Q3 2020 Ormat Technologies Inc Earnings Call
Good morning, and welcome to the Ormat Technologies incorporated Q3, 2020, <unk> earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing star followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Rob Fink of NK IR. Please go ahead.
Thank you operator.
It was all today are drawn sharp Chief Executive Officer, Aussie Ginsburg, Chief Financial Officer.
<unk>, Vice President corporate finance and Investor Relations.
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 managements 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 management's reasons for presenting such information is set forth in the press release that was issued last night as well as on the slides that are posted on the company's website.
Because these measures are not calculated in accordance with GAAP. They should not be considered in isolation from 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 <unk> Dot com under the presentation like that's found on the Investor Relations, though.
With all that said I would now like to turn the call over to Doran sharp to roam the call is yours.
Thank you Rob and good morning, everyone. Thank you for joining us today.
Starting with slide five and six.
This was another good quarter for Mark we continue to navigate successfully the challenge with some of the cobi condemning delivering year over year improvements in our profitability and making significant progress in executing our long term plan to increase I would you tell me the <unk> geothermal starwood and hybrid sold your telecom.
Okay.
Our third quarter results reflect the strength of <unk> business model and operating execution.
We generated double digit increases in yield really operating income and adjusted EBITDA up and made progress with our efforts to grow our liquidity and storage segment.
We delivered strong Tesco Corporation this quarter, driven by 20.1 million dollar payments received for Monday, our customary non dual <unk> outstanding invoices and improved collection.
Plc, our customer in Kenya.
<unk> tape in the sea has made those scheduled payments for the third quarter and the stuff that would you think about your mouth October.
Well, it's in Kenya, we favorably resolved a $190 million that's there.
The most significant the fifth medical detect the settlements issued by the category.
We said that this assessment was unexpected limited impact on the fourth quarter period.
Additionally, the full commercial the Globalscape has seen Kenya was removed in early September.
Well continue no efforts to grow our electricity segment is I will elaborate later on the call.
Well also in college by almost always say going through those this quarter.
The three Ensco DS two segments in helping us to offset the Kid and decline in the product segment result, which is being impacted by the reduced backlog lower revenue lower profitability.
The mainly due to COVID-19 effect.
I will turn the call over to Alexey deals go for a review of the financial results before I provide further update on our operations.
Okay.
Thank you the wrong.
Let me start my review of our financial performance on slide eight.
Total revenues for the quarter were $159 million down 7%.
Cost of revenue decreased 9% to $105 million.
The net result was a decrease in gross profit of 3%. However, gross margin increased from 32.5% last year to 34% this quarter.
Moving to slide nine for more details in order to set these segments.
Revenues for the quarter, you know what it used to be segment were $124 million inline with the same period last year.
This quarter, we benefited from increased revenue in steamboat Hills, Ole Miss and Bradley Olsen.
Oh said by lower revenues in North Korea, as a result of the curtailment during this period.
Cost of revenue this quarter included a business interruption insurance income related to put all of $2.6 million.
Out of a total of $20.4 million be our insurance income received this quarter.
This compared to $1.2 million into it did last year in gross margin.
As a reminder, on again, we look at the prospect for the business interruption insurance first of course of revenue lift every city segment in.
And when that is exhausted the bounces allocate to insurance income onto the operating expenses.
On a separate line item in the period.
Turning to slide 10.
As expected.
<unk> segment revenue was lower in the quarter by $13.4 million compared to last year due to the continued impact COVID-19 on these segments.
On slide 11, the energy storage and management services segment generated $5.7 million of revenues.
An increase of 62.5% over last year.
This segment enjoyed somebody Pomona addition, following its acquisition in July.
Which contributed $2.4 million talk what they'll do you have any.
Moving to slide 12, and 13 for discussion of our gross profit and margin.
The third quarter consolidated gross margin improved by better performance of both the electricity and storage segment.
Gross margin for the electricity segment, demonstrating our efforts to improve efficiency for operating assets.
In the product segment, we see declining gross margin, mainly due to higher cost of revenue related to the enough apologize. It's we're building currently in New Zealand.
This project was impacted and one office that restriction and limitation in the country associated with Kobe 19.
The higher cost enough a project this quarter also impacted the full year 2020 gross margin that is expected to be in line with this quarter margin.
Energy storage and management services segment reported a gross margin of 25.6% and much improved results compared to a negative gross margin in prior quarters.
The improvement was driven by additional for mono the total carrying $1 million depreciation this quarter delivering strong profits.
