Ormat in the first quarter: revenue jumped, the core still needs proof

The first quarter of Ormat looks very strong at the top line, but it still does not close the question that opened at the end of 2025: whether the new growth engines are already offsetting the weakening geothermal core. Revenue rose 75.8% to $403.9 million and adjusted EBITDA reached $194.9 million, but a large part of the increase came from the TOPP2 sale in New Zealand, progress in Product projects, and energy storage that also benefited from stronger market prices. The Electricity segment, which should be the quality anchor of the company, posted almost flat revenue and lower gross profit, with pressure at Puna and Heber on one side and improvement at Olkaria and Dixie Valley on the other. The $1 billion convertible debt offering materially improves the funding picture and gives the company real time, but it still leaves a 2027 repayment layer through Series B and the remaining old convertible notes. This quarter is therefore less a clean breakout quarter and more a first proof quarter: growth exists, liquidity improved, and storage is starting to look like an operating engine, but the next few quarters still need to show better Electricity margins, conversion of Product backlog into revenue and cash, and project execution without another unusual funding burden.

Company Setup

Ormat is a renewable energy company with three different engines: geothermal, solar and recovered energy power plants, a Product and EPC segment for geothermal projects, and a U.S. energy storage segment. Economically, it is no longer just a classic geothermal company. The Electricity segment still carries the asset base and most of the quality story, but in the first quarter it declined to 45.0% of revenue, compared with 78.4% in the prior-year quarter. Product jumped to 43.9% of revenue, and storage rose to 11.1%.

That is the key orientation point for the quarter. In the previous annual analysis, the question was whether Product and storage could offset the weakening in Electricity. The current quarter gives a partial answer: yes, they can lift reported results, but not all of that lift has the same quality. TOPP2 is a large but non-run-rate event, storage is improving but still includes merchant-price exposure, and Electricity still needs to prove that the repair path at Puna, Salt Wells and other upgrades is turning into better margins.

The early investor screen is fairly sharp. What is working now is diversification: Product and storage really grew, new projects such as Shirk and Hoku entered the picture, and contracts with NV Energy, Switch and Google through NV Energy leave Ormat with a strategic option on data-center power demand. What still blocks a cleaner read is the quality of the jump: part of it is one-time or timing-driven, and part of it still does not prove that the older geothermal fleet is back on a path of rising profitability.

The Jump Was Real, But Its Source Matters More

Revenue of $403.9 million versus $229.8 million in the prior-year quarter is the headline number. Net income rose only to $44.6 million from $41.0 million, and income attributable to shareholders rose to $44.1 million from $40.4 million. The gap between the revenue jump and the more modest net-income increase is the story: the quarter included stronger operating profitability, but also higher interest expense, a $33.7 million induced-conversion expense tied to the 2027 notes, an $8.1 million impairment at Pomona 1 and other non-recurring items.

In Product, revenue rose to $177.4 million from $31.8 million. Of that amount, $105.1 million came from revenue recognition on the sale of the TOPP2 power plant in New Zealand after the revenue-recognition criteria were met. In gross-profit terms, the segment contributed $38.0 million versus $7.1 million in the prior-year quarter. That is a strong contribution, but it does not mean the segment has moved to a new quarterly run rate of $177 million. It means the project pipeline matured in the current report, while $203.2 million of remaining performance obligations are still expected to become revenue over the next 24 months.

In storage, the picture is cleaner, but not perfect. Revenue increased to $44.9 million from $17.8 million, and gross profit rose to $26.5 million from $5.4 million. The improvement came from higher energy rates at PJM storage facilities and from new assets such as Arrowleaf and Hoku. Hoku alone contributed $2.0 million of revenue and $1.2 million of earnings, excluding the bargain purchase gain. This shows that storage is no longer only a future investment, but part of the segment still depends on market prices, so it is worth separating stable contracted capacity from contribution driven by a favorable commercial environment.

Electricity is the less convincing part of the quarter. Electricity revenue rose only 0.8% to $181.6 million, while gross profit declined to $55.9 million from $60.4 million. Generation increased 2.6% to 2.03 million MWh, but costs rose faster than revenue. Olkaria benefited from successful drilling, lower curtailments and better resource utilization, and Dixie Valley improved because of lower curtailments. Puna, by contrast, was hurt by lower energy rates tied to oil prices and lower generation because of weather disruption, while Heber was affected by planned maintenance.

The point is not that Electricity collapsed. It did not. But after a year in which a prior analysis identified the weakening of Electricity as the central proof point, the first quarter still does not show that the pressure has passed. Some sites improved, but the segment's profitability has not yet joined the growth story being written by Product and storage.

Storage And Data Centers Are No Longer Just Headlines

The quarter and the surrounding filings show why the market continues to assign value to Ormat's growth option. Shirk, an 80MW/320MWh storage facility in California, reached commercial operation in March 2026 and is backed by a 15-year Resource Adequacy agreement with the City of Riverside. The project qualifies for a 40% ITC, and the company placed it inside a hybrid tax equity structure with Morgan Stanley Renewables. This is exactly the type of asset the company wants to build: large storage capacity, a long contract, and financing that converts tax credits into cash.

