Q1 2022 Ormat Technologies Inc Earnings Call

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Hello, everyone and welcome to the almost Technologies' first quarter, you flex and trying to cheat earnings call. My name is Victoria and I'll be glad to call today.

If you'd like to ask a question during the presentation you might be shaped by pressing star one telephone keypad. If you wish to withdraw your question. Please press star two if you have joined US online. Please press the red flag like on what price you asked your question. Please ensure that your line is on mute.

I'll now pause if it's your highest Sam you're calling to begin. Please go ahead.

Thank you operator hosting the call today are John Bush, our Chief Executive Officer, Aussie Ginsberg, Chief Financial Officer, <unk>, <unk>, Vice President of Investor Relations at ESG planning and reporting before.

Before beginning we'd like to remind you that the information provided during this call may contain forward looking statements relating to current expectations estimates forecasts and projections about future events that are forward looking as defined in the private Securities Litigation Reform Act of 1995.

These forward looking statements generally relate to the company's plans objectives and expectations for future operations and are based on management's current estimates and projections future results or trends actual future results may differ materially from those projected as a result of certain risks and uncertainties for a discussion of.

Such risks and uncertainties. Please see risk factors as described in Ormat technologies annual report on Form 10-K, and quarterly reports on Form 10-Q that are filed with the SEC. In addition, during the call. The company will present non-GAAP financial measures such as adjusted EBITDA Reconciliations.

Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information set forth in the press release that was issued last night as well as in the slides posted on the website. Because these measures are not calculated in accordance with GAAP. They should not be considered in isolation from our 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 format Dot com under the presentation link that's found on the Investor Relations tab with all that said I would now like to turn the call over to Don Blyth Shar surround the call is yours.

Yeah.

Thank you Sam and good morning, everyone.

Thank you for joining us today.

The first quarter marked a good start for the delivering strong financial results and operational performance.

We are encouraged by the robust growth capital in both the company's top line and adjusted EBITDA, which was driven primarily by solid performance from our leading electricity segment and the strategic capacity additions to our portfolio. This we made last year.

I am pleased to note that the first quarter demonstrated solid growth and advancement towards many of our stated target discussed at the most recent investor day.

We benefited from improved performance.

Mostly as a result of the capacity expansion to our operating Boston.

Successful integration below Q3, 2021 geothermal after that they should.

We continue to execute on our growth plans and recently commenced commercial operation Dumpster Mountain, two which increased the total generation of the tungsten conflict by 13 megawatts.

In addition, we are on track to complete construction of the 30 megawatt <unk> geothermal power plant.

The solo there we still sold in the Steamboat Hills total facilities by the end of the second quarter.

We continue to be encouraged by the increasing demand for geothermal energy, notably in California, and Nevada.

This increasing demand has already resulted in higher PPA prices compared to what we saw in <unk>.

This demand driven by legislation and broader migration towards renewable electricity sources.

With further support our unique business segments.

We remain on track to deliver an annual adjusted EBITDA of $500 million when the 100 basis towards the end of 2022.

I will now turn the call to us to review the financial results before I provide a further update on operations and a further plan.

Yeah.

Thank you Darren.

Let me start my review of our financial highlights on slide five.

Total revenue for the fourth quarter was $183 7 million up 10 point focused and year over year.

Collecting substantial growth in both our electricity and product segment.

First quarter 2022, consolidated gross profit was $69 $9 million.

This resulted in a gross margin of 38, 1%.

From the gross margin of 44, 3% in the first quarter of 2021.

The difference in margin performance is driven primarily by one time revenue of $5 $4 million in the first quarter of 2021 related to the February power prices in Texas as well as the impact of the shutdown of the <unk> power plant in late February .

Don will elaborate on it shortly.

Net income attributable to the company's stockholders was $18 $4 million or 33 cents per diluted share in the quarter.

This compares favorably to the $15 $3 million or 27 cents per diluted share in the same quarter last year.

Representing an increase of 28% and 22, 2% respectively.

The increase was mainly due to the electricity segment contribution.

In addition.

In the fourth quarter of 2021, the company was negatively impact by the February crisis in Texas.

Net income by $8 $8 million or 16 cents respectively.

Adjusted net income to the company stockholders was $19 $9 million or 25 cents per diluted share in the quarter.

This compared to the $24 $1 million or 42 cents per share in the same period last year.