We expect the mono annual run rate of depreciation and amortization to be $4.8 million.
Yeah.
This was the second consecutive quarter, well energy storage business contribute positive EBITDA to.
Well consider it as a result.
Turning to slide 14.
Hey, it's gene expenses for the third quarter was $18.6 million compared to $15.7 million last year.
The increase is mainly driven by increased sales commission insurance expense and other professional services.
Turning to slide 15.
Operating income for the third quarter increased by 33.5%.
In the slide you can see the breakdown of the operating income by segment.
Turning to slide 16.
Net interest expense for the third quarter of 2020 was $21.8 billion.
Up to $20.1 million in the prior period.
Interest expense this quarter was negatively impacted by the English because of the $290 million bond, which we board Italy in Q3.
Proceeds were used to be outstanding debt towards the last part of the quarter income.
Including all revolving credit facilities.
The issuance of the two multi million dollar bonds and things done all available lines of credit to enable us to be with regard to the expected increase in 2021 capex to support the U.S. and Indonesia investments.
Turning to slide 17.
Provision for income taxes for the third quarter was $15.4 million for an effective tax rate of 39%.
Compared to income tax expense of $10 million for the third quarter of 2019.
This quarter, we had a $3.7 million noncash items tax charge related to a recent change in the U.S. laws.
Turning to slide 18.
Net income attributable to the company's stockholders was $15.7 million or 31 cents per diluted shares compared to $15.6 million or 30 cents per diluted shares for the third quarter last year.
Net income attributable to the company stockholders benefit from $8.1 million related to Oman aftertax portion.
Insurance income.
Partially offset by non cash charge of $1.4 million related to solar.
In addition, any.
Isn't changing that actually do is resulted in a $3.7 million the income tax charge.
You're not going to get these factors positively impact our diluted dps by 5.9 cents per share.
Turning to slide 19, adjusted EBITDA this quarter was $107.1 million up from $85.5 million last year.
In slide 20, you can see the electricity contribution to our total EBITDA increased to 92.5%.
Please note that adjusted EBITDA included the full impact of the beat our insurance received this quarter well do you personally be yes reduce by associated tax and by a portion would add to all partners.
[laughter] reconciliation of EBITDA and adjusted EBITDA provided in the appendix slides.
Turning now to slide 21.
Question is treated cash as of September 30, 2020 was approximately $290 million.
Compare to $153 million as of December 31st 2019.
Slide breaks down the use of cash for the first nine months and demonstrate our enhanced ability to reinvest in the business to support our growth plans.
Our long term and short term debt as of September 30, 20, Twentyk was $1.5 billion net of deferred financing costs.
And its payment schedule is presented on page 22.
Well the interest rate on our debt is currently 4.9%.
Our net debt as of September 30, 2020 was $1.2 billion.
Turning to slide 23 provides an overview of our recent financing activity.
These activities in line with our plans to continue to increase our efforts on exploring and developing new internal project, we decided to English electricity in the storage segment in the U.S. and globally in 2023 and beyond.
On November 3rd 2020, the company's board of directors declared a dividend of 11 cents per share pursuant to the company's dividend policy.
The dividend will be paid on December 2nd 2028 to stockholders of record as of the close of business day on November 18 2020.
Before I close the call did the wrong I want to elaborate on some of the favorable development, we had in the international front.
In September we received $20 million from our customer I know you don't do a supply units outstanding English as you.
In addition, we have proof collection from came plc all customer in Kenya.
Keeping the sea has made all scheduled payments for the third quarter, and then started reducing overdue amount starting in October.
Finally, subsequent to the end of the third quarter. We concluded that noted by D., Kenya, Texas <unk> also known as the cure rate related to a $190 million tax assessment issue bite them in December 2018.
And we reached a very favorable settlement.
The total net to estimate that the impact on the lots of results, which all of which will be recorded in Q4 2020 is approximately $6 million only 12 cents per diluted share.
Including all the associated interest and penalties.
The settlement covered the years 2013 through 2019.
And included the favorable tax benefits they were previously utilized but will not.
Resulting in a payment to the carry during Q4 of this year of $28.2 million.
What's the company's expected to recover most of it through lower future tax payments.
We still have to unresolved ex assessment, it's a different stages of negotiation in the total amount of $9 million.
Including all interest and penalties.
That concludes my overview no.
I would now like to turn the call over to their own pointed the operational and business update the wrong.
Thank you I see.
Turning to slide 25, we look at generation.
Power generation, you know Paul plants in the quarter declined by 3.5% compared to last year.
