Q2 2022 Ormat Technologies Inc Earnings Call
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 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 website. Because these measures are not calculated in accordance with GAAP.
They should not be considered in isolation from the financial statements prepared in accordance with GAAP.
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 link that's found on the Investor Relations tab with all that said I would like to now turn the call over to Ron Bouchard throughout the call is yours.
Thank you Sam and good morning, everyone. Thank you for joining us today.
In the second quarter, we continued the positive momentum from the beginning of the year.
Demonstrated by solid growth and advancement against our strategic initiatives and milestones that we laid out in the recent investor day.
We are encouraged by the robust growth captured in both the company's top line and adjusted EBITDA.
Driven by strong performance from our electricity segment and further supported by our growing energy storage system.
Yes.
This quarter it makes significant milestones achievements this validates our strong operational capabilities, our healthy financial position and the attractiveness of the markets we're operating in.
Since the end of the first quarter, we commence the commercial operational five project and added 73 megawatts to our portfolio with the addition of the tungsten too and Sealy for geothermal power plants, the withstood and steamboat solar power plant and the <unk> storage facility.
With respect to see before we are optimizing the interconnection to allow additional megawatts to be sold to the grid.
We're extremely pleased to deliver strong operational execution in the face of supply chain related challenges and labor constraints.
We successfully signed two large portfolio Ppas in Nevada, and California, and another PPA in Nevada for North Valley plant totaling up to 285 megawatts.
This long term ppas reflect the majority of our new U S based geothermal project over the next six years.
As well as most of the Nevada projects renewals.
This contract, which we signed and renewed at attractive rates showed the growing demand for geothermal in the U S market consistent with our analyst day forecast.
Finally, our healthy and strong financial position enabled us to raise capital at an attractive coupon rate of two 5% via the issuance of $431 million of convertible notes.
Proceeds will be partially used to refinance higher cost debt and further enhance our financial flexibility.
As we look to execute our long term growth strategy.
Now before I provide further update on our operation and future plans I will turn the call over to ask you to review the financial results.
Thank you Ron.
Let me start my review of our financial highlights on slide five.
Total revenue for the second quarter was $169 1 million.
Up 15, 1% year over year.
Reflecting substantial growth across electricity product and energy storage segments.
Second quarter 2022, consolidated gross profit was $57 6 million.
This resulted in a gross margin of 34, 1% down.
<unk> down slightly from a gross margin of 35, 4% in the second quarter of 2021.
Mainly due to lower gross margin within our product segment.
Net income attributed to the company stockholders was $11 $3 million or <unk> 20 per diluted share in the quarter.
This compared to $13 million.
Or <unk> <unk> per diluted share in the same quarter last year.
Following the adjusted base net income attributes of the company stockholder was $12 2 million or 22 cents per diluted share with.
With net income attributed to the stockholder were down six 7% and diluted EPS down six 4% versus the same time last year.
The decrease in net income and adjusted net income was mainly due to a $2 9 million after tax loss.
From a currency related loss attributed to a stronger U S dollar versus Israeli shekel.
Excluding this quality related issues, our EPS would have been 27 per share.
Adjusted EBITDA of $107 million increased 19, 1% in the second quarter compared to $84 5 million in the second quarter of last year.
This figure represents a second quarter record for months and our 12 months trailing adjusted EBITDA is now equal to $426 2 million.
The increase was largely driven by strong incorporate contribution within our electricity segment.
And lower G&A costs as a result of reduction in legal expenses.
Moving to slide six.
Breaking the revenue down at the segment level electricity segment revenue increased 12, 9% to $151 2 million.
Supported by contribution from new assets gained through the intelligent acquisition.
The expansion of our tungsten two power plant.
And English operation and higher rates, it's Paul.
Which has benefited from elevated oil prices.
These contributions to revenue were offset slightly by the impact of the fire and hate to one operation and maintenance work at Dixie Valley pocket.
For he been one where revenue going forward for the year will be impacted by the shutdown. We anticipate recovering the majority of the lost income through our business interruption insurance.