The decrease was mainly due to higher effective tax rate of 31, 4% compared to 14, 8% same time last year.

Adjusted EBITDA of $107 9 million increased eight 7% in the first quarter.

Compared to $99 $2 million in the first quarter last year.

With EBITDA growth being largely driven by electricity segment.

Breaking the revenue was down at the segment level in the computer segment level increased 12, 1% to $165 million.

Supported by contribution from new asset gain through detergent acquisition.

Pension of Mcginness Hills complex and increasing the operation in Pune.

<unk> also benefited from higher electricity prices.

This newly added generation capacity was slightly offset by the impact of shutting down Heber one power plant.

Following the fire in late February .

The Heber one binary units are now back in operation.

Well revenue going forward for the year will be negatively impacted by the prolonged shutdown.

We do anticipate recovering the majority of lost income through our business interruption insurance program.

As a reminder, <unk>.

Expected to be our insurance income is not booked as revenue, but will be booked as a reduction to cost of goods sold.

In a separate line item.

Proceeds will top of the cost of goods sold.

Yeah.

Okay.

In the product segment revenue increased by 70% to $14 6 million and represented 8% of total consolidated revenue in the first quarter.

The increase year over year is due to a higher backlog as compared to the first quarter of 2021.

Energy storage segment revenue decreased by 48, 5% to $6 $6 million when compared to the first quarter of 2021.

The default is driven by the absence of $5 $4 million onetime revenue event related to the February powerplant power prices in Texas.

That's the way it is but the diminishing contribution of the demand respond activity.

Let's move now to slide six.

Gross margin for the electricity segment for the quarter decreased to 42% 300 basis points lower than last year.

This was mainly the result of the impact of the Heber one fire.

The impact of the commissioning work, we hit a deduction plant, which allowed the recent capacity expansion.

In the product segment gross margin was 77% similar to last year.

Reflecting the impact of lower volume of revenues.

And the rising cost of raw materials in addition to marine transportation.

The energy storage secondary reported gross margin of 13, 5% compared to elevated gross margin of 62, 4% in the first quarter last year.

The decrease was again primarily to the absence of a one time revenue in Q1, 2021, which had an outsize impact margin performance in last quarter in last year first quarter.

The electricity segment generated 95% of total adjusted EBITDA in the fourth quarter there.

The product segment generated 2% of the in the energy segment reported adjusted EBITDA of $3 $8 million, representing 3% of dosing and adjusted EBITDA.

Reconciliation of EBITDA and adjusted EBITDA provided in the appendix slides.

Looking at slide seven.

Our net debt as of March 31st 2022 was approximately $1 6 billion.

Our balance sheet remains very strong and positioned well as we work toward achieving our growth targets.

In the past we did indicate that we are likely to pursue some additional financing agreement to fund future growth and.

An expansion of our existing portfolio.

During April we secured $75 million of additional financing through a bank term loan bearing a fixed interest rate of four 1%.

Further supporting our capital needs.

Cash.

Cash equivalents in marketable securities at fair value includes.

Included in restricted cash and cash equivalents as of March 31, 2022 was approximately $284 million.

Down from $387 million, if you rent.

Marketable securities at fair value was $43 million.

Yeah.

The accompanying slide breakdown the use of cash for the three months industry.

Illustrating our ability to reinvest in the business service debt and return capital to our shareholders in the form of cash dividend all from cash generated by operation and our strong liquidity profile that we continue to maintain.

Our total debt as of March 31, 2022 was nearly $1 9 billion.

Net of deferred financing cost and its payment schedule is presented on slide 26 in the appendix.

The average cost of debt for the company in the quarter was 438%.

We think it is most important to note that as we prepared to deploy capital to fund our multiyear growth targets nearly all of our debt.

Is it fixed rate in nature, which should help position competitively in the rising global interest rate environment.

Moving to slide eight.

The significant growth in both our electricity and storage segment will require a robust capital investment over the next couple of years.

In Q1, 2022 we invested approximately $137 million in capex to advance our growth.

We have $665 million of cash available lines of credit.

At the end of the quarter.

Our total expected capital for the last three quarters of 2022 includes approximately $380 million of capital expenditures.

Detailed in slide 27 in the appendix.

Well, they're all very well positioned from a capital perspective with excellent liquidity and ample access to additional capital to fund future growth initiatives.

