RENO Nov 4, 2015 (Thomson StreetEvents) -- Edited Transcript of Ormat Technologies Inc earnings conference call or presentation Wednesday, November 4, 2015 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Jeff Stanlis Hayden MS-IR - Partner & VP, Communications * Isaac Angel Ormat Technologies, Inc. - CEO * Doron Blachar Ormat Technologies, Inc. - CFO ================================================================================ Conference Call Participants ================================================================================ * Paul Coster JPMorgan - Analyst * Dan Mannes Avondale Partners, LLC - Analyst * Mark Barnett Morningstar, Inc. - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day and welcome to the Ormat Technologies, Inc. Third Quarter 2015 Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Jeff Stanlis with Hayden MS-IR. Please go ahead. -------------------------------------------------------------------------------- Jeff Stanlis, Hayden MS-IR - Partner & VP, Communications [2] -------------------------------------------------------------------------------- Thank you, operator. Hosting the call today are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations. Before beginning, we would like to remind you that 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 plan, objectives and expectations for future operations and are based on management's current estimates and projections, future results or trends. Actual 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 filed with the SEC. In addition, during the call, we will present non-GAAP financial measures such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management 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 Company's website. Because these measures are not calculated in accordance with US 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 would like to remind everyone that a slide presentation accompanying this call may be accessed on the Company's website at ormat.com under the Events & Presentations link that's found in the Investor Relations tab. With all that said, I would now like to turn the call over to Isaac Angel. Isaac, the call is yours. -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [3] -------------------------------------------------------------------------------- Thank you very much, Jeff and good morning everyone. Thank you for joining us today for the presentation of our third quarter 2015 results. The third quarter was a very strong quarter for us with a record total revenue and adjusted EBITDA driven from the solid performance of both segments. The electricity segment delivered double-digit growth in generation and solid margins despite headwinds related to oil and natural gas prices, reflecting our focus on profitable growth from existing operations. We also continue to improve construction lead time and brought on online the second phase of Don Campbell plant in Nevada six months earlier than planned. And now we expect earlier completion of plant 4 in Olkaria, Kenya. In our efforts to promote our strategic initiatives, we achieved a significant milestone by signing a strategic collaboration agreement with Toshiba, the world's leading supplier of geothermal steam turbines. Through this relationship, we will explore and develop strategic opportunities that will enable us to approach and capture a larger portion of the global geothermal market. I will elaborate on this milestone and other business developments in my closing remarks. I will like to turn the call over to Doron to discuss our financial results for the quarter. Doron? -------------------------------------------------------------------------------- Doron Blachar, Ormat Technologies, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Isaac and good morning everyone. Let me start by providing an overview of our financial results for the third quarter ended September, 30 2015. Starting with slide 6, total revenues for the third quarter of 2015 were $162.9 million, up 16.1% compared to $140.2 million in the third quarter of 2014. 60% of the revenues came from the electricity segment. In our electricity segment, as you can see on slide 7, revenues were $97.2 million in the third quarter of 2015 compared with $102.5 million last year. The decrease was mainly due to lower energy rates resulting from lower oil and natural gas prices and a reduction in net gain on derivative contracts. The decrease was partially offset by the contribution from the McGinness Hills Phase 2 power plant and Phase 2 of our Don Campbell plant, both in Nevada. These two expansions coming online were also the main driver for the 10% generation growth compared to the third quarter of 2014. Based on our policy we will manage our economic exposure to natural gas and oil prices in our Electricity segment through hedging activities. In May, we entered into derivative transactions to reduce 50% of our exposure fluctuation in natural gas prices at a fixed price of $3 per MMbtu until December 31, 2015. As a result of the hedging activity, we recorded a net gain of $0.4 million in the third quarter of 2015 compared to $4 million gain in the third quarter of 2014. In the Product segment on slide 8, revenues were $65.6 million compared to $37.7 million in the third quarter of 2014, which represents a 73.9% increase. As many of you already know, our product segment