior Secured Notes entered into in March 2024; (v) the DEG 4 Loan entered into in April 2024; and (vi) the Discount 2024 Loan entered into in May 2024. This increase was partially offset by lower interest expenses on other existing loans as a result of scheduled payments.

Derivatives and Foreign Currency Transaction Gains (Losses)

Derivatives and foreign currency transaction gains and losses for the three months ended September 30, 2024 was a gain of $2.0 million, compared to a loss of $0.8 million for the three months ended September 30, 2023. Derivatives and foreign currency transaction gains (losses) primarily includes losses from foreign currency forward contracts which were not accounted for as hedge transactions, and the impact of changes in foreign currency exchange rate against the U.S. Dollar.

Income Attributable to Sale of Tax Benefits

Income attributable to the sale of tax benefits for the three months ended September 30, 2024 was $19.8 million, compared to $14.9 million for the three months ended September 30, 2023. This income primarily represents the value of production tax credits (“PTCs”) and taxable income or loss generated by certain of our power plants which are allocated to investors under tax equity transactions, and to income related to the expected sale of transferable production tax credits under the new IRA regulations. This increase of $4.8 million is primarily attributable to the Heber 1 power plant which resumed operations in May 2023, and to the Beowawe Repower power plant which commenced operations in the second quarter of 2024.

Other Non-Operating Income (Expense), Net

Other non-operating income (expense), net for the three months ended September 30, 2024 was income of $0.0 million, compared to $0.1 million for the three months ended September 30, 2023.

Income Taxes

Income tax benefit for the three months ended September 30, 2024 was $1.2 million compared to income tax benefit of $7.1 million for the three months ended September 30, 2023. Our effective tax rate for the three months ended September 30, 2024 and 2023, was (4.8)% and (24.1)%, respectively. The effective rate differs from the federal statutory rate of 21% primarily due to the generation of investment tax credits of $9.6 million, and $6.6 million for the three months ended September 30, 2024 and 2023, respectively, and the jurisdictional mix of earnings at differing tax rates.

Equity in Earnings (losses) of Investees, Net

Equity in earnings of investees, net for the three months ended September 30, 2024 was losses of $1.6 million, compared to losses of $0.4 million for the three months ended September 30, 2023. Equity in earnings (losses) of investees, net is derived from our 12.75% share in the earnings or losses in the Sarulla Consortium ("Sarulla") and our 49% share in the earnings or losses in the Ijen geothermal project. In the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation works that are aimed to restore the power plants' performance. The first phase of the recovery plan included the drilling of an additional production well that was successful, and certain modifications to surface equipment that are still underway. Following the positive indications from the first phase, during the second quarter of 2024, Sarulla commenced discussions with the banks towards implementation of the additional phases. 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, 2024 was $22.1 million, compared to $35.5 million for the three months ended September 30, 2023, which represents a decrease of $13.4 million. This decrease is attributable to a decrease of $12.0 million in net income which was affected by the explanations described above, and an increase of $1.3 million in net income attributable to noncontrolling interest in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, which is primarily related to the noncontrolling share in the net results of the Puna and Guadaloupe power plants.

Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023

Total Revenues

The table below compares revenues for the nine months ended September 30, 2024 to the nine months ended September 30, 2023.

(Dollars in millions)

Electricity Segment

Revenues attributable to our Electricity segment for the nine months ended September 30, 2024, were $522.1 million, compared to $482.8 million for the nine months ended September 30, 2023. The increase of $39.3 million in our Electricity segment revenues was mainly attributable to: (i) $25.5 million related to the geothermal and solar power plants included in the Enel purchase transaction which were consolidated by the Company starting the first quarter of 2024; (ii) $12.3 million related to the Heber 1 power plant which resumed operations in May 2023 after a temporary shutdown due to a fire incident that occurred in February 2022; (iii) $16.7 million related to the Puna power plant due to its higher generation in 2024; and (iv) $3.5 million related to the North Valley power plant which started commercial operations in May 2023. This increase was partially offset by lower revenues of $7.4 million in the Dixie Valley power plant due to an unscheduled maintenance, and $3.7 million in the Guadeloupe power plant due to maintenance issues, both during the period in 2024, as well as additional decreases in lower amounts at a number of other power plants.

