Q2 2020 Ormat Technologies Inc Earnings Call
Good day and welcome to the Ormat technologies incorporated second quarter 2020, <unk> earnings Conference call. All participants will be in listen only mode. So do you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. Please note that this event is being recorded.
Now I'd like to turn the conference over to Rob Fink NK Investor Relations. Please go ahead Sir.
[music].
Thank you operator.
Hosting the call today are blocked <unk>, Chief Executive Officer, Aussie Ginsburg, Chief Financial Officer.
<unk>, Vice President corporate finance and Investor Relations.
Before beginning we'd like to remind you that the information provided during this call may contain forward looking statements.
The current expectation, that's that's forecasts or projections about future events that are forward looking [laughter] private securities litigation.
Oh I thought.
These forward looking statements generally relate plans objectives expectations for future operations I'm, a big some at its current estimates and projections future results are correct.
Actual results may differ materially from those projected as a result, certain risk by risk and uncertainties.
For a discussion of risks and uncertainties. Please see the was factors such as described in technology <unk> Annual report on form 10-K quarterly report on form 10-Q that are filed yesterday.
In addition protocol the copper that non-GAAP financial measures such as adjusted EBITDA.
Lesions are the most directly comparable GAAP measures the management's reasons for presenting such information.
Worth in the press release that was issued last night as well as in the slides posted on the company's website.
Oh, that's there's a lot calculated in accordance with that they should not be considered an isolated show.
The financials.
Prepared in accordance with gap.
Before I turn the call over the management I'd like to remind everyone that a slide presentation accompanying this call they'd be accessed a company's website at <unk> dot com.
Presentation link that's down on the Investor Relations.
With all that said I'd now like to turn the call over the girls sharp Jerome but call is yours.
Thank you all good morning, everyone. Thank you for joining us today.
I'm excited to speak with you today is the C O <unk> position last field on July 1st.
Starting with slide five I.
Our second quarter was another solid quarter full month with when $23 million net income higher gross margins and 97.9 million though.
Second quarter adjusted EBIDA led by improved profitability will follow electricity segment.
I'm extremely proud the Pablo team is oak waiting so the challenging govies nice you need to buy it.
Why do we continue with our efforts to minimize the Cobiz 19 implications on old business, Oh, Firstly, all with the from the beginning of disciplined and equals to make sure that olefin, ultimately, though safe and they're able to navigate this crisis unharmed.
Well the electricity segment.
Able to successfully completed and hence mental stumble two interesting all portfolio by 19 megawatts to 933 megawatts and also made significant progress to bring pull back where like.
Our ability to complete the progress we developed the floated the rise from always unique capabilities as a vertically integrated company.
The pandemic has delayed the awarding of called <unk> contracts for those projects you know product.
However, our product segment is currently on track to make its revenue focus for the full year when easily.
We're continuing our efforts to draw with Whiskey segment.
Yes, they will elaborate later on the core.
And not only will track to meet our 2022 megawatts go schools well also laying the foundation to enable us to continue our girls pass in 2023 and beyond.
No I will turn to called <unk>, <unk>, who joined Golden Monkey in early May is I wouldn't you have chief financial Officer for review the financial results before I provide an update on alterations.
Let's see welcome.
Thank you to Rob.
I'm excited to general not.
Let me start to review the results on slide seven.
Total revenues for the second quarter of 2021 $75 million down 5%.
Our cost of revenue decreased 8% to $110 billion into second quarter most likely.
The net result was slightly increasing gross profit <unk> point $2 billion.
Moving to slide eight for more details electricity sick.
Revenue in out of curiosity segment $129 billion sort of second quarter was 22.
And the represented 74% October.
This was slightly down the was $29.1 billion or 70% of total revenue in the same for your last year.
This quarter, we're calling as cold fixed revenues were impacted by curtailments camp, you'll see our customer.
Maybe due to cope with 19 reduction demand.
