Prepared remarks
Good morning, and welcome to the Ormat Technologies second quarter 2026 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during this time, just press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Please note that this event is being recorded. I would like to turn the conference over to Josh Carroll with Alpha IR. Please go ahead.
Thank you, operator. Hosting the call today are Doron Blachar, Chief Executive Officer, Assi Ginzburg, Chief Financial Officer, and Smadar Lavi, Vice President of Investor Relations and ESG Planning & Reporting. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts, and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives, and expectations for future operations and are based on management's current estimates and projections, future results, or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see risk factors as described in Ormat Technologies' annual report on Form 10-K and quarterly reports on Form 10-Q that are filed with the SEC. In addition, during the call, the company will present non-GAAP financial measures such as adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information is set forth in the press release that was issued last night, as well as in the slides posted on the website. Because these measures are not calculated in accordance with GAAP, they should not be considered in isolation from the financial statements prepared in accordance with GAAP. Before I turn the call over to management, I'd like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at ormat.com under the presentation link that's found on the Investor Relations tab. With all that said, I would now like to turn the call over to Ormat's CEO, Doron Blachar. Doron?
Thank you, Josh. Good morning, everyone, and thank you for joining us today. Let me begin with the key highlights from the second quarter, starting on slide four. The first half of 2026 reflects accelerating momentum across all three business segments. Second quarter revenue increased 10.6%, gross profit increased 20.8%, and adjusted EBITDA increased 6.9% compared with the prior year period. On the strength of these results, we are raising our full-year revenue and adjusted EBITDA guidance. In our electricity segment, Blue Mountain's contribution, stronger performance at Olkaria and Puna, and lower curtailment in the U.S. drove continued growth. In the energy storage segment, revenue nearly tripled year-over-year, supported by new capacity additions, high asset availability, and favorable merchant pricing in PJM. Taken together, these results demonstrate the strength and balance of our three-segment model and the returns available when long-term contracted revenues are paired with selective merchant exposure. On the development side, we added 155 megawatts to our generating portfolio since the beginning of the year, including the Juco Solar and Storage acquisition, the Shirk storage facility, and the commencement of commercial operation at our 10-megawatt Dominica geothermal power plant. On the EGS front, we advanced both the SLB and Sage pilot programs toward field execution and introduced Ormega100, our new 100-megawatt binary unit designed for large-scale conventional geothermal and EGS applications, both of which I will discuss in more detail shortly. I will now turn the call over to Assi to review our financial results. Assi?
Thank you, Doron. I will begin my review of the financial results on slide six. Second quarter revenue was $258.8 million, an increase of 10.6% compared with the prior year period, led by strong energy storage performance and continued growth in the electricity segment. Gross profit increased 20.8% to $68.7 million, and consolidated gross margin expanded by 220 basis points to 26.5%, reflecting the strong performance and margin contribution of our storage assets in PJM. Net income attributable to the company stockholders was $27.1 million, or $0.43 per diluted share, compared with $28 million, or $0.46 per diluted share in the prior year period. The year-over-year decrease reflects a $6.6 million write-off related to a storage project we decided not to pursue, partially offset by stronger underlying operating performance. Adjusted net income attributable to company stockholders in the second quarter of 2026 increased 6.5% to $31 million, or $0.50 per diluted share, compared with $29.1 million, or $0.48 per diluted share in the second quarter of 2025. Adjusted EBITDA increased 6.9% to $143.9 million, led by energy storage performance. Slide seven provides additional details on our segment performance. Electricity segment revenue during