This decline is mainly due to the lower generation at our old facility.
Some curtailment in don't call your policy.
However, revenue remained unchanged because of different energy rates. They are they're all portfolio clunker.
As noted on slide 26.
Oh I thought there was it was June generation at the pool of plan moving forward and the construction of the electrical substation and transmission line is completed and the part that is currently connected to the transmission line.
On the field side, we connected one new production went to the partner and we are in the process of conducting a second production line.
We expect to start generating power in the next few weeks with a gradual increase in generation 229 megawatts by the end of the year although.
Although the exact timing remains uncertain.
We plan to further expand generation throughout 2021 is a way to build a new partner with 46 megawatts.
Turning to slide 27.
We continue with our work to grow our more profitable electricity segment and we are on track with our development to add another 60 megawatts to 180 megawatts. The Nick who you are.
And compared to the 24 megawatts, we added in the last two years, 2019th and Twentyth one.
As a result of these expansion efforts, we're expecting El compas, and 2021 could be higher than in previous years.
As we discussed last quarter as part of our preparation for a week 2021 in the product segment.
Using our vertical integration capabilities to shift money fast enough capacity to focus more on Internet initiative.
Both our whiskey segment goodwill.
Well I don't cutting manufacturing exploration and capital resources to continue our work in 2023 and beyond.
We are increasing our ROI kind of activities domestically and worldwide.
Helping existing operating assets.
Developing new until then.
[noise] project in the U.S. and globally this will increase our profitability.
We're also actively looking for M&A opportunities in the U.S. and worldwide to expand Allpoint.
As you can see in the leaf rather than new solar projects 12 afford you will.
Well duplicating the successful Thompson hybrid project, and adding solar plus existing geothermal power plant.
Geothermal <unk> recently.
Turning to slide 28 went up we thought all bets are off.
Oh products segment has been the bulk of our business most impacted by the Cobi 19 from them.
With projects around the world being delayed.
We believe this is a short term phenomenon.
However, we did sign it was million dollar contra and as of November 2020, Oh Pro product segment backlog was $50 million.
Well the pipeline of additional contract and we expect to sign one additional agreement by late 2020 or early twenties 21.
However, we currently anticipate continued weakness in the product segment. This was significantly with youth segments revenues in 2021 compared to 2020 guided revenue and.
And as a consequence would you be thinking that you'd be though.
Partially offsetting the weakness in the over the products segment has been a consistent improvement you know energy is going to be.
And it's just going to discuss on slide 29 continues to evolve.
Slowly, becoming more affordable, but quickly becoming more important for a comprehensive renewable energy strategy.
The recent blackouts in California, only heighten the demand for strategic energy storage solution.
With these tailwinds, we continue to win business.
Before and you know and elsewhere to expand our presence in this rapidly changing about.
We hope to be able to come out with a detailed update on the segment development in future periods.
During the third quarter, we site, who we thought that it would take room in there.
By the way energy storage footprint in California too.
Two community choice aggregator well see each signed an agreement to it two and a half megawatts of resource adequacy Homo <unk> energy storage project, which is currently under development in southern Cone County, Northern California.
No. The 10 year agreement the quoted is expected to begin commercial operation.
They have been doing 2022, and expect to generate $1.2 million annual revenues.
These are the first energy storage this will D to C C.
But the 258 were thought to comply with the multi year statewide mandate to add 3.3 gigawatts of incremental resource adequacy to the California by 2023.
California remains the primary goal mounted wall and it is thought.
During the third quarter. We also completed the acquisition of the 20 megawatt 80 megawatt hour Pomona energy storage facility in California.
We saw a positive contribution to revenue and EBITDA in the third quarter.
The Pomona assets increase our existing operational portfolio to 73 megawatts, which represent the other 36 megawatt though.
Turning to slide 30.
Our expected capital spend for the rest of the year include approximately $52 million for capital expenditure for construction of new projects and enhancements to our existing pad.
Management will be forklift trucks.
In addition, we estimate that this is about $53 million for the investments listed in the slot.
We estimate total expenditure for the remainder of 2020 to be approximately $127 million.
Please turn to slide 31 for discussion or a whole 2020 guide.
Well updating our guidance for the week when it when we.
We expect total revenue between $707 million and $717 million.
With electricity segments revenue between $550 million and $555 million, including approximately $6 million expected revenue related to the point of pop there assuming three opening in the fourth quarter.
With the breadth of spec products segments revenue between a husband $42 million and how does that $47 million.