This reduction was offset by improved generation.
Okay.
It's worth upgraded.
Gross revenue this quarter, you used mainly by $1.3 billion decreasing lease expenses, you determination to fully leased production and lower organic census.
Okay.
The cost of revenue. This quarter include business interruption insurance income of $2.7 million, what it's doing up compared to $6.9 billion, including the same period last year.
Turning to slide nine.
During the second quarter of 2020 products segment revenue decreased 16% to $43.7 billion.
For 25% of sorts of resin.
On slide 10, the energy storage and management services segment contributed to an has begun does revenue for the second quarter was 22.
Compared to $3 million gotcha.
This decrease was mainly driven by the impact of corporate 19, well the frequency origination marketplace.
Moving to slide 11 for discussion of our total gross profit margin.
Second quarter 2020, consolidated gross margin was 37.4% could start to gross margin was 34 point, 35.4% for the second quarter was one anything.
The increase in gross margin improvement was driven by improved margin of the presidency.
On slide 20, the gross margin for electricity segment extended year over year to 44.1% compared to 42 point interested what second quarter last year.
Degrees is mainly due to improved performance of the operating margin.
What segment gross margin was 20.6% in the second quarter 2020.
Similar to last year.
We expect to wait to winning and your margin in this segment to be in line with this quarter.
Stuart segment's margin improved but steel was reported a negative gross margin as we anticipated.
A recent announcement of closing the from one of those action database, our commitment to will improve the profitability of missing.
Turning to slide 13.
And you can expenses for the second quarter of 20 to where they were $16.2 billion compared to seven in the has been a dog for the second quarter opportunity.
The decrease was mostly due to $1.3 million from sales competition.
Business interruption recovery $46 million relating to the put up all the plan and decreasing professional fees shot of course, partially offset by higher sales Commission.
Turning to slide 14.
Operating income for the second quarter of 2020 was $48.1 billion.
Compared to $46.9 million for the second quarter of connecting.
An increase of 25%.
Well. Thanks, Christine you can see the breakdown of the operating income by segments.
As we continued to grow a stable its boosted the segment, we expect it to take it allows a portion of our operating income.
Turning to slide 16.
Net interest expense for the second quarter was 22 any was 19.8.
The decrease of $1.7 billion.
Higher capitalized interest in addition to lower tax equity related interest expense was partially offset by interest related to the fact that weve choose you took over 19, two acres long term debt level and maintain higher kitchen.
Now turning to slide 17.
Income tax position.
<unk> for the second quarter of 22 rating was $11.8 billion or an effective tax rate 33.3 person.
Compared to income tax benefit the three and a half billion dollars per second reflecting.
Income tax benefit for the second quarter of 22 included onetime tax benefit of $13.3 million, which was excluded from our adjusted <unk>.
Turning to slide 18.
Net income attributable to the company's shareholders was $23 million or 45 cents per diluted share count.
Compared to $33.9 million or 66 cents per diluted share for the second quarter elsewhere makes it.
Adjusted net income to the company's shareholders in the second quarter was last year netting of the onetime tax benefit I mentioned earlier was $20.6 million or 40 cents per diluted share.
Reconciliation of adjusted net income and it just depends I provided to you or things like.
Turning to slide 19.
Adjusted EBITDA was $97.9 million for the second quarter of 2020.
So $94.9 million in the second quarter last year.
The conciliation of EBITDA and adjusted EBIDA I provided in the appendix.
Turning now to slide swing.
Yes, and the speakers Kish it'll June Thirtyth was $250 million.
For two once $63 million is on December 31st 20 electing.
The strong cash flow generation, just like demonstrate our enhanced ability to reinvest in the region to support edible.
I loved damaged shorten debt as of June 30 was $1.35 billion net of deferred financing costs.
It's payment schedule is presented on the next slide.
The average interest rate on this day was 5.3% by 5.03%.
In order to support Mclaughlin since March 31st one is when we have raised over $400 of long term debt.