the second quarter increased 5.8% to $169.3 million. The increase reflects a full quarter contribution for Blue Mountain, higher energy rates, and improved performance at Puna, stronger generation at Olkaria following well field optimization, and lower curtailments at McGinnis Hills, Dixie Valley, and Tungsten, partially offset by planned maintenance activities. Product segment revenue decreased 21.6% to $46.7 million, reflecting the timing of manufacturing and construction progress. Product segment gross margin was 9.7%, down from the prior year period, mainly due to increased construction costs related to a project in Europe and the impact of foreign exchange fluctuation on manufacturing costs. We expect product segment gross margin for the second half of the year to be approximately 15% and for the full year gross margin to be approximately 18%. Energy storage segment revenue increased 195.1% to $42.8 million. High asset availability enabled us to capture strong merchant pricing in PJM, while capacity additions completed over the past 12 months contributed incremental revenue. The segment generated a gross margin of 56.2%, reflecting our strategy of optimizing the mix of contracted and merchant revenues. We expect energy storage gross margin to normalize to 30%–40% in the second half of the year and for the full year to be approximately 40%–50%. Slides eight and nine summarize our first half results. Revenue increased 42.9% to $662.7 million, driven by substantial growth across all three segments. Adjusted EBITDA increased 18.9% to $338.8 million, and adjusted diluted EPS increased 54.3% to $1.79 per share. Turning to slide 10. During the first half of 2026, we collected approximately $52 million of proceeds from a tax credit monetization transaction. For the full year, we continue to expect approximately $90 million in proceeds, including approximately $70 million related to ITCs and approximately $20 million related to PTC transfers. During the second quarter, we recorded a $9.5 million ITC benefit. For the full year, we expect to record approximately $59.9 million in ITC benefits, which we expect will result in an effective income tax benefit rate of approximately 15% in the second half of the year, excluding changes in law and other one-time items. Slide 11 presents the change in our cash position during the first half of the year. Cash and cash equivalents and restricted cash totaled approximately $658 million as of June 30, 2026, compared with approximately $281 million at year-end 2025. The increase reflects the proceeds from our convertible notes offering and other financing activities, cash generated from operations, tax credit monetization, and the proceeds from the Topp 2 sale, partially offset by capital expenditures, debt repayments, acquisitions, and investments. Our total debt as of June 30, 2026, was approximately $3.4 billion, excluding deferred financing costs, and the weighted average interest rate on our debt portfolio was approximately 3.9%. Turning to slide 12. Total liquidity was approximately $1.1 billion as of June 30, 2026. Net debt was approximately $2.7 billion, equivalent to 4.3 times net debt to adjusted EBITDA. Net debt represented approximately 50% of total capitalization. We expect capital expenditures for the remainder of 2026 to be $449 million. Of that, approximately $281 million is allocated to the electricity segment for construction, exploration, drilling, and maintenance, $129 million to the storage asset construction, and approximately $20 million to the SLB pilot and other EGS activities. Our detailed capital expenditure plan is included in slide 34 of the appendix. In support of our broader development program, we secured several important financing sources. In May, we closed a unique exploration financing facility up to $40 million for the Wapsalit geothermal project in Indonesia under the World Bank's Geothermal Resource Risk Mitigation Program. This structure provides a risk-sharing mechanism that reduces the financial exposure associated with early-stage exploration. Our strong liquidity and access to capital provides us with the flexibility to fund our development pipeline, while continuing to service our debt obligations and return cash to shareholders. On August 5, 2026, our board of directors declared a quarterly dividend of $0.12 per share, payable on September 2nd, 2026 to shareholders of record as of August 19, 2026. The company also expects to pay a quarterly dividend of $0.12 per share in the next quarter. I will now turn the call over back to Doron to discuss the recent operating and strategic developments.