Power generation in our power plants increased by 7.9% from 5,258,274 MWh in the nine months ended September 30, 2023 to 5,671,532 MWh in the nine months ended September 30, 2024.

Product Segment

Revenues attributable to our Product segment for the nine months ended September 30, 2024 were $100.0 million, compared to $83.3 million for the nine months ended September 30, 2023. This increase of $16.7 million, or 20.0%, is primarily related to the progress in our projects which results in the timing of when revenues are recognized. During the nine months ended September 30, 2024, Product revenues included projects primarily in New Zealand and Dominica, and during the nine months ended September 30, 2023, Product revenues primarily included projects in New Zealand, Indonesia and the Philippines.

Energy Storage Segment

Revenues attributable to our Energy Storage segment for the nine months ended September 30, 2024 were $26.8 million compared to $21.9 million for the nine months ended September 30, 2023. The increase of $4.9 is mainly related to the new energy storage facilities which commenced commercial operation during 2023, primarily Bowling Green in May 2023, Andover and Upton in June 2023, and Pomona 2 in July 2023, as well as the East Flemington energy storage facility which commenced commercial operations during the first quarter of 2024. This increase was partially offset by lower prices in Texas due to mild weather conditions in the area in 2024 compared to 2023, and specifically during the third quarter, year over year.

Total Cost of Revenues

The table below compares cost of revenues for the nine months ended September 30, 2024 to the nine months ended September 30, 2023.

(Dollars in millions)

Electricity Segment

Total cost of revenues attributable to our Electricity segment for the nine months ended September 30, 2024 was $342.2 million, compared to $311.3 million for the nine months ended September 30, 2023. This increase of $30.8 million is primarily attributable to: (i) $19.3 million related to the geothermal and solar power plants included in the Enel purchase transaction which were consolidated by the Company starting the first quarter of 2024; (ii) $6.3 million of income from business interruption insurance proceeds related to the Puna power plant as a result of the damage caused by the Kilauea volcano eruption in May 2018, which were included in cost of revenues in 2023, compared to none in 2024; (iii) $2.9 million related to maintenance issues in the Guadeloupe power plant; and (iv) $3.1 million related to the start of commercial operation of the North Valley power plant in May 2023. This increase was partially offset by lower cost of revenues in other power plants.

Our total Electricity segment cost of revenues for the nine months ended September 30, 2024 was 65.5% of Electricity revenues, compared to 64.5% for the nine months ended September 30, 2023, 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, 2024 was 18.0% of our total Electricity segment cost of revenues for this period, compared to 17.5% for the same period in the prior year.

Product Segment

Total cost of revenues attributable to our Product segment for the nine months ended September 30, 2024 was $84.0 million, compared to $71.7 million for the nine months ended September 30, 2023, which represented a 17.1% 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 nine months ended September 30, 2024, and 2023, was 84.0% and 86.1%, respectively, which results from the different profitability of the different projects included in each period.

Energy Storage Segment

Cost of revenues attributable to our Energy Storage segment for the nine months ended September 30, 2024 was $23.7 million compared to $19.4 million for the nine months ended September 30, 2023. This increase is related to the new storage facilities and corresponding increase in Energy Storage revenues as described above.

Research and Development Expenses, Net

Research and development expenses for the nine months ended September 30, 2024 were $5.1 million, compared to $4.8 million for the nine months ended September 30, 2023. The increase in research and development expenses is mainly attributable to the timing of research and development projects that took place during the nine months ended September 30, 2024 compared to the corresponding period in 2023.