Including the recent bond offering of $290 million closings you like to win.
Expected to reduce overall interest.
Our net debt as of June Thirtyth, when it really was $1.1 billion.
No its first when it when the company board of directors declare approved an authorized.
Let me tell the quarterly dividend or 11 cents per share pursuant to the company's dividend for.
Did you get anywhere they pay on September 1st what do you win.
Shareholders of record is of course beautiful day, although they did 20 twond.
That concludes my over.
No I will turn the call back to do on 40 operational business update and closing remark the one.
Thank you assay.
Turning to slide 23, four Luca generation.
Power generation, you know partner decline before what's interesting the 1.44 million megawatt hours in the second we'll do a plenty going.
This decline is attributable several cycles, including 10 minute AFFO generation, you know Collier all plant in Kenya and loads in the duration you know old facility due to low demand in the natural gas pipeline, both mainly due to Colby Nike.
Basically they miss in Kenya in limited, though killer T. A secure the vast majority of offshore revenue with fixed capacity payments unrelated to the electricity actually conceal.
The fourth Mazzolla until we receive from Cape you've seen it too and then had to be material impact on our revenue as agreed by capability.
On another topic in Kenya, and whose boarded before we'll see from the local Kenya revenue authorities. The category three assessments related to tax audit for the you when you sit the in 2017.
In discussions with the carry on each of these assessments.
Happy to update the the carrier agreed to with used to so that's it.
From $17 million less than $3 million, including finds it been.
With respect to the other school system in the Cobiz 19, slow, though it'd be the discussions. However, we are continuing and open dialogue with the territory and we together with our devices is believed that though tax position for the issues raised on the visa fit or.
I will more likely than not sustainable based on technical merits other Kenyan textbook.
In other encoding uptick we have decided you don't do us well, we have an overview in voice of $20 million for that period between September 2018 in April 2019.
Over the last several weeks, our custom and they.
At some discussions with several activities, including us with regard to being the $20 million over a few are still.
Having said that willing uniques coffee 19 environment with me, but this process.
Let me now turn to slide 24.
As of today decommissioning efforts at wonderful opinion.
Completed the construction of the assumption substation and awaiting helicopter completed scope of work into stuff.
Hezbollah received the necessary permits from Hawaii, you seem to be the transmission line and stuff is constructing delight.
We expect this work will be completed by the end of the so called.
On the fees side, we connected the production with the department and continued drilling new wells.
50, Nishan power generation in the fourth quarter with gradually Entwistle generation 29 megawatts by the end of this year.
Turning to slide 25.
We continue with our work to bring online you project. This quarter, we completed all work at steamboat. He is increasing the called the capacity by 19 megawatt baby Formula.
We continue our work in Hubert to improve the capacity of the comps by 11 megawatts manufacturing construction of the Newton with the new equipment the lawn boy.
As you can see into lease successful exploration work enabled us to advances dumped into brought it just will add 11 megawatts doing 2022.
As I mentioned in my opening remarks, we'll continue our efforts to draw more profitable electric electricity segment and we're on track with our development at 160 to 180 megawatts by the end 2022.
Well I located manufacturing exploration and capital resources to continue our girls named 2023 and deal.
By enhancing existing operating assets and developing new into other project in the U.S. and globally.
That will increase our profitability.
As I see mentioned he was involved we raised over $400 million in long term debt to support these efforts.
Turning to slide 26 for an update on all backlog.
As of August 2020, I'll try to take them death local $66 million.
Believes that the decline in the best look resulted in part from the impact of Cobiz 19.
And the concept of potential customer to enter into love commitments at this stuff.
We anticipate continued weakness you know probably the best known as the result.
At this stage with significant total revenues from the product segment the 2021.
The vertical integration of structural fault business model enables us to shift so manufacturing capacity for focus on internal initiative to support of electricity segment girls.