Revenue for energy storage and demand response activities is expected to be approximately.
$10 million.
We are increasing our adjusted EBITDA and it is not expected to be between $417 million and $425 million.
[noise] with fifth annual adjusted EBITDA attributable to minority interest to be approximately 35 $34 million.
Yeah, that's something I'm very proud, we still must team with what we have accomplished this quarter. We will continue to remain on track with our plans to expand or more profitable electricity segment, which is taking an increasing portion of our revenue and you'd be though.
This concludes our prepared remarks.
Now I would like to open the call for questions. Operator, if you. Please.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then queue. At this time, we will pause momentarily to assemble our roster.
The first question comes from Noah Kaye with Oppenheimer. Please go ahead.
Thank you good morning, everyone. I appreciate you taking the questions I guess just to start with Kenya did I hear correctly that keep plc listed the force majeure in September and does that imply that not only of the factor hanging regularly but are.
Are they buying power at or or comparably near pretend demichele levels at this point.
Yes.
They live through the fourth muscle.
At the end of September.
Denver.
And they are buying.
Buying more than what they've bought in Q3.
It's still a bit less than the last year.
What we've seen in the in Kenya in the D.A., regardless of course with the country's really tuning and roughly two normal business.
So we hope that the con colt elements, which are lower than the Q2, we continued to decline.
Yep. Okay. That's helpful. Thanks, and then on the business interruption insurance can you just I mean is real so we can kind of back. This out you know for next year, you just remind us like year to date what the.
Insurance proceeds have banned.
And how much is sort of outstanding in terms of your claims as you as you start to get to that back online here in Fourq you.
I know this is I see a if you're looking between gross margin.
Andy a separate line item <unk> insurance income, it's roughly $30 million a year to date.
Okay, and Oh, I'm, sorry, I didn't catch it but did you expect to recur anymore for Q and how much is outstanding.
Okay out of the $100 million policy, we have collected roughly 60% of the policy.
And then we still ended negotiating would be a insurance company globally, including with one of them were actually man.
Legally and illegally vent right now and therefore, we cannot provide at this point gardens for Q4 was a I wouldn't say, it's less likely that we will have something in Q4.
Okay. So there may still be the com and 2021 and just on products and obviously you know we watched declining backlog here I think at this point, although you're indicating it.
It sounds like some good prospects for the near to medium term.
Just for everybody's modeling benefit I mean should we really be thinking about this 50 million or so its a reasonable revenue indicator for 2021.
How likely is it that you know you could book enough and then you know turn that around into revenues over the course of next year to do significantly better than 10 sort of this $50 million level.
Yes, so Tim.
We're not giving any it they say that it's we're not giving guidance for next year, but obviously yeah.
There is a time since we are recognizing revenue percentage of completion the time delay between the time, we sign a contract and until we can actually start to recognize revenue for <unk>.
And so obviously a 2021 is this is going to be lower than.
And.
I'm 2020 and contract that we signed two they can come into effect.
Gold the Q2, three and onwards, if we signed them today.
Right right that's helpful and find the last one you know again understanding your it's too early to.
Hey guess no formal guidance right up front for next year, but you didn't mention that capex.
It's going to be higher next year, which I think is really indicative of your you know putting put on the gas year with with the.
You know order of magnitude are we looking at.
Somewhere along the lines of a 10% to 20% increase or could it even be greater than that.
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If you look in day and then we said that we had a 24 megawatts in the last two years and we plan to a lower run 162 118 megawatts. So they would be interested in 2021 and 2022.
He was going to be higher than the 10.1% to 20%.
Yeah, all right that's helpful I'll jump back thank you.
Thank you all.
Again, if you ask a question. Please press Star then one.
The next question comes from Mark styles with JP Morgan. Please go ahead.
Yeah, Thanks, very much for taking our questions most of them have actually been answered, but if you could just kind of break down.
The revenue guidance narrowing it towards the lower end of the range for this year.
Hey can you just kind of quantify the different buckets that drove that was there any kind of a change in expectations for preparing a timing or.
You know pull backs on the Oh, the Kenya production or anything like that.
You could provide more color would be great. Thank you.
Yes, so I think your mom and pop.
On the electricity beside the main parameter that is as you said the pool now and we were hoping if we start earlier.
Yeah. Unfortunately, it is taking a bit longer and to work on the field. So that's the main driver that pushes it to the low end and the product segment. You know, we shorten the guidance, which is in the middle So there's no no major change over there.
And on the storage club front I think it's roughly where we said it will be.