is characterized by fluctuations in quarterly revenue. This segment delivered a strong quarter as we benefited from new contracts including the EPC contract related to the geothermal project in Chile as well as the progress with the Sarulla project in Indonesia. Moving to slide 9, the Company's combined gross margin for the third quarter was 36.4% compared to 39.6% in the third quarter of 2014 and similar on a sequential basis to the gross margin generated in the second quarter of 2015. In the Product segment, gross margin was 36% compared to 38.9% in the prior year quarter. In the Electricity segment, gross margin was 36.8% compared to 39.8% last year. The margin in the Electricity segment was significantly impacted by approximately $6 million reduction in oil and natural gas prices as well as $3.6 million net gain from hedging activities compared to the third quarter of 2014. Excluding these effects, gross margin increased from 33.2% last quarter to 36.5% this quarter. This reflects the enhancements implemented in our power plants and improved efficiency of our operating portfolio along with the new capacity that came online. Moving to slide 10, third quarter operating income was $46.5 million compared to $43.8 million in the third quarter of 2014. Operating income attributable to our Electricity segment for the third quarter of 2015 was $28.3 million compared to $32.4 million for the third quarter of last year. Operating income attributable for our Product segment was $18.1 million compared to $11.4 million in the third quarter of 2014. Moving to slide 11, interest expense, net of capitalized interest, for the third quarter of 2015 was $17.7 million compared to $22.5 million last year. This decrease was primarily due to the lower interest expense as a result of debt payment and decreasing interest expense related to the sale of tax benefit. The decrease was partially offset by an increase in interest expense related to a new loan to finance the construction of the McGinness Hills Phase 2 project from August 2014. Moving to slide 12, net income attributable to the Company's stockholders for the third quarter of 2015 with $72.1 million or $1.41 per diluted share in the third quarter of 2015 compared to $16.5 million or $0.36 per diluted share for the third quarter of 2014. The net income includes $48.7 million deferred tax asset and the related expenses relating to investment deductions for our Olkaria 3 power plant in Kenya. In September, Kenya's Income Tax Act was amended referring to certain provisions of the recently adopted Finance Act. These amendments retain the enhanced investment deductions of 150% and extend the period for deduction of tax losses from five years to ten. Previously, we had a valuation allowance reducing our deferred tax asset in Kenya as utilization of the portion of tax losses was not probable within the original five year carry-forward period. As a result of the change in legislation and the expected continued profitability during the extended carry-forward period, we expect that we will be able to fully utilize the carry-forward tax losses within the ten years period and as such, we release the valuation allowance of the additional 50% investment deduction for our Olkaria 3 power plant in Kenya, resulting in $48.7 million of tax benefit and related expenses in the third quarter of 2015. Excluding the deferred tax asset and the related expenses, net income attributable to the Company's shareholders was $23.4 million or $0.46 per diluted share compared to $16.5 million or $0.36 per diluted share in the third quarter of 2014. Please move to Slide 13. Adjusted EBITDA for the third quarter of 2015 reached a quarterly record of $79 million, an increase 14.3% compared to $69.1 million in the same quarter last year. Adjusted EBITDA for the nine months ended September 30, 2015 was $212 million compared with $204 million in the nine months ended September 30, 2014. Turning to slide 14, cash and cash equivalents as of September 30, 2015 was $171.5 million. We generated $123 million in cash from operating activities. The components slide breaks down the use of cash during the quarter. Our long-term debt as of September 30, 2015 and the payment schedules are presented in slide 15 of the presentation. The average cost of debt for the Company stand at 6.06% and the net debt amounts to approximately $710 million. On November 3, 2015, Ormat's Board of Directors approved payment of the quarterly dividend of $0.06 per share for the third quarter. The dividend will be paid on December 2, 2015 to shareholders of record as of closing of business on November 18, 2015. That concludes my financial overview. I would like now to turn to call to Isaac for an operational and business update. Isaac? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [5] -------------------------------------------------------------------------------- Thank you very much, Doron. Starting with slide 17 for an update on operations, generation in third quarter was 1.1 million megawatt hours compared to 1 million megawatt hours in the third quarter 2014, which represents 10% increase mainly due to the contribution of McGinness Hills complex and also reflecting an initial contribution of our Don Campbell Phase 2. Moving to slide 18, we continued our efforts to grow our Electricity portfolio. During the quarter, our Don Campbell Phase 2 began commercial operation, doubling the generation capacity of the complex to 38 megawatts. I'm very proud of our execution on this project. We brought this phase online six months ahead of schedule and just 10 months after we broke ground and less than two years after commencing operation of Phase 1. Campbell will sell its power under a 20-year power purchase agreement with the Southern California Public Power Authority who will sell the entire output of this plant to Los Angeles Department of Water and Power. Northleaf Capital Partners, our joint venture investor, will purchase 36.75% equity interest in the project, which will be added to the existing ORPD joint venture upon completion of certain tests in accordance to the terms of the agreement. Moving to slide 19 for an update on projects under construction. As I mentioned, we continue to improve construction lead time and expect an earlier completion of the 24 megawatt project in Olkaria, Kenya. The project was initially expected in the second half of 2016 and currently planned to be completed in the first quarter of 2016. In Sarulla, Indonesia, the engineering, procurement and construction under the EPC contract with Hyundai are in progress. The infrastructure work has been substantially completed and major equipment including [Ormat's partial] OEC and Toshiba steam turbine arrived in the country. The drilling of production and injection wells are also in progress in all three phases. However, the project company is experiencing delays in drilling and EPC milestones as well as cost overrun mainly in the field development of second and third phases of the project. All the scheduled milestones under Ormat supply agreement were achieved and manufacturing work is progressing as planned. The first phase of operation is expected to commence towards the end of 2016 and remaining two phases of operation are scheduled to commence within 18 months thereafter. The project I just described as well as additional projects including the Menengai in Kenya, and Platanares in Honduras are under various stages of development and expected to add between 70 megawatts and 95 megawatts by the end of 2017. Besides the investment in new projects, we are continuing our exploration and business development activities to support future growth. If you could please turn to slide 20, you will see our CapEx requirement for the remainder of 2015. We plan to invest a total of approximately $9 million in capital expenditures on new projects under construction and enhancement. In addition, approximately $9 million are budgeted for exploration activities, development of new projects and maintenance capital for operating projects. In addition, $31 million will be required for debt repayment. Turning to slide 21 for an update on Product segment. Our backlog as of November 3 stands at approximately $282 million. Our backlog together with the new contracts that we expect to sign will support our financials in the next two, three years. Moving to slide 22 for a business update. The strategic plan that we laid out on our Analyst Day and in previous calls included several parts. In the near term, we had two main objectives, first, to focus our efforts on profitable growth by enhancing existing operations and second, to continue diversification of technology by deepening the geothermal penetration. As you can see in slide 22, we have dramatically reduced the operation cost per megawatt hour. The actions we have taken to improve efficiencies are reflected in the solid margin and in the adjusted EBITDA and we will continue to focus our efforts in profitable growth. The second objective includes diversification of technologies by marketing our binary technology to a wider range of resources as we did in Chile EPC contract as well as to further expand the high temperature markets by offering a wider range of optimal solution, including steam turbine. And as I mentioned in my opening remarks, we achieved a significant milestone by signing the strategic collaboration agreement with Toshiba. Moving to slide 23, this agreement was announced after the third quarter but has been in development for many months as we work together on different projects. This collaboration will leverage Toshiba's 49 years of expertise in flash systems and Ormat's many years of expertise in binary system to offer an efficient solution that combines the two technologies and meets technological needs of many geothermal projects around the world. By working together, we expect to approach and capture a larger portion of the geothermal market. To further our strategic long-term goals, Ormat continues to pro-actively seek M&A opportunities in our existing business lines and as well as in the solar power generation and energy storage businesses. Moving to slide 24 for regulatory update. Legislation that will benefit our industry is occurring at the global and regional level. In early October, California Governor Jerry Brown signed a new law which extended on its existing Renewable Portfolio Standard or RPS policy. The new law requires that utilities procure 50% of their electricity from renewables by 2030. Already, the state mandated that utilities procure 33% of their electricity from renewables by 2020. This law serves as a significant incentive for utilities in California to see long-term power purchase agreements with renewable energy