We started to see this youve already in the second quarter generating approximately $50 million of internal revenue.
Eliminates it into consolidation the highest level of quarterly into segments revenue the last five years.
Turning to slide 27 for an update on our energy stores in management. So.
In April this year, we are now that our 10 megawatts Rabbit Hill storage facility indicates that commenced operation, providing ancillary service energy optimization to the wholesale market manageable.
We continue our efforts to expand those thoughts before.
In July we completed our acquisition of the Pomona 20 megawatts battery storage facility for a total net purchase price of $43.9 billion.
The Pomona facility has been in commercial operations since the end of 2016.
The 10 year energy storage resource adequacy agreement with Southern California Edison Cup.
This for the facility is our first battery storage assets, you don't fruition in California.
Interesting our existing operating portfolio, the 73 megawatts, how to 136 megawatt hour and added 12 battery storage assets can you just see new England than that.
It was a seasonal product in California, we are progressing well the small do they do anything interconnection I need to see were due to the Colby Nike though.
We continue to participate in new office piece to further develop ballpark that project and aiming at target for hundreds of 150 megawatts to be commission by the end of 22.
Turning to slide 28.
Oh, it's 50 capital spend for the rest of the year include approximately $120 million for capital expenditure for construction, new project and enhancement to our existing partner.
Management released for construction.
In addition, we estimate the additional $87 million for exploration and development. That's Philadelphia for these four full construction maintenance of capital expenditure.
Including Oh, what the pull apart.
Construction and development of storage project and enhanced menthol production facility is detailed on slide.
In the aggregate, we estimate total expenditure for the remainder of 2020 to be up approximately $207 billion.
Please turn to slide 20.
For a discussion fall 2020 God.
We are narrowing the upper end of the guidance for the full year 2020.
We expect total revenue of between seven other than that and $725 billion.
It was it the segment's revenue between $550 million and $560 million.
We continue to expect product segments revenue between $140 million another $50 million.
Revenues for energy storage and demand sponsor activity is expected to be between $15 million than $17 million.
Adjusted to be though is not expected to be between $400 million and 410 billion thought.
We expect annual adjusted EBITDA attributable to minority interest will be approximately 27 years, though.
As a salary the step we took together we didn't hurt stable long term contracted portfolio for electricity segment have enabled us to view the impact of the Cobiz, 19th and then decide and we are on track with health plans to expand or more profitable in the city segment, which is taking an interest.
Sure well revenue and EBITDA.
This concludes our prepared remarks, now I would like to open the call for questions.
Operator, chief.
Thank you well now begin the question and answer attached to ask a question you May Press Star then one on your Touchtone phone if you're using speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
And our first question will come from Noah Kaye with Oppenheimer. Please go ahead.
Hi, Thanks, very much a good morning, good afternoon, thanks for taking the questions.
You know everything just start with the project.
Matt.
It looks like as we sort of adjust for steamboat Hills, which has come online.
In the expansion plan Retrain 22 art are largely unchanged I'm. Just wondering you know in this environment and certainly with the PTC benefit where do you see opportunities to accelerate the pace of development.
You know more domestic no U.S. focus for international just give us some more color on on you know how you see the pace itself.
I know and let's first.
Well, we've added tungsten tool to the to the lift.
That's helpful one of our existing projects.
We are a working today and advancing a through efficient well worth into the on the several greenfield in the U.S.. We also have some additional enhanced Smith to all pop 12 power plants that we have to the in the U.S.
So the current 2021 and 2022.
Gross default is focused on the U.S.
Mainly in as you said on the PTC and eligibility. So we do expect the next.
Projects in the U.S.
To be eligible for PTC when they come online in the next two to two for you.
Oh, Yeah globally, we're also aiming to interested in Indonesia, I know Aegion project.
We have invested last year and he's doing a situation today the duration is either moving quite well, let's say you're drilling one well over the with willing to second with the.
And with the death.
For the tuition finishes the will to be part of the growth beyond 2022.