Right. Okay. That's very helpful. That's it for us Thank you very much.
Thank you.
Again, if you have a question. Please press Star then one.
The next question is from Jeff Osborne with Cowen and co. Please go ahead.
Hi, Good afternoon, guys a couple of questions on my end on the congratulations on resolving the kind of thing that certainly has been an overhang.
For investors for quite some time, so great to see how.
How do we think about where were the 6 million should be modeling for next quarter is that and other other expense or is that a cost of goods item.
Hey, good morning, So I suggested that we wouldn't have put it in the tax line item. You know it would include the 3 million of roughly EUR for interest and penalties.
And right now we're planning to book everything in D. picks line item.
Well each will not impact EBITDA, it's been only impacted the tax rate.
But the good news is you know you Q4 is usually our best quarter.
And that's why did they impact shouldn't be as significant.
And then on the storage side, you alluded to the the blackouts was there any abnormal pricing that you saw in the third quarter that maybe the current run rate is it repeatable I know you gave guidance for the year, but how do we think about what you saw in the third quarter and associated profitability, just given the overall pricing environment for addict.
See resources such as batteries.
Yeah there were.
And that's why it's a the black holes did post pricing could be out of the ordinary in California pricing you know rose due to 1000 in $2000 per megawatt hour during the blackout.
I am.
But on the contrary in Texas that usually has a in Q3 extreme pricing gained 2019 to actually had even in Allah with $9000 per megawatt hour. They had the mild summer so actually that didn't happen. So we do see.
So I'm a little modalities in Q3 in California.
And so in Q.
Q threes, you, we expect Q3 to be a bit better than other quarters in the energy storage, but.
But Steve it seems it's not that material to a month you know it is something that we'll need to follow when we'll obviously give you additional guidance as we grow this business.
Got it and Rodney you've had a M&A as a target for for years and other than U.S. geothermal you haven't been that active I would you reflect on the past several years of M&A. That's a strategy for Ormat and then relative to future M&A.
Obviously done things in storage, but I think in the past you've alluded to geothermal tuck in acquisitions as well can.
Can you just touch on what the pipeline looks like now relative to the two different technologies that you're focused on.
Yes. So until then I want to do is an active pipeline today, Oh see potential acquisition.
Well did you assume in front you know, we're trying to make acquisitions that they'll synergetic to assume that they are creative to Omar.
And knowing the and the in the three and knowing that the reason we did the resources.
Sometimes you know, we a have a better understanding of the risks and the focus and by that we sometime maybe underpriced compared blood. The you know potential acquisition. The we've seen happen yeah.
Look we are looking at a few.
Project say today that though in the market.
And then on the storage and we did.
Some acquisitions that we are discussing additional acquisition. These are usually smaller acquisitions.
Hi, good morning, all those so I do expect to see some more.
And acquisition in the Newco.
Got it certainly be a challenging 2021 that for us.
Total capital allocation I guess, if if you've got an elevated capex here and then also a M&A so.
How do you plan on paying for for any M&A, assuming it's sizable in the geothermal side are these pretty small.
No. The then there might be sizeable or within our Uh huh.
Capital am ability capacity so we.
We did raise a the blonde throughout.
Throughout this million dollar bond earlier in the call, though we do have significant.
Approaches by in a different financial institutions to do to give us.
Money to lend us money.
Capital is available if we have the right the target who the right price and we can find the superior.
Either.
Makes sense and my last question was just on the 20.1 million from Honduras was that in the guidance as it relates to adjusted EBITDA last quarter I'm, just trying to get a sense of the moving pieces with the EBITDA guidance change this quarter, how much of that was the Honduras event.
Versus just sort of operational assets.
Assets and sort of flow through.
No.
And the Honduras event for the cash flow events, if they didn't go it didn't flow through to the P. and then.
Yeah. So that was it purely cost one you can see the the one thing that did go through the the P. and that is the business interruption.
And that increased a they'd be dies and the feeling that the guidance and you can see that we have a specific line items in the after the DNA.
They'd be this interruption the income of $17.7 million got it. This is now okay.
Okay. That's all I had thank you.
Thank you.
[laughter].
Again, if you have a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Doran Bashar for any closing remarks.
Thank you. So thank you everybody for joining US you know and this is a special day named the U.S.
Really you know an unknown resolved, but hopefully it will be the right one wherever life when you want it to be.
And want to thank you for the continued support.
And talk to you soon thanks.
Thank you.
The conference.
It is now concluded. Thank you for attending today's presentation you may now disconnect.
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