This quarter, we recorded $3 4 million of insurance proceeds related to EBIT one.
<unk> Valley revenue was negatively impacted by $4 million as a result of the prolonged maintenance work that started at the beginning of April 2022, which Don will discuss later.
In the product segment revenue increased 40% to $10 $4 million and represents six 1% of the total consolidated revenue in the second quarter.
The revenue increase year over year is mainly due to the recognition of higher sales in the current quarter.
Energy storage segment revenue increased 32%, 33% I'm, sorry to $7 $5 million when compared to the second quarter of 2021.
This meaningful increase is driven primarily by higher rates in our plummeted and Stryker storage asset at PJM, which increased our revenues by additional $2 $4 million versus the same time last year.
Moving to slide seven.
The gross margin for the electricity segment for the quarter decreased to 36, 8% declining system 60 basis points when compared to the same time last year.
In the product segment gross margin was <unk>, 2% for the quarter compared to 20% in the same quarter last year.
Gross margin was impacted by contract signed in 2021 that had to absorb a rapid increase in raw material and marine transportation costs.
Once these contracts are completed.
During Q3, we expect to achieve better margins.
The energy storage segment reported a gross margin of 25% compared to a gross margin of 6% in the second quarter of last year.
The increase was positively impacted by the significantly higher rates and availability of our PJM storage assets.
Looking at slide eight.
The electricity segment generated 96% of total adjusted EBITDA in the second quarter.
The product segment generated less than 1% and the energy storage segment reported adjusted EBITDA of $3 $5 million, representing almost 4% of total adjusted EBITDA.
Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slides.
Moving to slide nine.
Our net debt as of June 32022 was approximately $1 7 billion.
In June we raised convertible bond at a rate of two 5% and in connection with the insurance of the convertible bond we enter into a cap call transaction.
The capped call transaction was intended to reduce the dilution to the outstanding shale or and offset part of all of the cash payments, we will be required to make an excess of the principal amount of the converted notes.
In the event that at the time of the conversion to share price exceed the conversion price.
To further reduce future dilution, we used part of the proceeds for a buyback of approximately 260000 shares at a very attractive price.
Proceeds were also used to repay the $221 $9 million senior unsecured bond series III that carried higher interest rate.
We tend to allocate an amount equivalent to the net proceeds from the offering to finance.
And or refinance eligible green project in accordance with the company's Green Finance framework.
These attractive attractive transaction.
With our $75 million, New bank term loan photo enhance our financial strength and flexibility as.
As we look to realize our long term growth objectives.
Cash and cash equivalents and restricted cash and cash equivalents as of June 32022 was approximately $356 million.
Compared to $387 million as of December 31, 2022.
The slides breakdown use of cash for the three months illustrating compatibility to reinvest in the business service, our debt and return capital to our shareholders in form of cash dividends and also buyback.
All from cash generated from operation and a strong liquidity profile that we keep and maintain.
Our total debt as of June 32022 was approximately $2 $1 billion net of deferred financing cost and its payment schedule is presented on slide 29 in the appendix.
The average cost of debt for the company at the end of the quarter was down two 4%. We think it is important to note that as we prepared to deploy capital to fund our multiyear growth plan.
Nearly all of our liabilities are fixed rate in nature, which should help position competitively.
Competitively in this rising global interest rates environment.
Moving to slide 10.
In the first half of 2022, we invested nearly $265 million in capex to invent subgroup.
We have $760 million of cash and available lines of credit.
Our total expected capital for the last two quarters of 2022 includes approximately $254 million of capital expenditures.
As detailed on slide 30.
In the appendix overall amount is very well positioned from a capital resource perspective, with excellent liquidity and ample access to additional capital to fund future growth initiatives at attractive rates.
On August three 2022, our board of directors declared a proven authorized the payment of a quarterly dividend of 12 cents per share to all holders of the company issued and outstanding shares of common stock on August 17, 2020 payable on August 31st 2022.