On May 2nd 2022, our board of directors declared approved and authorized payment of a quarterly dividend of 12 cents per share to all shareholders of the company.

Issued and outstanding shares of common stock as of May 16, 2022, and it will be payable on May 20 May 31 2022.

That concludes my financial overview I would like now to turn the call to Ron to discuss some of the recent developments and I will spend the next few years the wrong things.

Turning to slide 11 to look at our operating portfolio.

During Q1 of 2022 power generation geothermal power plant increased by approximately eight 6% compared to last year.

We're capturing the benefits from the addition of the Dixie Valley <unk> 12 portfolio as well as the increased output for Mcginness Hills.

These contributions were partially offset by lower generation at Heber, one used to that fire.

It also offset by a planned outage of the tungsten plant, which is why it's really quite a standup shutdown to complete all successful expense.

As I mentioned earlier, we successfully commenced operations.

Which added certain maybe I'll walk through the Thomson conflicts.

This increase was higher than expected, resulting in total to 42 megawatts of geothermal generally.

Yeah.

As noted on slide 12.

Paula geothermal power plant is running and operating costs at approximately 25 megawatts level.

PPA prices continues to be positively impacted by higher global energy prices exceeding the first quarter and continuing even further into safe.

In addition, we are.

I think the positive decision the PUC made to conditionally approved a 46 megawatt PPA with telco subject to an environmental assessment process, which may take one to two years to find out.

We remain on track to drill new ways.

Further into the generation business.

Slide as the year progresses.

Turning to slide 13.

Let me discuss our plans to improve performance of our assets as the year continues.

First our asset in Guadeloupe return to full capacity and now our focus is on advancing the 10 megawatt expansion.

Leon project in the island.

Second with respect to old colleague offense in Kenya, which is currently generating approximately 123 megawatts.

I am pleased to announce that we are on track to complete the enhancement of the OFC, but at the end of the second quarter and expect to gradually increase capacity by 10 to 12 megawatts and visible.

In addition, we are on track to start our drilling campaign in the third quarter of this year, which should enable us to install capacity further.

10, Chile reached full capacity during the 2022.

Next I'm also glad to report that we successfully brought back to operation approximately 20 megawatts generated by the binary units with our number one.

We estimated that the outage.

The bulk will reduce 2022 revenues by approximately $15 million.

While we are updating our revenue guidance.

This reduction will maintain our EBITDA guidance.

The proceeds from the business interruption insurance to cover most of the lost income taking into consideration our deductible.

Turning to slide 14.

For an update on our backlog.

We saw a 23% compared to the same time.

While we have no new material cost us to announce at this stage.

We were awarded over $20 million in project.

Adam for the backlog.

Contract will be signed.

Yeah.

Moving to slide 15.

We provided an update on the energy exposure.

As Leslie mentioned and disclosed segments revenue decreased due to the prior year onetime revenue event related to the Texas power right.

As you can see in the chart on slide 16 revenues from the Cold storage facility remained stable contribution of the demand response activity is diminishing.

Also on this slide adjusted EBITDA.

Increased nearly 29% compared to the first quarter last year.

Yeah.

Moving to slide 17.

As we have communicated 2022 is a significant buildup comprise mainly of geothermal project in development.

This buildup support our robust growth plan.

Which are expected to increase our total electricity portfolio by 19% to 20% by the end of 2023 to reach a portfolio of generation will be clean.

1200.

And its associated with those.

You know energy storage portfolio, we plan to enhance our growth and increase our.

83 megawatt portfolio by an additional 232 wanted to 90 megawatts.

Or 550 to 660 megawatt power by year end 2023.

This addition will enable us to reach a total storage portfolio.

With 313 and 373 megawatts.

Subject of course to our ability to overcome any permitting and supply chain challenge.

Slides 19, and 20 displayed the ninth year.

<unk> solar PV project currently underway.

Comprising the majority of our 2023 go to school.

We are on track with see before we still so low.

Solo two and steamboat solar all of them.

Which are expected to come online in the second quarter.

Uh huh.

With respect to our level of Dixie Meadows project, which is currently under construction.

It is possible, we may experience delays or other impacts as a result of our recent endangered species lifted by the U S fish and Wildlife service.

Located near project.

We will continue to work with the relevant agencies to ensure that any additional required processor.

As a result of the lifting Amit.

We have continuously done throughout the development of this product.

Moving to slide 21 in two ways.

The second layer of warfare come from the energy segment.