Selling and Marketing Expenses

Selling and marketing expenses for the nine months ended September 30, 2024 were $13.5 million compared to $14.0 million for the nine months ended September 30, 2023. Selling and marketing expenses for the nine months ended September 30, 2024, constituted 2.1% of total revenues for such period, compared to 2.4% for the nine months ended September 30, 2023.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2024 were $60.5 million compared to $49.5 million for the nine months ended September 30, 2023. The increase of $11.0 million in general and administrative expenses is primarily attributable to consulting fees related to a settlement agreement with a third-party battery systems supplier of $4.8 million, insurance costs, amortization of stock-based awards, and the timing of when we incur services from our vendors.

Other Operating Income

Other operating income for the nine months ended September 30, 2024 was $6.3 million compared to none for the nine months ended September 30, 2023. Other operating income represents the non-refundable portion of the recovery of damages received from a third-party battery systems supplier as part of a settlement agreement entered into in August 2024, for which contingency conditions have been met.

Write-off of long-lived assets

Write-off of long-lived assets for the nine months ended September 30, 2024 was $1.3 million compared to none for the three months ended September 30, 2023. The write-off of long-lived assets is related to the termination of the waste heat agreement between the Company's wholly-owned subsidiary, OREG4, and Highline Electric Association, Inc., effective May 2024.

Write-off of Unsuccessful Exploration Activities

Write-off of unsuccessful exploration activities for the nine months ended September 30, 2024 was $1.5 million, compared to $2.3 million for the nine months ended September 30, 2023. This write-off is related to accumulated costs of geothermal exploration projects that the Company decided to no longer pursue.

Interest Income

Interest Income for the nine months ended September 30, 2024 was $6.5 million, compared to $9.6 million for the nine months ended September 30, 2023. Interest income is primarily related to interest earned on cash and cash equivalents held by the Company during the period. The decrease in interest income is primarily related to lower balances of cash and cash equivalents period over period.

Interest Expense, Net

Interest expense, net for the nine months ended September 30, 2024 was $99.5 million, compared to $73.1 million for the nine months ended September 30, 2023. This increase of $26.4 million is primarily due to loan agreements entered into during, or subsequent to, the first nine months of 2023 such as: (i) the Mizrahi 2023 Loan entered into in November 2023; (ii) the Hapoalim 2023 Loan entered into in February 2023; (iii) the short-term commercial paper entered into in October 2023; (iv) the Hapoalim 2024 Loan entered into in January 2024; (v) the HSBC Bank 2024 Loan entered into in January 2024; (vi) the Mammoth Senior Secured Notes entered into in March 2024; (vii) the DEG 4 Loan entered into in April 2024; and (viii) the Discount 2024 Loan entered into in May 2024. This increase was partially offset by 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 (losses) for the nine months ended September 30, 2024 were a gain of $0.1 million, compared to a loss of $4.0 million for the nine months ended September 30, 2023. Derivatives and foreign currency transaction gains (losses) primarily includes losses from foreign currency forward contracts which were not accounted for as hedge transactions, and the impact of changes in the foreign currency exchange rate related to foreign locations where the Company operates in, against the U.S. Dollar.

Income Attributable to Sale of Tax Benefits

Income attributable to the sale of tax benefits for the nine months ended September 30, 2024 was $53.0 million, compared to $42.5 million for the nine months ended September 30, 2023. This income primarily represents the value of PTCs and taxable income or loss generated by certain of our power plants which are allocated to investors under tax equity transactions, and to income related to the expected sale of transferable production tax credits under the new IRA regulations. This increase of $10.6 million in income attributable to the sale of tax benefits is primarily attributable to the Heber 1 power plant which resumed operations in May 2023, and to the Beowawe Repower power plant which commenced operations in the second quarter of 2024.

Other Non-Operating Income (Expense), Net

Other non-operating income (expense), net for the nine months ended September 30, 2024 was $0.1 million, compared to $0.2 million for the nine months ended September 30, 2023.

Income Taxes

Income tax benefit for the nine months ended September 30, 2024 was $4.5 million compared to income tax benefit of $2.2 million for the nine months ended September 30, 2023. Our effective tax rate for the nine months ended September 30, 2024 and 2023, was (5.4)% and (2.4)%, respectively. The effective rate differs from the federal statutory rate of 21% for the nine months ended September 30, 2024 primarily due to the generation of investment tax credits of $27.3 million, compared to $17.2 million for the nine months ended September 30, 2023, and the jurisdictional mix of earnings at differing tax rates.