That concludes my financial overview I would like now to turn the call over to Darren to discuss some of the recent development.
Thank you <unk> turning to slide 13 for a look at our operating portfolio.
Generation growth was positively supported by the inclusion of <unk> and the generation of the DC Valley power plant.
This was partially offset by the EBIT one failure.
As we already mentioned and as you can see on slide 14. This quarter, we added 68 megawatts to the electricity segment portfolio.
Which will contribute to generation going forward.
As noted on slide 15, our Puna geothermal power plant is running and operating that's an approximate 25% 26 megawatt level.
And currently PPA prices continue to be positively impacted by the higher global energy prices, we experienced in the second quarter.
We expect this dynamic to continue in the third quarter.
Although the long longer term plans in a while still focused on repowering. The power plant and were currently amending our agreement with Hilco to enable us to address current market conditions and the new long term PPA.
Turning to slide 16.
First we will carry a power plant in Kenya, we're on track to begin drilling campaign during the third quarter, which will enable us to further increase capacity.
Second with respect to EBIT, one well firstly optimizing the contract through with Boeing Board, which is expected to be completed in the second quarter of 2023.
Next while we experienced a shutdown of DC value due to a generator failure. It has not impacted our full year operation significantly.
The plant was already scheduled for steam turbine maintenance in Q4.
But due to the unplanned shutdowns were lifted and we're able to pull forward the scheduled maintenance and thus the shutdown that was.
Completed earlier in Q2.
The <unk> power plant returned to service and is performing at a higher capacity than before.
Turning to slide 17 for an update on our backlog.
We saw a 20% increase compared to last quarter.
We were able to sign the contracts totaling approximately $20 million.
During the quarter, including a sizeable contract in the Philippines as we discussed previously.
Moving to slide 18 for an update on the energy storage system.
The energy storage segment delivered another strong quarter supported by elevating energy prices at PJM market.
Next quarter, we expect to start also benefiting from the rest of the operation of the facility.
Moving to slide 2020 one.
We have communicated 2022 is it is a significant buildup here.
Comprise mainly of geothermal and hybrid solar PV projects in development.
This buildup support our robust growth plan, which is expected to increase our total electricity portfolio generation to approximately one two gigawatt.
You know energy storage portfolio, we plan to enhance our growth and increase our current 88 megawatts 196 fleet all of our portfolio by an additional 190 to 270 megawatts or 465 to 605 megawatts hour by year end.
2023.
These additions will enable us to reach a total storage portfolio.
273, and 353 megawatt.
With the assumption that we can overcome any permitting and supply chain challenges.
Slide 22, and 'twenty three display the six year term and five hybrid solar PV project.
Currently underway following the commercial operation of tungsten tucks into CD four we're still at steamboat solar.
Which comprised the majority of our 2023 fourth quarter.
We are on track with North Valley tungsten solar <unk> solar in North valleys, Florida, all of which we expect to come online.
During the first quarter of 2023.
With respect to a 12 megawatt Dixie Meadows project.
We recently received a positive ruling from the ninth circuit.
We are also currently working collaboratively with the different agencies and are confident in our ability to work together.
<unk> identified where the additional mitigation.
Measures are necessary to protect the DC valley totaled.
And have the project moves to completion.
While we go through this process or must have decided to temporarily pause construction to allow full focus on this effort to bring the power plant online and operating.
Moving to slide 24, and 25 the.
The second leg of our growth plan comes from the energy story.
Slide 24 demonstrates the energy storage facilities that have started construction.
Following the recent operation of the five megawatts 20 megawatts hour window.
We continue with the development in this segment and currently have seven projects under construction with a combined capacity of 184 megawatts or 444 megawatt hour.
As you can see there are slight delays in commercial operation date.
We are but we are on track with our 2023 gross target.
The other projects that should help us hit our 2023 growth targets are included in the pipeline with various stages of development.
Please turn to slide 26 for a discussion of our 2022 guide.
We expect total revenues to range between 710 and $735 million.
With electricity segment revenues between 630 and $640 million.