Okay. So you know quite a number of activities going on there.
Just.
Not sure quite fully caught it but that.
Ken yet acts resolution. So this was on the third latter preliminary findings at a reduced it from 17 million down to 3 million back right.
Yes.
<unk> can you give us an update on the the other two letters.
The other two letter you know like a knowing every a IRS all carry all did you know the ongoing discussions you know, we as well as our legal and Oh and in order to fill that out position is a exactly it technically correct. According to the Kinyon tax law.
Yeah. So the ongoing discussion of the discussions on a bit slower because of Clovis.
I think and now in August it generates opening its borders and the.
Maybe we'll be able to expedite the discussion.
Okay Perfect and then you know last one from me you know we had seen that yeah. Some of the thermal power producers in Kenya, you know I had.
Yeah, obviously, they've decided to force majeure, there's some discussions.
And what can you power in light about.
I was contracts I guess it would be helpful for us.
And for investors meats, and give an update on you know any discussions youre having wet.
New utility.
About the contracts. It seems like you know, there's an immaterial impact in the short term found these curtailments I'm just wondering if there's anything you can share with us yeah around the long term.
Hi contracts themselves.
Sure so.
As you said, we'll have a long term phone truck with K P. S C.
A lot and this last quarter, we see of the fourth much older to and we analyze it does the EMA kill you know this quarter.
We have a discussed with K P. S C and they actually agree to our position that it's totally immaterial.
And it's already into the numbers, we don't have any discussions with the Cape you'll see on our P.P.A. on the pricing.
And some other p. isn't so much higher than ours and.
The only discussion we had what's on the force majeure all this will fulfill hemophilia.
That's extremely helpful. Thanks, so much.
Thank you though.
Our next question will come from Mark Strouse, well with JP Morgan. Please go ahead.
Yeah. Thank you very much for for taking my questions are just a kind of a follow up on Noah's question just to be clear. So are you still receiving payments from a your counterparties in Kenya in Honduras and kind of a related question is just looking at the <unk>. The accounts receivable was.
Kind of flattish quarter over quarter, but a the dsos keep going up.
Just any color on that trend and what are your expectations going forward.
We are getting paid in Kenya Realising Honduras.
We have ongoing payments in both countries.
Keep you see has been slow <unk> statements will the losses in two years, but the coupon pain.
And in the quarter as well in July we do continue to pay in July Yeah, Bill do you payments.
In Honduras, and all paying and regularly.
And then as I mentioned you know we have you know do also $20 million did from at the end of <unk> 18, beginning of 19.
We're in discussions with and then actually amazing discussion with us as well as other IP peas, and they are on the run the electricity company.
In order to pay these amounts see becoming.
We've seen a few installments.
So we.
And do some ought to be paid all the time.
Okay, and then again I apologize if I Miss this but just the slightly reduced outlook for the electricity segment revenues.
Is that driven primarily by all carrier or <unk> or anything else to call out.
[noise], it's mainly due to the coffee the and 19 uncertainty and the filter element that we had in the in Kenya and the low weight.
Given the into pipeline into or.
Got it okay. Thank you very much.
Well.
Again, if you have a question. Please press Star then one our next question will come from Jeff Osborne with Cowen and company. Please go ahead.
Hey, good afternoon, guys just a couple of questions on my end.
Could you touch on the the product orders you referenced Cove, it which is understandable for delays I'm just trying to get a sense of the particular projects that you were bidding that are delayed it is their financing delays regulatory delays.
We're just not seen that type of acuteness. Yeah. For example in the wind industry. We're turbine makers are still signing contracts I'm, just curious why geothermal seems to be.
A bit more acutely.
So what we a.
And just what we actually see all delays in the decision making process not in the and regulatory environment at least a new Zealand's where we operate in the in the Philippines, a in Mexico with project.
One come through this has regulatory delays in Turkey.
Turkey has the feed into always the and ill go over over this year.