Equity in Earnings (losses) of Investees, Net

Equity in earnings (losses) of investees, net for the nine months ended September 30, 2024 was earnings of $0.4 million, compared to earnings of $1.9 million for the nine months ended September 30, 2023. Equity in earnings (losses) of investees, net is mainly derived from our 12.75% share in the earnings or losses in the Sarulla consortium and our 49% share in the earnings or losses from the Ijen geothermal project. The increase in equity in earnings of investees is primarily related to increase in net income generated by the Ijen project. In the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation works that are aimed to restore the power plants' performance. The first phase of the recovery plan included the drilling of an additional production well that was successful, and certain modifications to surface equipment that are still underway. Following the positive indications from the first phase, during the second quarter of 2024, Sarulla commenced discussions with the banks towards implementation of the additional phases. 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, 2024 was $82.9 million, compared to $88.7 million for the nine months ended September 30, 2023, which represents a decrease of $5.8 million. This decrease was attributable to the decrease of $5.7 million in net income which was affected by the explanations described above, as well as an increase of $0.1 million in net income attributable to noncontrolling interest, which is primarily related to the noncontrolling share in the net results of the Puna and Guadaloupe power plants.

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, 2024, we had access to (i) $88.1 million in cash and cash equivalents, of which $46.2 million is held by our foreign subsidiaries; and (ii) $440.2 million of unused corporate borrowing capacity under existing committed lines for credit and letters of credit with different commercial banks.

Our estimated capital needs for the remainder of 2024 include $143.0 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, $45.5 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 transactions). 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, 2024, we continue to maintain our assertion to no longer indefinitely reinvest foreign funds held by our foreign subsidiaries, and have accrued the incremental foreign withholding taxes. Accordingly, during the nine months ended September 30, 2024, we included a foreign income tax expense of $1.2 million related to foreign withholding taxes on accumulated earnings of all of our foreign subsidiaries.

As described under Note 1 to the condensed consolidated financial statements, the Company entered into new loan agreements as follows: (i) on January 2, 2024, the Company entered into two definitive loan agreements with Hapoalim Bank and with HSBC Bank under which these banks provided for two separate loans in an aggregate principal amount of $75 million, and $125 million, respectively; (ii) on March 28, 2024, a wholly-owned indirect subsidiary of the Company entered into a note purchase agreement with the Prudential Insurance Company of America, pursuant to which it issued $135.1 million principal amount of senior secured notes; (iii) on April 4, 2024, the Company, through one of the its fully owned subsidiaries, entered into a new $30 million subordinated loan agreement with DEG, and on April 18, 2024, it completed a drawdown of the full loan amount of $30 million; (iv) on May 22, 2024, the Company entered into a definitive loan agreement with Discount Bank for an aggregated amount of $31.8 million; (v) on July 15, 2024, the Company issued an additional $45.2 million aggregate principal amount of its 2.50% Convertible Senior Notes due 2027; and (vi) on September 26, 2024, the Company entered into a definitive loan agreement with Discount Bank NY for an aggregated amount of $50.0 million.

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.

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. As of September 30, 2024: (i) total equity was $2,514.0 million and the actual equity to total assets ratio was 45.0% and (ii) the 12-month debt, net of cash, cash equivalents, to Adjusted EBITDA ratio was 4.07. During the nine months ended September 30, 2024, we distributed interim dividends in an aggregate amount of $21.8 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, 2024, we did not meet the dividend distribution criteria related to the DAC 1 Senior Secured Notes, which resulted in certain equity distribution restrictions from this related subsidiary. Additionally, as of September 30, 2024, we were not in compliance under the “Platanares Loan” with DFC, as we did not meet the Debt Service Coverage Ratio, primarily due to the increase in accounts receivable, as further described under Note 1 to the condensed consolidated financial statements, which resulted in certain equity distribution restrictions from this related subsidiary. Additionally, the related subsidiary informed DFC regarding it’s late submittal of the quarterly financial statements due to technical reasons, and coordination with DFC of a waiver for the same is ongoing. Notwithstanding ENEE’s late payments under the PPA, we have paid in full all debt service payments due under the “Platanares Loan”.