providers. California joins Hawaii, which earlier this year increased its renewable requirement to reach 100% by 2045. As California and Hawaii see the economic and environmental benefits of these arrangement, we believe other states will follow boosting demand for clean and renewable energy. Turning to slide 25, we increase and narrow the range of our 2015 total revenue guidance and increase adjusted EBITDA guidance. We expect total revenue of between $570 million and $585 million for the composition to be more heavily weighted towards our Product segment. We anticipate stronger performance of our Product segment and expect revenue to be between $195 million and $205 million. For the Electricity segment, we expect revenues to be between $375 million and $380 million. The Electricity segment's revenue guidance assumes the continued impact of low oil and natural gas prices, which translates to approximately $28 million reduction in revenues compared to last year. We expect 2015 adjusted EBITDA guidance of $282 million to $292 million for the full year, which is also impacted by current oil and natural gas prices. We expect annual adjusted EBITDA attributable to minority interest to be approximately $13 million. In summary, I'm very pleased by our year-to-date progress and we believe we are well positioned to achieve our long-term goals. To-date, Ormat is a leader in the geothermal energy sector with a uniquely differentiated business model which creates a compelling competitive advantage. As we are looking forward, we expect Ormat to leverage its capabilities to exploit growth opportunities and become a leader in the broader renewable energy sector. And this concludes our remarks for today. Thank you for your continuing support. Operator, please. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator Instructions) Paul Coster, JPMorgan. -------------------------------------------------------------------------------- Paul Coster, JPMorgan - Analyst [2] -------------------------------------------------------------------------------- I have a couple of questions actually. The first one is regarding Toshiba partnership, can you talk to us little bit about the incentives and how much skin in the game you've got in that partnership? [I must say] skin in the game, I mean, have you allocated any capital or resources to partnership and in terms of incentives, penalties as well as rewards on successful go-to-market? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [3] -------------------------------------------------------------------------------- I will try to elaborate on the contract itself. Contract calls for a partnership which Toshiba and we are basically joining in go-to-market strategy and by doing so, we are -- the both companies, we are going to the whole market of geothermal regardless temperature of the resource, which means if Toshiba which are providing steam turbines with a higher temperatures, they had a project that calls for a bottoming unit, Ormat will be the preferred partner to provide this unit. On the other hand, on the project that we are approaching, which has a higher temperature and calls for a steam solution, then we will use Toshiba's solution as the steam turbine and then we will add our solution in the bottoming, which means that now we have a complete solution to the market to provide a better and efficient solution to the customers and obviously, a more profitable one for the long-term. -------------------------------------------------------------------------------- Paul Coster, JPMorgan - Analyst [4] -------------------------------------------------------------------------------- And how do you get compensated? What's the intensive here if you sell for instance Toshiba solutions? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [5] -------------------------------------------------------------------------------- The idea is not that we are becoming an agent of Toshiba because the fact that we're building a solution includes our hardware in that solution and their hardware solution is basically providing a much profitable solution. Don't forget also that Ormat is an EPC company providing an end-to-end solution to the customer and a part of the solution can easily be steam turbine. It was done before by Ormat using different providers and this time, the end solution is being tailored to be more efficient and not something that will be done on sporadic basis. -------------------------------------------------------------------------------- Paul Coster, JPMorgan - Analyst [6] -------------------------------------------------------------------------------- So another question I had is the backlog has come down several quarters in a row now from a very elevated level, but you talked of your pipeline and now you've got a new partner to go after new business. At what point do you think the backlog starts to rebuild? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [7] -------------------------------------------------------------------------------- We are working very diligently on a few large projects. As you know company, we are working on large projects and those are not coming in hand on 10 and 15 deals a year. We have large single projects that we're working on and it's a timing issue. At the end of today, I'm very optimistic with our Product segment future and another thing that you should keep in mind that we had [resigned] 1.5 years or 2 years ago a $256 million projects in Sarulla and two quarters ago, a $100 million project in Chile and several small projects here and there. The Company is working as we speak on additional projects by ourselves and with our partners and I'm very optimistic that the backlog will pick up again. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Dan Mannes, Avondale Partners. -------------------------------------------------------------------------------- Dan Mannes, Avondale Partners, LLC - Analyst [9] -------------------------------------------------------------------------------- So I guess the first thing I want to ask about is, given the current natural gas price environment, number one, are you considering at all any further hedging for next year or given the absolute low level of prices, you don't view significantly more risk as it relates to things getting worse? -------------------------------------------------------------------------------- Doron Blachar, Ormat Technologies, Inc. - CFO [10] -------------------------------------------------------------------------------- We are hedging usually our contracts at the beginning of the year with our budget and obviously, as we get closer to the end of the year to finalize our budget for next year and we'll have to see the pricing. The prices are extremely low and we'll have to take a decision if they can continue to go low or we want to hedge it and take out this risk. It's important, however, to remember that [once fear] for exposure to natural gas goes away beginning of January, [EPC] contract that we signed a few years ago, which was an extra contract, becomes a fixed price contract, so the impact of natural gas going forward is going to be reduced by one-third. And if you look at the longer term, we have Ormesa which is another one-third, contract ends at the end of 2017 and we are optimistic that we will be able to finalize the contract with an update that will fix the price going forward as well. -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [11] -------------------------------------------------------------------------------- Excuse me, I want to add one thing. And another thing that I think you should keep in mind is, we are to trying to beef up our Electricity segment faster than before. And as more and more megawatts which are in fixed prices coming up in line and the percentage-wise, the effect of the gas prices is going away regardless of what just Doron mentioned on [one-third beginning of next year] and another one-third next year. So we are working on it to minimize the risk that we have on the gas prices and as you probably know, the gas and oil prices are surprising us all, all over again. -------------------------------------------------------------------------------- Dan Mannes, Avondale Partners, LLC - Analyst [12] -------------------------------------------------------------------------------- Understood how that exposure reduces. I guess, the follow-up there as it relates to the Ormesa contract which you're in negotiations on, with pricing continuing to slip, are you getting any pushback as to the fixed price level for that contract? I think you started negotiating that contract many, many months ago. Is the reset firm or is that still under negotiation in terms of the pricing you ultimately get? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [13] -------------------------------------------------------------------------------- I can positively say that I'm very optimistic that it is set to a fixed price already and we are in the final stages of finalizing. -------------------------------------------------------------------------------- Dan Mannes, Avondale Partners, LLC - Analyst [14] -------------------------------------------------------------------------------- Understood. I guess the secondary question is given the current low price, does that have any impact on your development activities and the price of negotiating PPAs and the secondary part here is competing products again, solar and wind are also, we're seeing a much lower price from those products as well in the current environment. Is that impacting you on the development side? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [15] -------------------------------------------------------------------------------- Look, we should be naive to say that the solar prices are not having an impact on geothermal prices. But on the other, the new RPS is giving us some backwind and there are still utilities in the US that are looking for geothermal solutions in reasonable prices and as it stands today, we are negotiating more than several PPAs and I'm happy with their prices as they stand today. -------------------------------------------------------------------------------- Dan Mannes, Avondale Partners, LLC - Analyst [16] -------------------------------------------------------------------------------- Okay. If we can follow up on the development side, great progress on Campbell, it sounds like Olkaria 3 also you're executing very well on bringing these plans on time earlier than expected. I guess, the second part of that, there was Platanares and Menengai, we haven't really heard much about either of those two projects in a couple quarters. What's the current confidence level in those two projects or other unnamed projects in getting in by the end of 2017, just because we see very little capital spent on those and you haven't really given us much in terms of progress reports? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [17] -------------------------------------------------------------------------------- Okay, as you probably know, Dan, we usually report on projects which starts EPC but in this particular case as you're asking, on the Menengai project, we're already in the financing process, which is a very advanced process in the project, GDC already finalized their parts. And beyond that, we are beyond the development project, at the end of the development project on Platanares and beyond that we have the Tungsten project, which is also developing more than well. And so, we have three projects that they are almost at -- that we might come up with some announcements with them. Beyond that, don't forget that we are doing lots of efforts outside of the US such as Menengai and others and we developed a lot by building the infrastructure in some countries such as Indonesia, Kenya, Tanzania and Ethiopia. And we are doing, in my opinion, a huge progress there. So I'm very, very optimistic if I'm looking at our BD efforts. You're right on the CapEx investment this quarter, but again as I said at the beginning, it's a timing issue. So there are no setbacks or no more at least in none of those projects that I've just mentioned, and they are actually progressing more than well. -------------------------------------------------------------------------------- Dan Mannes, Avondale Partners, LLC - Analyst [18] -------------------------------------------------------------------------------- That's great color. The last question I'll ask you is as it relates to solar and to a lesser extent batteries, you talked a lot about that during your strategic plan or your annual meeting with shareholders or with investors. Can you maybe give us an update on what your development plans are in the solar industry? Is this primarily direct development, is this -- have you more often are looking more at M&A? Just talk to us about what you're doing these days. -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [19] -------------------------------------------------------------------------------- One thing I could tell you, Dan, and I also mentioned in your conference, we're not going to be a solar developer tomorrow. That's not the intention, it was never the intention. And the intention is that we will be basically going into projects which they have also solar solutions in the enterprises, which is as you just said more M&As and the project specifics that are looking on blended solution, which also had a solar solution in it. And it was never the intention that suddenly we are going to become a solar development company. Beyond that, on the storage solutions, we are looking for M&A and we are progressing well, but you realize that this management is in power exactly 1.5 years and in this 1.5 years, we did lots of restructuring and our first priority was to concentrate on our existing assets and enhance them which we are doing and it is basically on our gross margin and EBITDA and this program will -- it's a long process and it will take at least another year to come up with more and more enhanced power plants. And I'm very optimistic that we will be able to add lots of megawatts to our existing power plants, specifically lots of profitability to our existing power plants and it is a big shift, it takes time to turn the ship and more certainly on new initiatives, which requires a changeover DNA in recruiting new people, which we are doing but specifically on the storage side, I'm very optimistic that we will come up with an initial deal that will initiate this path and we are almost there. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Mark Barnett, Morningstar. -------------------------------------------------------------------------------- Mark Barnett, Morningstar, Inc. - Analyst [21] -------------------------------------------------------------------------------- First question, and you had spoken to it a little bit, but I'm just curious as to what in particular drove the impressive speed with the completion of the Campbell plant, six months is obviously a pretty significant I guess acceleration. So maybe if you could talk about that a little bit and then flipside, you had mentioned, I lost the call for a minute, the delay in drilling, I believe at the Sarulla project. If you could maybe address maybe the technical issue that's holding that project up at the moment? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [22] -------------------------------------------------------------------------------- Okay, first, I'll relate to your first question. As we started to restructure, our focus was and still is to look into profitability and in order to do that, we had to work on cost issues, restructuring of our EPC department and working diligently in a bit different manner, hard to expedite each and every process that we're doing, which we successful did and as you just mentioned, Don Campbell come online six months earlier. Our Olkaria plant will be coming online again almost six months earlier than planned, which we all realize that every day that this thing starts to operate, it's a lot of profitability for the Company. And this we already achieved but again, it's