Thank you, Assi. Turning to slide 14, our total operating portfolio now stands at approximately 1.85 gigawatts. On slide 15, our electricity portfolio stands at approximately 1,355 megawatts globally, with new 15 megawatts added during the quarter. We currently have 202 megawatts of electricity projects under construction and development through the end of 2028, including 87 megawatts of geothermal capacity and 115 megawatts of solar capacity. All of these projects are supported by long-term PPAs, providing strong visibility for future growth. Slide 16 details the electricity segment's second quarter drivers. Curtailment in the U.S. declined by $4.2 million. Blue Mountain contributed approximately $2.6 million of revenue, and Puna revenue increased by approximately $3 million on higher rates and recovery from a prior year well field issue. At Olkaria, stronger generation following well field optimization added approximately $2.5 million. Overall, power generation increased 3% year-over-year. Moving to slide 17. One of our strategic priorities over the past several years has been to proactively renegotiate contracts well ahead of expiration, extending the contract term while capturing the significant improvement we are seeing in geothermal pricing. Over the past year, we continued to make excellent progress on this initiative. In addition to signing new PPAs for projects with expiring contracts, we executed several blend-and-extend agreements, including the Blue Mountain power plant that increased the value of our existing asset base while providing our customers with long-term price certainty and reliable baseload renewable energy. The recontracted and blend-and-extend PPAs are expected to increase annual revenues by approximately $14 million as they become effective over the next several years, starting in 2026 and continuing through 2030. Importantly, these contracts are secured with minimal incremental capital investments, making them one of the most attractive sources of value creation within our portfolio. Looking further ahead, we continue to see significant opportunities across our contracting portfolio. Between 2031 and 2034, we have approximately 190 megawatts under contract that are currently priced at a weighted average of approximately $86 per megawatt hour, lower than today's market pricing of over $100 per megawatt hour. We believe our existing geothermal fleet provides a meaningful embedded opportunity to continue repricing contracts and creating long-term shareholder value. Turning to slide 18, our product segment backlog stood at approximately $203 million as of August 5, 2026. The decrease from year-end 2025 primarily reflects the recognition of $105 million of revenue from the Topp 2 project during the first quarter. The backlog remains geographically diversified, with the majority associated with projects in Asia and Oceania. Moving to slide 19. Energy storage revenue increased 195% to $42.8 million, including approximately $19.5 million of higher revenue from existing PJM assets and approximately $7.7 million generated by newly commissioned facilities. The operating portfolio now stands at 495 megawatts and 1,358 megawatt hours. Turning to slide 21. We remain on track to achieve our 2028 portfolio targets of 2.6–2.8 gigawatts, representing an expected compound annual growth rate of approximately 15%–18% from 2025. Slides 22 and 23 provide details on our geothermal and solar development pipeline. Recent milestones include commercial operations in Dominica and completion of the Cove Fort expansion, while construction and development continue across our U.S. and international portfolio, including the addition of Puna expansion and Lone Mountain. Turning to slide 24 and 25. We have seven energy storage projects under construction and development, with total capacity of 497 megawatts or 1,888 megawatt hours. This includes the new 100-megawatt, 400-megawatt-hour Denali facility in California, which we recently approved for development. Denali is expected to commence operation by the end of 2028 and will provide storage services under a 20-year tolling agreement with Clean Power Alliance. Our broader U.S. energy storage pipeline now totals approximately 2.5 gigawatts or approximately 10 gigawatt hours across 25 named prospects. Turning to slide 26. Our EGS strategy advanced across three pillars during the quarter: surface technology, subsurface pilot projects and development, and footprint across the Western U.S. On the surface side, we introduced Ormega100, our modular 100-megawatt ORC unit designed for large-scale geothermal and EGS application. Leveraging Ormat's decades of leadership in binary technology, Ormega100 is designed to serve both our future EGS development and third-party projects. During the year, we also continued evaluating manufacturing readiness and the associated cost structure to support future commercial deployment. On the subsurface side, we continue to advance both of our pilot projects. At our SLB Desert Peak pilot, we completed the analysis of geophysical seismic data and incorporated the results into an updated subsurface model. We also submitted drilling permit applications, progressed procurement of long-lead items, and entered the final stages of vendor selection, keeping us on track to begin drilling in the fourth quarter of 2026. At the Sage pilot, we selected the project location, advanced permitting activities, reached the final stages of procurement for drilling services, and made progress on the engineering work required