We expect product segment revenues between 50 and $60 million.
Guidance for energy storage revenue is expected to be <unk>.
$30 million to $35 million.
We expect adjusted EBITDA to be between 400 to 30 and $450 million.
We expect annual adjusted EBITDA attributable.
Minority interest to be approximately 38 million tonnes.
As noted in the previous quarter adjusted EBITDA guidance for 2022.
$15 million in business interruption insurance proceeds of which $5 2 million. We're already recorded in the six months ended June 32022.
I will end our prepared remarks on slide 27. This was a solid quarter demonstrated by continued financial and operating momentum with strong progress against our long term goals.
While the global markets are experiencing challenges related to supply chain disruptions and raw material shortages.
<unk> batteries and solar panels, we remain focused on increasing our capacity.
And delivering meaningful revenue expansion.
Accelerating our bottom line.
This momentum is further supported by the recently proposed inflation reduction Act that.
<unk> will enable us to enjoy additional tax benefits in both electricity and storage segments in the U S.
Including potential investment tax credits for Standalone storage facilities.
And we will increase our ability to realize the value of production tax credits in a more efficient way.
We are encouraged by <unk> resilience in these trying times as well as our ability to turn revenue growth into expanded profitability.
Our integrated business model provides us with significant differentiation versus many other renewable energy developers.
With a growing pipeline and numerous projects under development, we remain confident in our long term plans to increase our combined geothermal energy.
Energy storage and solar generating portfolio to approximately one five gigawatt by 2023.
And to deliver an annual adjusted EBITDA of $500 million.
On a run rate basis towards the end of 2022.
This concludes our prepared remarks, now I would like to open the call for questions operator. Please.
Absolutely we will.
I'll now begin the question.
If you would like to ask a question. Please press star.
Followed by one of your questions.
Yeah.
If for any reason.
That question please.
<unk> followed by <unk>.
To ask a question please press star one.
As a reminder, if you are using.
Yes.
Please go ahead.
Your handset before asking your question.
We will pause briefly to allow questions.
Hey, Jerry.
Okay.
Our first question comes from the line.
Noah Noah Kaye with Oppenheimer you May proceed.
Yes, thanks for taking the questions.
You discussed.
The subject at Investor day, but I wanted to build on it here a little bit and it's really around the return profile at this point.
For new geothermal projects, we've continued to see.
Inflation in.
A lot of parts of the cost structure. So can you comment to kind of.
What youre seeing in terms of inflation trends.
On average capex per megawatt.
And then assuming that there is additional headroom for PPA increases.
Where you think irr's are penciling out.
Thanks for the question.
Could we see.
On one hand, we see inflation rates going up and that has.
Some impact.
On our operating expenses, although if you look at the profile.
The gross margin, obviously EBITDA margins that we have on our electricity segment the impact of.
Inflation on the O&M is not very material.
And if you look at the capital invested in projects. So although inflation is going up what we've seen in the last few months the significant reduction in the raw material prices.
Well actually over the previous two years, two and a half yields we saw a continuous increase in raw material prices that have started to go down a few months ago.
So.
We look forward and see that the new projects Capex would be similar or maybe even a bit lower than what we've seen in the last couple of years.
And on top of that we are a vertically integrated company. So.
So we are continuously improving our.
Project products.
And continuously seeing alternative way in order to reduce the cost of developing.
Geothermal project and this is also something that.
Supportable.
Continued reduction.
In the Capex cost.
In parallel to that.
You alluded in the in the market with PPA pricing increases the demand for geothermal.
Is that significant.
Significant and growing.
Yes.
And the PPA pricing that we have.
That we're signing.
Higher every one that we signed.
So overall, we see a return.
Similar and better for Kyoto.
With the new inflation index.
Some of that.
And the extension of the PTC.
As for geothermal.
We will see this continuing to support us.
<unk>.
Just on the draft.
The mechanics of getting these production tax credits is much easier and less costly.
Probably no need for tax equity transactions that can be utilized annually. So we.
We see a very strong momentum.