Slide 21 demonstrates the energy storage facility.

I'll start with cost structure.

We continue to develop this settlement and currently have eight projects under construction with a combined capacity of.

189 megawatts or 464 megawatts.

This project will allow us to double our operating assets year over year in the next two years.

We have already secured the bethards needed for this project.

However, as with the rest of the industry.

We are continuing to experience delays in some projects due to supply chain challenges.

Including delivery timing.

Having said that based on the information we have today, we keep on both targets intact for 2023.

Yeah.

The other project that should help us meet our 2023 gross or <unk>.

<unk> in the pipeline and are in different stages of development.

Please turn to slide 23 for a discussion of our 2022 guidance.

We expect total revenues between 710 and $735 million.

With electricity segments revenue between 630 $640 million.

Reflecting the $15 million impact of people one shutdown I mentioned before.

We expect product segment's revenues between 50 and $60 million.

Guidance for energy storage revenues is expected to be between Turkey and $35 million.

We maintain our expected consolidated adjusted EBITDA.

And between 430 and $450 million.

We expect annual adjusted EBITDA attributable to minority interest to be approximately $32 million.

Adjusted EBITDA guidance for 2022 includes $15 million due.

It ensures trusted for tuna and Ebola.

I will end our prepared remarks on slide 24.

This was a solid quarter with strong progress against our long term goals.

We continue to focus on increasing our capacity and deliver meaningful revenue expansion, which will also improve our bottom line.

We are encouraged by the company's ability to turn revenue growth into expanded profitability.

Our growing pipeline and numerous projects under development give us confidence in our long term plan to increase our combined geothermal energy storage and solar generating portfolio to more than one five gigawatt by 2023.

Having said that the global markets are experiencing shortage in raw materials batteries and solar panels as well as supply chain disruption has intensified following the Ukraine crisis.

This creates uncertainty due to rising cost and project delays that may further impact us as well as many other companies in the power market.

However, the fact that all months with fully integrated in the geothermal segment and plays a large role in the development of its storage assets.

<unk> with Citi litigated advantages versus many other renewable energy development.

We believe strongly that our strategy.

Our assets are.

<unk> advantage cost structure relative to the renewable power generation industry, and the strong regulatory tailwind and increased PPA prices, we see in the market.

Will enable us to mitigate several of these challenges and meet our long term goals.

This concludes our prepared remarks, now I would like to open the call for questions. Operator, if you. Please.

Thank you we will now start our Q&A session if.

If you would like to ask a question. Please press star followed by one on your telephone keypad.

It was just really a question please press star two.

Wanted to ask a question. Please ensure that your line is on mute to locally.

And our first question comes from Noah Kaye from Oppenheimer and company. Please go ahead. Your line is open.

Thanks for taking the questions.

First the supply chain related question for the electricity segment, you know I think.

Battery supply and in solar panel shortages, Oh, that's well publicized but for the geothermal expansion.

Any any items to be aware of in terms of gating factors on supply chain I know you've manufactured a lot of your own equipment for these projects are there any supply chain constraints to be aware of there or is it really all just you know permitting and.

Environmental considerations at this point.

Yeah.

Yeah.

I would say.

Thank you for the question.

As you said, we are vertically integrated we do manufacture.

Most of our products.

But similar to everybody and though we generate raw materials.

There are.

Challenges for duo materials, but at least at this stage, what we see we will not see any material impact due to supply chain issues on our.

Geothermal development.

Okay that that's positive.

Follow up on on the Heber restoration, so you've got 20 megawatts back.

What's your sense of potential timing on those insurance recoveries.

And when would you look to actually restore full capacity is that in plan.

Yes.

We had.

Good discussions with insurance.

Adjuster and the insurance companies and we hope to see in the coming.

The weeks or months, we will start to see the payments.

Payments for property damages as well as for the business interruption.

Ordering a generator regardless of supply chain issues takes roughly a year.

So we don't expect the remaining 20 megawatts to come online.

In 2022.

And Thats the reason that we reduced the revenue guidance due to this effect.

Okay. That's helpful. And then you mentioned Dixie Meadows.

Our understanding is that the protections are there last I believe it was 240 days.

How do you think this will play out at what point will you be able to.

Please proceed with completion and what should investors be watching for in the meantime.

Okay.

Okay.

The setting.

Setting the tone is an endangered species doesn't impact.