Future minimum payments

Future minimum cash payments under long-term obligations (including long-term debt, lease obligations and financing liability), as of September 30, 2024, are as follows:

(Dollars in thousands)

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; (iv) convertible senior notes; (v) commercial paper; and (vi) short term revolving credit lines with banks which may be drawn as needed.

Non-Recourse and Limited-Recourse Third-Party Debt

(Dollars in millions)

49

(1) Secured by equity interest.

(2) Secured by the assets.

(3) Loan issued in total aggregate amount of EUR 8.0 million.

Full-Recourse Third-Party Debt

(Dollars in millions)

(1) Interest rate includes the effect of the IR Swap as further described under Note 1 to the condensed consolidated financial statements.

(2) The Discount 2024 II Loan bears an annual interest of 3-month Term SOFR plus 2.35%, but not less than Term SOFR of 2.5%

(3) Bonds issued in total aggregate principal amount of NIS 1.0 billion.

Financing Liability

The financing liability is related to the sale and lease back transaction of the Dixie Valley power plant which was acquired as part of the business combination transaction of the Terra-Gen geothermal assets in July 2021. The financing liability outstanding amount as of September 30, 2024 is $220.6 million. The financing liability bears a fixed interest rate of 6.11% per annum, principal and interest are payable semi-annually, and it matures in June 2038.

Convertible Senior Notes

The Original Convertible Notes due 2027 were issued in June 2022 in a single series of a $431.3 million aggregate principal amount. The Original Convertible Notes bear annual interest at a rate of 2.5%, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2023. The Original Convertible Notes mature on July 15, 2027, unless earlier converted, redeemed or repurchased. On July 15, 2024, the Company issued an additional $45.2 million aggregate principal amount of its 2.50% Original Convertible Notes, as further described under Note 1 to the condensed consolidated financial statements. The outstanding aggregate amount of the Notes as of September 30, 2024 is $476.4 million.

Short-term Commercial Paper

On October 23, 2023, the Company completed the issuance of the commercial paper in the aggregate amount of $73.2 million, and subsequently on December 11, 2023, the Company issued an additional amount of $26.8 million, under the same terms of the commercial paper framework agreement (together, the “Commercial Paper”). The Commercial Paper was issued for a period of 90 days and extends automatically for additional 90-day periods for up to five years, unless the Company notifies the participants otherwise or a notice of termination is provided by the participants in accordance with the provisions of the Commercial Paper Agreement. The Commercial Paper bears an annual interest of three months SOFR +1.1% which will be paid at the end of each 90-day period with a 5.3% base rate. The aggregate outstanding amount of the Commercial Paper as of September 30, 2024 is $100.0 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 $7.9 million as of September 30, 2024. 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, 2022:

51

Historical Cash Flows

The following table sets forth the components of our cash flows for the periods indicated:

(Dollars in thousands)