Okay.
Very helpful. There.
Wanted to ask about that Dixie Valley shutdown and I guess, just generally around operations can you give us a little bit of an indication of what what caused the pull forward.
Of the maintenance and the shut down and I guess the broader question is we continue to see some pretty extreme.
Extreme weather events certainly in a lot of the areas where your operations are you now.
Are you just generally at this point and planning for increased opex costs related to our basis.
Basically climate resiliency.
<unk>. This is a project that we have.
Acquired last year from Baird Turgeon.
The issue that we had there was a trade agenda Rachel.
And we were planning.
To do the maintenance for these generators in Q4 this year.
Unfortunately, the failure happened just before we did the the overall maintenance.
And what we are.
Able to do is actually to move.
Backward to the same period of time.
And fixing the generator to do the entire maintenance and shutdown of the plant that will do in Q4.
Actually it's an old generated I think a 30 year old generator that we knew needed maintenance, but unfortunately the.
So that happened just before we did the maintenance.
Hmm.
Okay, and I said on O&M cost.
These are things that we.
Does that mean that mainly on the labor market.
The Labor force.
Another path.
This is part of.
The ongoing business to manage these expenses.
Yep Yep.
Maybe just sneak one more in.
You highlighted the <unk> it looks like Theres some.
Incrementally positive policy support coming out of the Western Governors Association or that May be in development can you just comment to what that might look like and how youre engaged there.
The policy support that we've got both in California, and Nevada.
Pushed.
<unk>.
Many utilities in CCA to look for geothermal project.
Probably the.
Maybe the only or the most.
The bigger developers of new geothermal because the supportive for new geothermal projects not re contracting existing one.
So we see a lot of support I can tell you also that we've seen in California from the governor.
Pushing permitting processes.
To expedite the project.
So we do hope that the.
The last few.
Decision that we'll make will allow us to have permitting faster than what we had in the past.
And I think these extreme weather conditions the highlight the fact that the.
You need to have more renewable energy and I can say personally also.
Managing a company that is actually part of the solution for the climate crisis.
Very nice place to be in.
Okay.
Great. Thank you for the color John .
Thank you.
Thank you Mr Cohen.
The next question comes from the line Mark Strouse with Jpmorgan you May proceed.
Yes. Thank you very much for taking our questions just had a few follow ups on the inflation reduction Act.
When youre talking about the PTC, becoming kind of more efficient and kind of the maybe not needing tax equity partnerships should we think about that as kind of on a go forward basis for new contracts that are being signed or is there potential to apply that to your existing portfolio as well.
Mark Good morning, this is Archie.
Looking to see the final data in order to assess.
The options to start enjoying almost cash.
Cash PTC tax.
Tax equity transaction.
Of course, we still need to sell those PTC, but they can be sold to according to the new rolling to a new company that actually it makes money in the U S and there is plenty of those.
So.
The bottom line is we will try and see if we can apply and enjoy also for the project with our construction of the new PTC alone.
Okay. Thanks, and then.
Just one follow up when I'm looking at the geothermal pipeline and the storage pipeline and thinking about the IRR.
Is there potential that.
Some of the longer dated opportunities that youre talking about kind of and maybe in 2024 and beyond that there is good you could potentially pull those forward into 2023, maybe.
Or should we think about this as just kind of.
As far as the ITC goes benefiting more of the longer term visibility.
It's.
They are on it.
It's very hard to pull projects earlier because main the main constraints that we have on the projects are not related directly to what mark is the permitting process and the interconnection process.
<unk> familiar that takes time.
We are ready to do them whenever we can but we'll usually waiting for permitting and interconnection. So.
I don't think we will not be able to push forward project unless something change in the regulatory environment, the local regulatory environment in the permitting and interconnection.
I think mark is really worth mentioning that on the storage side. The ITC on storage is something quite unique that we haven't seen but we anticipated it.
And that should provide.
More boost to our.
Business.
As you know some of our revenue.
Related to natural gas.