Yeah, and they were supposed to issue some new regulations in the beginning will do you, which are well to understand due to covina will delayed.
And they have a few projects are basically you're ready to be it released if.
It was going to be some regulations and we hope to the regulations in Turkey, we come up and then there would be some old projects in Turkey.
In other places, it's mainly the customer decision to wait to see how would probably 90 and these are settling.
Got it that's very helpful. Thank you two other quick ones here on the on the storage side, where you're talking about adding 100 250 can you just give us a sense of what the pipeline as there are certainly companies like flu Ensign nextera and today.
I have quite a bit of activity going on as well. So I am just trying to get a sense of your pipeline and then b.
Why why you folks would win versus others.
You can the into storage fault and we're active in a few of the markets you know PGM and takes us a California.
And and as you said, it's quite a lot of activity quite a lot of ours. He is going go.
And the need for energy storage and she's a very and be in California.
And we have few and locations that were working on the interconnections and once we get into condition connections. We can it be didn't mean to the other fees and one of them and so building them in operating in the market.
With that so the Sotheby's in Hawaii that had been short listed on some.
So there is quite a lot of activity going on does obviously quite a lot of players, but the amount of always be is a need for energy storage is the is very b.
Got it and then the last one can you just remind us.
How we should think about.
With the 29 megawatts for 2021, so I'm, obviously very little revenue this year, but can you just remind us when it was operational what the the revenue and EBITDA profile wise and then given the reconstruction.
And then you cost points I wasn't sure you know what happened in the past is comparable to what we should anticipate for 2021 and beyond.
And in the past we had the 38 megawatts revenue was around the $38 million to $40 million that you'd be doubled about $20 million.
Yeah. So obviously, if we go to 29 to go a little below the 38.
We'll be a bit lower.
And the pricing in a pool or the full 25 megawatts avoided cost so the diesel.
Late to the issue of what it cost it helpful, mainly oil and visa pricing. So this is due to changes over time.
And looking for more details about I think two days the avoided cost all quite similar to the beginning of 2018.
Got it.
Thank you that's all that.
Thank you.
[noise] again, if you have a question. Please press Star then one.
And our next question will come from Jerry Sweeney with Roth Capital. Please go ahead.
Hey, good after down other on thanks for taking my call a couple of quick.
Follow up questions.
Just on the electricity in terms or take or pay I know, the U.S. take or pay especially <unk>.
You talked about will carry out to Kenya, and 90% of I guess lever to capacity, 10% production what about other facilities.
On a global basis, they take or pay as <unk> are there any others that have some variability and therapy.
All they all the other things will do well look to mother and go to look one of them will take or pay.
Okay.
And then just be God doors, I know in the last call I'm not sure if I missed it anywhere, but they did said Unfortunately short letter.
Very little details on.
Linkage to anything or or revenue.
Specific revenue numbers.
Anything come about from that platter.
Moved to the background.
No we didn't have any they didn't have any follow up the discussions without all anything big keep on taking the electricity and thing to do so.
Yes, no pull off.
Yeah, that's right and then just.
One more on a cash tax issue I know a I guess the three satellites, one assessment 17 million to <unk>.
Threemillion.
Reading the Q I think.
There was a couple of different numbers over time, but what is the outstanding principal and penalties on the other two itself.
The leap all three were 219 million.
Q.
I didn't see the queue up.
[noise] the yeah.
The outstanding.
[noise] was 57.
The the is the.
The bulk water [noise].
[noise] then there's also penalties and interest, but that's obviously subject to a window full discussion.
Yeah.
Yes.
Got it got up to one [laughter] the first to about 57 and he says.
The penalties and interest of about 40 something million dollars.
And the third one as we said was 17, Wendell two or $3 million.
Got it perfect I appreciate it thanks for taking my question.
Thank you.
Again, if you have a question. Please press Star then one.
[noise] [noise] 50 includes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.
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