For the Nine Months Ended September 30, 2024

Net cash provided by operating activities for the nine months ended September 30, 2024 was $252.3 million, compared to $170.3 million for the nine months ended September 30, 2023, representing an increase of $82.0 million. Net cash provided by operating activities for the nine months ended September 30, 2024 was primarily attributable net income of $88.6 million, adjusted for certain non-cash items such as depreciation and amortization, and deferred income provision, among others, and primarily by: (i) a cash inflow related to the net decrease in trade receivables of $42.5 million, due to timing of collection from our customers; (ii) an increase in other long-term liabilities of $8.3 million primarily related to recovery of damages received from a third-party battery systems supplier as part of a settlement agreement, for which contingency conditions have not yet been met; and (iii) a net increase in accounts payable and accrued expenses of $7.0 million as a result of timing of payments to our suppliers, and $22.5 million of the recovery of damages received from a third-party battery systems supplier as part of a settlement agreement, for which contingency conditions have not yet been met, and which is presented in the short-term. This increase was partially offset by (i) a net increase of $33.9 million in costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts, as a result of timing of billing to our customers; and (ii) an increase in prepaid expenses and other of $10.7 million, primarily related to timing of prepayments to suppliers and governmental authorities. Net cash provided by operating activities for the nine months ended September 30, 2023 was primarily attributable to net income of $94.3 million for the period, adjusted for certain non-cash items, such as depreciation and amortization, and deferred income provision, among others, and primarily by: (i) a net increase in accounts payable and accrued expenses of $32.8 million, primarily as a result of timing of payments to our suppliers; and (ii) a net increase of $10.8 million in other long-term liabilities primarily related to a prepayment made by one of our customers. This was partially offset by (i) an increase in inventories of $22.0 million, primarily related to timing of allocating costs to projects under construction; (ii) a net increase in receivables of $48.8 million, primarily related to timing of collection from our customers; (iii) a net increase of $7.5 million in costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts, as a result of timing of billing to our customers; and (iv) an increase in prepaid expenses and others, and deposits and other of $11.7 million, and $8.0 million, respectively, due to timing of prepayments to suppliers and governmental authorities and making deposits for various projects.

Net cash used in investing activities for the nine months ended September 30, 2024 was $645.1 million, compared to $458.2 million for the nine months ended September 30, 2023. The principal factors that affected our net cash used in investing activities during the nine months ended September 30, 2024 and 2023 were: (i) cash paid for the business acquisition of Enel of $274.6 million during the nine months ended September 30, 2024, compared to none in the same period of the prior year, as further described under Note 1 to the condensed consolidated financial statements; and (ii) capital expenditures of $359.9 million during the nine months ended September 30, 2024, compared to $448.8 million, in the same period of the prior year, primarily for our facilities under construction that support our growth plan.

Net cash provided by financing activities for the nine months ended September 30, 2024 was $282.0 million, compared to $247.6 million for the nine months ended September 30, 2023. The principal factors that affected the net cash provided by financing activities during the nine months ended September 30, 2024 were: (i) net proceeds of $442.6 million from long-term loans entered into during the period such as the Hapoalim 2024 Loan, the HSBC 2024 Loan, the Mammoth Senior Secured Notes, the DEG 4 Loan, the Discount 2024 Loan, and the Discount 2024 II Loan; (ii) net proceeds of $44.2 million related to proceeds from issuance of the Additional Notes; and (iii) cash received from noncontrolling interest in the amount of $12.3 million. These cash inflows were partially offset by: (i) scheduled repayments of long-term debt in the amount of $164.6 million; (ii) cash dividend payment of $21.8 million; (iii) cash paid to noncontrolling interest of $6.1 million; and (iv) net repayments of revolving credit lines with banks of $20.0 million. The principal factors that affected our net cash provided by financing activities during the nine months ended September 30, 2023 were: (i) net proceeds of $99.9 million from the Hapoalim 2023 Loan; (ii) proceeds from issuance of common stock, net of $341.7 million; (iii) proceeds from revolving credit lines with banks of $35.0 million; and (iv) cash received from noncontrolling interest in the amount of $7.3 million. These cash inflows were partially offset by: (i) scheduled repayments of long-term debt in the amount of $175.9 million; (ii) cash paid to noncontrolling interest of $34.5 million; and (iii) cash dividend payment of $21.2 million.

Non-GAAP Measures: EBITDA and Adjusted EBITDA

We calculate EBITDA as net income before interest, taxes, depreciation, amortization and accretion. We calculate Adjusted EBITDA as net income before interest, taxes, depreciation, amortization and accretion, adjusted for (i) mark-to-market gains or losses from accounting for derivatives not designated as hedging instruments; (ii) stock-based compensation, (iii) merger and acquisition transaction costs; (iv) gain or loss from extinguishment of liabilities; (v) cost related to a settlement agreement; (vi) non-cash impairment charges; (vii) write-off of unsuccessful exploration activities; and (viii) 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 our 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, 2024 was $24.3 million, and $88.6 million, respectively, compared to $36.3 million, and $94.3 million, for the three and nine months ended September 30, 2023, respectively.