They should not be lower as a result of the ITC. In addition to that we have.
Sign on all of our California assets.
And the operating so even we will see a lower capex.
For future developments, we should enjoy the ITC and the higher IRR. So we do think that the IRS is something very supportive.
Walmart and to the whole industry.
Okay that makes sense very helpful. Thank you.
Thank you Mr <unk>.
The next question is from the line of Julien Smith with Bank of America. Please go ahead.
Hi, guys.
Stepping in for Julien.
So my first question.
I was wondering any update on the supply chain.
The supply chain situation.
Across geothermal solar and storage.
It just sounds like there are any of them.
Across our portfolio of growth projects.
But battery.
And for the most part generally unchanged from last quarter.
Yeah I was just wondering if that had.
Any details on levels of procurement.
Sure.
Thanks Pam.
How much alrighty prices.
And then any other color you can provide.
Alright.
That'd be awesome.
Okay. Thank you so I will start.
The supply chain issues is something that has been discussed for the last.
A couple of years.
I think that when you look at Beaumont and the fact that in this quarter alone. We've added 73 megawatts of new.
Operating power plants.
Demonstrates in reality, how we deal with supply chain issues.
And if I need to to maybe drill.
Drill down into the three segments two related to on the geothermal and storage protocol.
So I would say that on the geothermal pump.
We are the leading geothermal company, who are vertically integrated we have.
The experience and knowledge with multiple suppliers globally.
And if we do get into some kind of a supply chain issue with one we moved to the other.
And we're able to manage them in the geothermal project as you can see come.
Generally on time, as we expect them to come.
On the batteries and solar this is more challenging.
Market.
Supply chain market and we are.
Seeing the small delays with few few.
A few months.
However.
For the projects that we've already announced we are already.
All the all the relevant materials.
I live in batteries.
And we are working with our suppliers in case issues.
And the way basically that we are mitigating it in that.
We have strategic stock that we buy we maintain.
Level that support our growth needs in the near and medium term.
And by that we're able to meet most of our timetables.
Both on the geothermal and the battery storage and solar projects.
And as Jeff.
Oh.
Was hoping to.
Maybe some color.
Analog growth opportunity.
Specifically.
I get analyst day, you mentioned, Indonesia.
<unk> got really strong so maybe.
Right.
Hmm.
And there's no upside that you could see.
Yes, yes, it does.
Alright.
Yes.
Yeah.
Your line is not is not very good so I'll try to answer this.
That they said.
And as you said and as we said on the Investor The Indonesia is a very important growing market for us.
We have a top of solar.
Aegean.
We are in developing already with medical partners we have.
Two additional projects talkative dong and obsolete, where we own 100% of the project.
We expect to start drilling.
In total <unk>.
This quarter and what's the lead to start drilling.
End of the year beginning of next year.
So these are all the projects that are in development.
Let's say in our near term, but in the midterm growth plan that we have.
On top of that we have multiple discussions with local developers and with the <unk> and the Indonesian utility.
On doing projects some of them on Standalone, where we own 100%.
And other joint venture the way <unk> operated through joint venture that's required by the Indonesian lasting sustainable entity.
We are working very close with them, we have a dedicated resource and a dedicated business development and sales.
In Indonesia.
And we see Indonesia, the mid term to become an important part of our growth plans.
Okay, great. Thank you. Thank you. Thank you.
Thank you.
Alright.
Thank you Matt.
Again to ask a question please press star one.
There are no additional questions at this time I will pass it back to the management team.
Mark.
Thank you everyone.
As you've seen this has been another very strong.
Quarter four months, both on top line and on our adjusted EBITDA.
The numbers.
On the Capex we've invested.
250 with more than $250 million in the first half and we plan to do the same.
This demonstrates our confidence in the geothermal energy.
Energy storage segments going forward. This is a buildup here and we expect to enjoy the fruits from this project that we are investing today.
In the near and midterm.
Time.
So thank you all for your support.
And have a good day.
Okay.
That concludes today's conference call. Thank you you may now disconnect your lines.