Struction. So we believe that there is no legal basis to stop the production of the plant.

We have developed with the BLM robust mitigation plan due to these issues with the field.

Six skus.

Okay. So that this project could have come online over the six years ago It will not.

Work with the BLM to develop this mitigation plan.

And we see it.

Mitigation plan.

Good enough.

So obviously with this new lifting.

We will of course continue to work with all the agencies BLM as well as distribution wildlife.

The address any further concerns they have.

In the meantime, you know we continue with the construction of the 240 days that you mentioned is designed for them to finalize.

This emergency decision that they did.

And we hope that.

We will be able to.

Cost with them.

And the BLM.

Good resolution that will allow us to operate these 12 megawatts.

The facility.

Since.

You know the U S. It administration and I believe everybody wants you know renewable energy.

Order to mitigate the climate crisis.

That's what we do and since you know this is.

The target.

Global target administration, and everybody is targeting not to get more renewable energy.

We believe that this.

Solution, we will have the rate mitigation plan and operate the power plant.

Overtime.

Perfect. Thanks for taking the questions.

Thank you.

Perfect. Thank you for your question and as a reminder, if you would like to ask a question.

Star followed by one on your telephone keypad.

And our next question comes from Julien Dumoulin Smith from Bank of America. Please go ahead.

Hey, good morning team. Thanks for the opportunity to connect it just wanted to follow up on some of the delays here on the projects specifically storage.

Can you talk about supplies sourcing at this point, which is what gives you confidence on those on the specificity on latest delays I understand that many of these are frankly relatively near term in terms of deployment, just where do they stand and then also what is the impact on 'twenty two 'twenty three just ultimately.

Across the delays in terms of sort of a walk from what you guys had talked about before if there's a good number to run with there, but ultimately you know getting confidence on the timeline is the key here that I'm curious about.

Hi, Julien Thanks for the question.

The one confidence that we have is that all of these projects either have been supplied with the battery life of window and the supposed to come online. All you know we've issued already P O and the batteries are due to come through.

What we see with the supply chain issue is not that.

Not not getting batteries, but mainly it might be some delay in timing wise.

But also that appeal has defined time of delivery.

We expected them to come on line.

So all in all the projects that you see here.

Yeah.

We feel today very confident that they will come on time.

Mainly due to the fact that we have all the materials they're moving.

Moving only muscle to it might happen, but this is where we believe in them.

Yeah, Julian and one more thing to mention we did keep the storage revenue for the year.

Flat versus our evening June .

At year end guidance of 30 to 35 million.

And please also remind you that in the east coast.

We are enjoying record prices is natural gas heat yesterday seven.

Seven $7 for MPT you. So even if we have a slight delay in project from the storage.

The other assets are actually functioning very well.

And as Don mentioned and you can see on the slide deck.

We continue to see improvements in the EBITDA margin of the storage so.

Oh.

We really promoting this business we think it's important.

And we kept the revenue guidance for the year.

Yeah, you know it.

It wasn't a challenge and we actually see a good tailwind of prices.

Right, so actually effectively with that guidance unchanged.

Processes that merchant prices.

Are offsetting some of the delay in.

And revenue recognition on new assets.

If that will be the case, that's mitigating both parties.

Got it excellent. Thank you guys and then just related to your on California, There's some headlines around.

Extending new nuclear asset life, a little bit I mean that that that could impact total procurement, but what are you guys thinking on and see any updates on the or a procurement I mean, obviously that kind of extends into early next year or two do substantively extent, but there are you seeing any updates on the overall scale of what the procurement is any updates on your all's position therein.

On the you know I know.

Multiple potential expansion.

We are in the differently.

Slow market right now Julian.

And anything that we will bring in the next five years, we'll be able to contract in the west coast in a very good prices.

So we see the same demand that we saw as we discussed in the recent.

Recent Investor day nothing change.

Yeah.

Got it alright excellent I'll leave it there. Thank you guys.

Thank you.

Thank you very much and answer your question.

At this time there are no final questions and I'll just pass back over to each of them bless Chavez for any final remarks.

Okay. Thank you. So thank you everyone for joining us as you've seen this was a very solid quarter and a very good start for <unk>.

For the year, we are focusing on the growth of our company and the capital investment.

And we look forward to reading from UMC. Thank.

Thank you.

Thank you everybody for joining in today's conference call. You May now disconnect your lines.

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