Adjusted EBITDA for the three and nine months ended September 30, 2024 was $137.7 million, and $405.0 million, respectively, compared to $118.3 million, and $342.7 million, for the three and nine months ended September 30, 2023, respectively.

The following table reconciles net income to EBITDA and Adjusted EBITDA for the three and nine months period ended September 30, 2024 and 2023:

(Dollars in thousands)

(Dollars in thousands)

53

In May 2014, the Sarulla consortium ("SOL") closed $1,170 million in financing through SOL. As of September 30, 2024, the SOL credit facility had an outstanding balance of $717.6 million. Our proportionate share in the SOL credit facility is $91.5 million. In the second quarter of 2022, Sarulla agreed with its banks on a framework that will enable it to perform remediation works that are aimed to restore the power plants' performance. The first phase of the recovery plan included the drilling of an additional production well that was successful, and certain modifications to surface equipment that are still underway. Following the positive indications from the first phase, during the second quarter of 2024, Sarulla commenced discussions with the banks towards implementation of the additional phases. 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.

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:

Zunil Upgrade (Guatemala). We are expanding the Zunil geothermal power plant in Guatemala to add 5MW of additional capacity. We are planning to sell the electricity generated under the existing PPA with the local utility, Institute Nacional de Electrification or “INDE”. Construction has been completed and drilling is still ongoing. Commercial operation is expected in 2025.

Beowawe Solar (Nevada). We are currently developing a Solar PV power plant adjacent to our geothermal Beowawe power plant in Nevada. The project is expected to generate approximately 6MW 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 under its PPA. Construction is ongoing and we expect completion at the end of 2024, but generation is not allowed under the geothermal PPA until January 2025.

Bouillante repowering (Guadeloupe). We are currently in the process of upgrading the Bouillante project and planning to install a new Ormat energy converter that will add net capacity of 10MW. Major equipment shipped and construction commenced. The PPA was recently signed. We expect commercial operation in the second quarter of 2026.

Topp 2 (New Zealand). We are developing the 50MW Topp 2 geothermal power plant in New Zealand which was recently released for construction. We signed an agreement with Eastland Generation Limited (EGL), under which the Company will design, build, commission and own the power plant. EGL will operate and maintain the power plant under a separate services arrangement. As part of the development agreement with EGL, the Company has granted EGL a contractual option to purchase the power plant at an agreed purchase price, subject to certain conditions. Construction is ongoing. We expect commercial operation by the fourth quarter of 2025.

Puna Expansion (Hawai`i). We are replacing the old power plant equipment with state-of-the-art Ormat equipment. In addition, we are planning to add 8MW. The HPUC recently approved a new PPA for the Puna complex that carries fixed energy and capacity rates, increases the contracted capacity and extends the duration. Engineering, procurement and manufacturing is ongoing. We expect commercial operation in the second half of 2026.

Cove Fort Upgrade. We are upgrading the power plant that was purchased in January 2024 to add 7MW. Engineering and procurement is ongoing and we expect commercial operation by the end of 2025.

Still Water Upgrade. We are upgrading the power plant that was purchased in January 2024 to add 5MW. Engineering and procurement is ongoing and we expect commercial operation by the end of 2025.

Salt wells Upgrade. We are upgrading the power plant that was purchased in January 2024 to add 5MW. Engineering and procurement is ongoing and we expect commercial operation in the first quarter of 2026.

In addition, we are in the process of repowering the Ormesa, Neal Hot Springs, Puna and Desert Peak power plants.