to integrate Sage technology into an existing Ormat power plant. Beyond the pilot projects, we're expanding our geothermal land position and securing additional water rights and interconnection opportunities across the Western U.S. During the year, we were awarded a federal lease covering 10,642 acres in New Mexico for EGS development, and we are currently negotiating the acquisition of additional acres in Oregon and Idaho. Our resource team has also identified two promising prospects within our existing portfolio that we believe could support large-scale EGS development, and we continue to pursue additional interconnection opportunities in Nevada. These initiatives, together with our strategic partnerships, expanding resource position, and proprietary surface technology, position Ormat to leverage its deep expertise to advance EGS toward commercial deployment, driving what we believe is a compelling long-term growth opportunity for the company. Please turn to slide 27 for updated 2026 guidance. Based on our strong first half performance and continued business momentum, we are raising our full-year revenue and adjusted EBITDA guidance. We now expect total revenues of $1.15 billion to $1.2 billion, representing growth of approximately 18.7% at the midpoint compared to 2025. By segment, we expect electricity revenue of $710 million to $725 million, product revenue of $300 million to $320 million, and energy storage revenue of $140 million to $155 million. We now expect adjusted EBITDA of $630 million to $650 million, representing growth of approximately 10% at the midpoint compared with 2025. Approximately $17 million of adjusted EBITDA is expected to be attributable to minority interest. Let me close on slide 28. The second quarter reinforced the strength of our diversified business model and disciplined execution. Double-digit revenue growth, gross profit expansion of more than 20%, a full-year guidance raise, and continued prospects on projects that will drive our long-term growth. We also expanded our development pipeline, advanced the SLB and Sage EGS pilots, and reinforced our funding platform in a supportive policy environment. As demand for reliable, around-the-clock, low-carbon electricity continues to grow, Ormat is well positioned to capture that demand through our combination of operating expertise, development capabilities, technology leadership, and strong capital position. We remain focused on executing our strategy, achieving our 2028 growth objective, and creating long-term value for our shareholders. Before we open the call for questions, I would also like to invite everyone to join us at our Investor Day, which we will host on September 8th at the New York Stock Exchange. During the event, we will provide a deeper look into Ormat's long-term growth strategy, including our plans to expand our electricity and energy storage businesses, as well as our roadmap for developing and commercializing EGS. We look forward to sharing more details with you then. With that, I will conclude our prepared remarks. Operator, we are now ready to take questions.
Questions and answers
We will now begin the question and answer session. If you would like to ask a question at this time, just press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, just press star one again. Our first question comes from the line of Justin Clare with ROTH Capital Partners. Justin, please go ahead.
Hi, good morning. Thanks for the time here. Wanted to just start on the electricity segment. When I look at the Q2 electricity gross margin, it looks like it declined slightly year-over-year. This is despite the improved performance at Puna and Olkaria, lower curtailments, and the contribution from Blue Mountain. Just wondering if there were other factors that maybe offset the benefits. You also did modestly lower the full year outlook, just wondering what explains the lowered expectation there for the electricity segment.
Good morning, Justin. This is Assi. I'll start with the second part of the question. As you all know, in Q2 we update the annual forecast for the first time. First, I'm glad to report that the company is finally going to reach close to $1.2 billion of revenues, which is a huge increase versus the last few years. We also increased the midpoint of the EBITDA guidance and increased significantly the lower point of the EBITDA guidance. That came mostly as a result of weather-related activities on one hand that we saw on the East Coast, offset by a lower $5 million in the electricity segment, the majority of it related to two projects in the Caribbean. We do have around one- to two-month delays on those projects' commercial operations dates. I'm glad to report that one of them is already COD. Dominica has been in full operation since July 31st. As for the offset to gross margin in the quarter, I would say the only one-time item we saw is that we did have some planned maintenance for the quarter, and we do expect margin to improve towards the end of the year.
Okay, got it. That's helpful. Maybe just shifting over to the energy storage segment. For that segment, you've lifted the revenue guide, I think $45 million at the midpoint. I was just wondering if you could speak to your assumptions around merchant pricing in the back half for that storage segment relative to what you experienced in the first half. Maybe you could speak to how pricing has trended in Q3, the quarter-to-date. Are you seeing any signs of pricing normalization in PJM at this point, or are you seeing continued strength?