a work-in-process, those processes are changing with time and we are becoming more and more efficient every day that passes and I'm very proud of our EPC department that really succeeded to work miracles in both projects and we are expecting to do the same also in the upcoming projects. On the Sarulla project, we have to divide it in two parts. In one part, we are a product supplier and we have a contract to supply Hyundai, which is the EPC provider of Sarulla project, the [hardware] and on this part, we are on progress, we are on time, we are delivering and we are getting paid and everything is okay. On the other side, if you look at the project itself, which we have -- we are an equity partner, small partner of 12.75%, we are not running the show. The show is run by larger equity partners and at any other geothermal project, which we all know and the market recognizes, there are issues of drilling, there are issues in civil work and there are issues in what we reported was or is that there are some issues which are delaying the progress of the project and they are being delayed for a few months. It doesn't have any effect as of now to our supply agreement and we expect that the partners with the help of us and others will overcome these hurdles and at the end of the day, the project will be running. The first phase, I am expecting that the first phase will be pretty much on time and the second and third phases will be a bit delayed, but we should all remember that it's the biggest geothermal project in the world of 300 megawatt and those delays and issues were expected on day one but, as we want to be as transparent as we can, we just simply reports [on that]. -------------------------------------------------------------------------------- Mark Barnett, Morningstar, Inc. - Analyst [23] -------------------------------------------------------------------------------- Okay, I appreciate that. I know it's obviously a very complex process. Just the last question and maybe tough to answer at this point, but with the new RPS signing in California, obviously, you talked a little bit about economics of competing technology a little bit earlier. When do you think at this point we will see the utility RFPs go out for kind of looking for evidence of your competitiveness in the next round of PPA signed? -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [24] -------------------------------------------------------------------------------- Mark, it's a very good question, but we are asking the same question actually here but to be serious, we don't expect in Nevada to new RFPs coming, for example, for the next two or three years. On the other hand, there are certain RFPs running in California and we are in PPA negotiations with some utilities based on the new RFPs already not necessarily through an RFP process. And don't forget there are other states in the US that are also looking into geothermal and we are expanding our reach beyond California, Nevada and Hawaii but most importantly, as we announced about a year ago, we increased our reach elsewhere, which is outside of the US which is as we have announced in Chile, in the fast expansion in Kenya, we are approaching Indonesia very heavily and we are going into Ethiopia very heavily. So, at this time, basically, with the announcement in California, it is getting [glossier] but you look six months ago, it was a bit darker than today. So the fact that we are trying to diversify our markets and reach and not go heavily only in the US but also elsewhere is basically opening us lots of opportunities and we expect to increase the growth rate on BD within the upcoming years. -------------------------------------------------------------------------------- Mark Barnett, Morningstar, Inc. - Analyst [25] -------------------------------------------------------------------------------- Okay, thanks very much for those comment and (inaudible) congratulations to Dita as well, a very long and impressive career. Thanks, guys. -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [26] -------------------------------------------------------------------------------- We certainly join you on the congratulations. Thank you very much, Mark. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Isaac Angel for his closing remarks. -------------------------------------------------------------------------------- Isaac Angel, Ormat Technologies, Inc. - CEO [28] -------------------------------------------------------------------------------- Thank you very much for your ongoing support and actually I have two things to share with you. The first is that we are very optimistic. And we are very pleased with our results and I think that the change is taking place and we can see the light at the end of the tunnel and (inaudible) coming to us. That's the first thing. The second thing is more personal and I want to [relate] Dita which is one of the captains of this industry, has been with the industry and the Company for last 50 years, no doubt that the geothermal in the world and Ormat would have never been the same without Dita and Lucian. And we would like to wish them a very bright retirement and thank you very much for what you did for the industry and for the Company. And with that, thank you very much. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.
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