In the Energy Storage segment, we commenced operations of two assets since the beginning of the year including the 20MW/20MWh East Flemington project in the first quarter of 2024 and recently the 80MW/320MWh Bottleneck project. We are currently in the process of constructing several facilities as detailed below:

We have budgeted approximately $378.0 million in capital expenditures for the construction of new projects and enhancements to our existing power plants in the Electricity segment, of which we had invested $154.0 million as of September 30, 2024. We expect to invest approximately $40.0 million in the rest of 2024 and the remaining amount of approximately $184.0 million thereafter.

In addition, we estimate approximately $103.0 million in additional capital expenditures in 2024 to be allocated as follows: (i) approximately $15.0 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 $10.0 million for maintenance capital expenditures for our operating power plants; (iii) approximately $75.0 million for the construction and development of energy storage projects; and (iv) approximately $3.0 million for enhancements to our production facilities.

In the aggregate, we estimate our total capital expenditures for the last quarter of 2024 to be approximately $143.0 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 (except for the 25 MW PPA for the Puna complex) 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 Puna Complex is currently benefiting from energy prices which are higher than the floor under the 25 MW PPA for the Puna Complex as a result of higher fuel costs that impact HELCO's avoided cost. We signed a new PPA for Puna that was recently approved by the HPUC that carries fixed energy and capacity rates and de-links it from oil prices, as discussed above.

As of September 30, 2024, 97.8% of our consolidated long-term debt was at fixed interest rates, and therefore not subject to interest rate volatility risk. Our short-term commercial paper, which was issued on October 23, 2023, bears an annual interest rate of three months SOFR plus 1.1%, therefore presenting an exposure to interest rate volatility. The outstanding amount of the short-term commercial paper as of September 30, 2024 was $100.0 million.

Our cash equivalents are subject to interest rate risk. We currently maintain our surplus cash in short-term, interest-bearing bank deposits, money market funds, corporate bonds and debt securities that are classified as available for sale (with a minimum investment grade rating of A+ by Standard & Poor’s Ratings Services).

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 related asset and liability are recorded in Kenyan Shillings ("KES"), therefore, 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 the 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 New Israeli Shekels 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 Existing Convertible Notes bear annual interest at a rate of 2.5%, payable semiannually in arrears, and mature on July 15, 2027, unless earlier converted, redeemed or repurchased. On July 15, 2024, the Company issued an additional $45.2 million aggregate principal amount of its 2.50% Original Convertible Notes, as further described under Note 11 to the condensed consolidated financial statements.

We performed a sensitivity analysis on the fair values of our long-term debt obligations, commercial paper 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, 2024 and December 31, 2023 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, 2024 and December 31, 2023 are presented below:

(Dollars in thousands)

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Effect of Inflation

We have seen an increase in overall operating and other costs since early 2022 as the result of higher inflation rates, in particular in the United States. 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 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.

In recent months, we saw a slowdown in increases in inflation rates and increases in raw materials costs that we believe have begun to return to normal levels.

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 2023 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:

The Company has historically been able to collect on substantially all of its receivable balances. As of September 30, 2024, the amount overdue from KPLC in Kenya was $29.8 million of which $7.8 million was paid in October 2024. The Company believes it will be able to collect all past due amounts from KPLC. This belief is supported by the fact that in addition to KPLC's obligations under its power purchase agreement, the Company holds a support letter from the Government of Kenya that covers certain cases of KPLC non-payment (such as non-payments that are caused by government actions and/or political events).

In Honduras, as of September 30, 2024, the total amount overdue from Empresa Nacional de Energía Eléctrica ("ENEE") was $24.2 million of which $1.1 million was paid in October 2024. In addition, due to the financial situation in Honduras, the

Company may experience further delays in collection. The Company believes it will be able to collect all past due amounts from ENEE.

Government Grants and Tax Benefits

A comprehensive discussion on government grants and tax benefits is included in our 2023 Annual Report.

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.

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) and Rule 15d-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, 2024. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2024 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 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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, 2023 which was filed with the SEC on February 23, 2024. 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. During the period covered by this quarterly report on Form 10-Q, there have been no material changes in our risk factors previously disclosed in our 2023 Annual Report.