Hi, thank you. On the energy storage side, pricing in the first half was very strong. The merchant prices over the last few weeks have become a bit more normal as we went toward the end of July and into August. We're looking at the second half as a more normalized pricing environment, although a bit higher than what we've seen in previous years. You can see with the guidance that the first half is stronger than the second half. At the end of the day, it is impacted mainly by weather conditions on the East Coast. I would say that weather conditions in California and Texas actually had the opposite effect, but in total, it was a very positive impact for the energy storage segment.
Got it. Okay, I appreciate it. Thank you.
Your next question comes from the line of Noah Kaye with Oppenheimer. Noah, please go ahead.
Hello, thanks for taking the questions. Looking forward to your Investor Day. Maybe I'll start with the project pipeline. It's really nice to see that growing; you added Lone Mountain to the official list here. The question is, should we assume these new projects coming into the pipeline are generally covered under the umbrella PPA with Google? Maybe just give us an update on how you're tracking towards meeting that portfolio target of 150 megawatts.
Thank you for the question. Yes, Lone Mountain is going to be part of the portfolio PPA with Google. I expect that in the coming quarters we'll release some more greenfield projects that will be part of the portfolio PPA with Google. We feel very comfortable in meeting the minimum and maximum targets in the portfolio. We signed the portfolio with a range, like in the past, with the minimum and maximum in order to allow us flexibility in managing the portfolios as pricing continues to increase.
Okay. Very good. Thanks. Appreciate all of the updates on the EGS pilots as they advance. Can you maybe help us understand, appreciate a little bit more, what you're working towards solving in terms of the key technical challenges when you're looking to integrate them into some of your existing operations? I mean, basically, what have you had to figure out in terms of operating these pilots safely and without having any real impact to the existing assets?
The pilots that we're doing — we're planning in both pilots to drill the appraisal well or monitoring well this year and the full pilots next year — should not have any impact on the existing facilities. They're going to be drilled outside of the existing reservoir and be connected to the existing facilities. We might have a short shutdown of a couple of days in order to connect them. Even that, I believe, will be very small and should happen hopefully by the end of 2027 or beginning of 2028. I would say the main challenges with EGS technology are how you maintain the heat in the system, how you build a facility where the fractures connect, and how you reduce the cooling effect when you continuously inject cold water. In traditional geothermal, we have a large pool of reservoir that is heated from below. In EGS, you continuously inject water, and managing the thermal drawdown and fracture connectivity are key technical challenges.
Very helpful, Doron. Thank you.
Your next question comes from the line of Jon Windham with UBS. Jon, please go ahead.
Hey. Perfect. Congratulations on the result. Maybe a couple quick things I want to dig into. First, unfortunately, is weather, but you mentioned it before. I'm just trying to think through if you have any color on potential impacts on the third quarter generation due to the heat dome in the West. I know a lot of geothermal generation is affected by the temperature differentiation between subsurface and above ground. Just any comments you have on that?
Since we finished July and are gathering all the information, July had some very hot days, but some days were not hotter than the average. All in all, July was relatively as we expected. August is starting very hot, and as you say, very hot weather has an impact on geothermal. We need to see how the weather continues in the West during August and September to know the full effect. July was relatively flat versus expectations.
I was just saying it's flat versus the guidance that we gave, which means there is no change to the guidance.
Okay, thanks. Another one: I know it's a smaller part of the business on the solar side, but any thoughts about the FCC's ruling on banning new models for inverter imports, whether that's any impact to your storage or the solar business you have? Thanks so much.
Of course, we are monitoring it and following all the changes as they emerge. At this point, we believe we will be able to buy inverters from foreign suppliers by ensuring they do not have remote connectivity that would allow external control. That option is available when we talk to our vendors, and it looks like that's the main restriction at this point. We are moving forward. We have Jersey Valley Solar and Storage under construction. We have Denali that we just announced. We actually have an unprecedented amount of solar and storage under construction these days. I would say we believe we will be able to eliminate remote-connectivity features and therefore be able to source from foreign suppliers. Lately, we've sourced some inverters from Spain, and we think we'll be able to buy more from such suppliers.
Your next question comes from the line of Davis Sunderland with Robert W. Baird. Davis, please go ahead.