Hoku adds a different layer. Ormat paid $79.3 million for a 30MW solar facility paired with 30MW/120MWh of storage in Hawaii, under a 25-year fixed-price PPA with HECO. This is an operating asset acquisition, not just pipeline, so the contribution began already in the quarter. Jersey Valley adds future backlog: a Nevada solar-plus-storage project with 67MW of solar and 67MW/268MWh of storage, under a fixed-price PPA with NV Energy, subject to regulatory approval and expected to reach commercial operation in late 2027 or early 2028.

The more interesting layer is the data-center connection. The agreement with Google through NV Energy's Clean Transition Tariff covers up to 150MW of new geothermal capacity in Nevada, with energy deliveries expected between 2028 and 2030 and Nevada PUC approval expected in the second half of 2026. Alongside that, the Switch contract around Salt Wells, approximately 13MW for 20 years starting in the first quarter of 2030, continues to signal a possible repricing of firm geothermal power for customers that need continuous electricity.

Still, a strategic contract should not be confused with near-term revenue. Most of the data-center value will arrive only if approvals are obtained, projects are built, upgrades remain on schedule, and new contracts begin affecting Electricity margins. In the first quarter, the direct impact on results is still limited. The main value is that Ormat's story now has a clearer growth axis: firm geothermal power and contracted storage, not just another renewable MW.

The March Financing Bought Time, But 2027 Did Not Disappear

In the previous funding analysis, the question was whether the funding path through 2028 was really closed. The March 2026 convertible offering changes the picture. Ormat raised $1.0 billion of convertible senior notes due 2031: $825 million of 1.50% Series A notes and $175 million of 0.00% Series B notes. The initial conversion price is approximately $140.40 per share, a 30% premium to the share price at pricing.

The use of proceeds was clear: $287.9 million of offering proceeds, $25 million of cash and 0.6 million shares were used to repurchase $285.9 million of the 2027 convertible notes. The company also repurchased approximately $24.4 million of shares. The result is a quarter in which cash increased to $654.6 million, compared with $147.4 million at year-end 2025, while unused corporate borrowing capacity stood at $385.4 million.

The chart explains why the March financing matters: against $587 million of remaining 2026 CAPEX and $224 million of debt repayment, the company now has more than $1.0 billion of cash and unused facilities. That does not mean all of the cash is equally free, because $183.4 million is held by foreign subsidiaries and some assets operate through project entities. But it does mean that the 2026 test is now less about immediate liquidity and more about execution.

The all-in cash picture in the quarter sharpens the distinction. Operating cash flow was $78.6 million, down from $88.0 million in the prior-year quarter. Capital expenditures were $113.8 million, the Hoku acquisition consumed $78.3 million, the Sage investment was $25.5 million, and the TOPP2 sale brought in $93.1 million. In other words, before the large financing move, the quarter was still not funded solely by operating cash flow. The convertible offering and the partial treatment of the 2027 maturity are what changed the balance.

Covenants remain comfortable. Net debt to adjusted EBITDA was 4.15 versus a 6.0 ceiling, and equity to total assets was 40.0% versus a 25% minimum. Still, two points should not be blurred. First, Series B gives investors the right to require cash repurchase in March 2027. Second, $190.6 million of the 2027 convertible notes remains outstanding. March 2026 did not eliminate 2027. It made it more manageable.

The project level also reminds investors that not every dollar is immediately available to the parent. The company did not meet the dividend distribution criteria for DAC 1, creating a $1.4 million distribution restriction, and Platanares was not in compliance with its DFC loan agreement because of a payment breach by the PPA offtaker. As a result, the $51.9 million loan was classified as current, while the related subsidiary had $2.0 million restricted for distribution. The amounts are not threatening to the group, but they show why Ormat's project-finance model requires attention to collections, covenants and cash sitting at different levels.

Conclusions

The first quarter reinforces the mixed read on Ormat. The company showed that it has real growth engines outside the older Electricity core, and it solved a large part of the near-term funding test through a successful convertible offering. At the same time, reported growth is not clean: TOPP2 created a large Product jump, storage also benefited from market prices, and Electricity still has not shown a clear return to stronger margins.

The current conclusion is that 2026 is becoming a proof year. If Salt Wells, Dominica, Cove Fort, Bird Dog and the new storage projects progress on schedule, and if Puna and U.S. Electricity show margin recovery, the first quarter will look in hindsight like the start of a successful transition to a more diversified energy company. If Electricity continues to pressure margins or Product does not turn backlog into cash at a good pace, the market will focus less on the revenue jump and more on the funding cost of growth.

The strongest counter-thesis is that the quarter already closed most of the concerns: liquidity is high, covenants are far away, storage is more profitable and data-center demand gives geothermal a new value proposition. That argument is reasonable, but it is still ahead of the proof. What needs to arrive now is a sequence of quarters in which recurring results, not only one-time events and new financing, carry the story.