Hey, good morning, guys. Congrats on the results, and thank you for taking our questions. Maybe I have two, both on strategy. I'll start with energy storage. I wanted to ask if the grid congestion, weather events, and other things that have led to higher pricing for merchant contracts specifically have made you rethink or re-evaluate the strategy of merchant versus tolling and that mix element — what you prefer in each region.
Thank you for the question. We considered whether to go fully contracted like geothermal or fully merchant, and we chose a risk-managed approach of roughly 50% contracted and 50% merchant. We are still with this strategy. There are markets where merchant prices are very low, like Texas and California, and in those markets we look for a tolling agreement. PJM has highly fluctuating merchant pricing where merchant exposure can be attractive. Our strategy hasn't changed. Overall, we're looking at a 50/50 mix. We are also looking at additional markets like Georgia and Oklahoma to build projects. You can see in the pipeline we have almost two gigawatt-hours of projects under construction that will be COD'd not later than the end of 2028. That's increasing our portfolio significantly. This is one of the decisions we made a few years ago to focus on energy storage as a strong complement to our renewable energy platforms.
Thank you very much, Doron. Maybe turning to electricity and just looking at the PPA environment: appreciate your commentary about it remaining constructive. I just wanted to ask how far out negotiations are stretching, your philosophy on contracting today versus waiting for potentially higher prices down the road, or any other considerations on the PPA backdrop. Thank you.
We see PPA pricing continuing to increase. We are negotiating additional contracts for projects that are in early stages of discussions. It's always a question whether to sign today or wait. When we see a high PPA like the ones we signed with Google and Switch, that removes exploration risk and is attractive to sign. Those agreements are limited in magnitude and timing. If prices continue to rise, we can continue to sign new PPAs. As I said, many PPAs have a minimum and maximum across the portfolio, which allows us flexibility: if prices go up, we can move toward the lower contracted amount; if prices stay down, we can move toward the higher amount. On the EGS front, we are also discussing EGS PPAs, which tend to have higher pricing than the PPAs we've signed so far.
Our next question comes from the line of Chris Dendrinos with RBC Capital Markets. Chris, please go ahead.
Good morning, and thank you. I wanted to ask a bit more on the EGS side of things. You commented in the prepared remarks that you're adding some acreage in New Mexico, Oregon, and looking at Idaho, as well as identifying a couple of sites within your portfolio. How should we think about the investment strategy you are making now, given you haven't spudded a well yet? From my view, it looks like you're quite confident in the outcome of this. What's the level of risk management in terms of making investments ahead of initial pilot results?
On the technology side, the challenges I mentioned earlier can be addressed more confidently because of our joint venture with SLB. SLB is one of the largest drilling companies and brings deep expertise in drilling and stimulation. We believe technological issues can be solved if you have the right experts with you. We have significantly ramped efforts in developing EGS. The investment to date on land is not material relative to the size of Ormat. We have multiple discussions in different states on different sizes of land, and we'll update the market as we progress and also at our Investor Day in September. So far, these land and exploration investments are not a significant amount of money.
Got it. Thank you. Maybe as a follow-up to the comment on PPA pricing for EGS projects that could be higher than other conversations — what's the timeframe that you're looking at to potentially sign these PPAs, and when do you think delivery would start?
We will provide more detail at our Investor Day. We are speaking with hyperscalers, data centers, and utilities about EGS projects. All parties are aware pilots are being developed. Any PPA we sign will reflect the fact that the technology is not yet fully commercialized and will include mechanisms to manage development and execution risk, as we've done in other parts of our business.
There's no further questions at this time. I will now turn the call back over to Doron for closing remarks. Doron?
Okay. Thank you everyone for joining us today. Q2 was an excellent quarter for Ormat that allowed us to increase our guidance. We have a very good pipeline, both on the electricity/geothermal side and on the energy storage side, with projects under development. We look forward to seeing all of you at our Investor Day in September, where we will give much more color on our pipeline for traditional energy and also provide more information about our EGS pipeline development. Thank you.
This concludes today's call. You may now disconnect.