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spk01: Hello everyone and welcome to the Allmats Technologies first quarter 2022 earnings call. My name is Victoria and I will be calling into your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. If you wish to withdraw your question, please press star 2. If you have joined us online, please press the red flag icon. When preparing to ask your question, please ensure that your line is unmuted locally. I'll now pass over to your host, Samuel Cowan, to begin. Please go ahead.
spk05: Thank you, Operator. Hosting the call today are Duran Blashar, Chief Executive Officer, Ozzie Ginsberg, Chief Financial Officer, and Smadar Lavie, Vice President of Investor Relations and ESG Planning and Reporting. 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 off 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 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 of 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. Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the company's website at ormat.com and the presentation link that's down on the investor relations tab. With all that said, I would now like to turn the call over to Duran Blashar. Duran, the call is yours.
spk06: Thank you, Sam, and good morning, everyone. Thank you for joining us today. The first quarter marked a good start for the year, delivering strong financial results and operational performance. We are encouraged by the robust growth captured 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 addition to our portfolio that we made last year. I am pleased to note that the first quarter demonstrated solid growth and advancement towards many of our stated targets discussed at OMAD's recent investor day. We benefited from improved performance in our electricity segment, mostly as a result of the capacity expansion to our operating power plants and the successful integration of our Q3 2021 geothermal asset acquisitions. We continue to execute on our growth plans and recently commenced commercial operation of Tungsten Mountain II, which increased the total generation of the tungsten complex by 13 megawatts. In addition, we are on track to complete construction of the 30 megawatt CD4 geothermal power plant, the tungsten solar, the Worcester solar, and the Steamboat Hill solar 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 increase in demand has already resulted in higher PPA prices compared to what we saw in recent years. This demand, driven by legislation and broader migration towards renewable electricity sources, will further support our unique business sector. We remain on track to deliver an annual adjusted EBITDA of $500 million on a run-rate basis towards the end of 2022. I will now turn the call to Asi to review the financial results before I provide a further update on our operations and further plan. Asi?
spk02: Thank you, Doron. Let me start my review of our financial highlights on slide five. Total revenue for the first quarter was $183.7 million, up 10.4% year-over-year, reflecting substantial growth in both our electricity and product segments. First quarter 2022 consolidated gross profit was $69.9 million. This resulted in a gross margin of 38.1%, down from the gross margin of 44.3% in the first quarter of 2021. The difference in margin performance is driven primarily by a one-time revenue of $5.4 million in the first quarter of 2021 related to the February power crisis in Texas, as well as the impact of the shutdown of the Hebrew power plant in late February. Doron will elaborate on it shortly. Net income attributed to the company's stockholder 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 20.8% and 22.2% respectively. The increase was mainly due to the electricity segment contribution. In addition, in the first quarter of 2021, the company was negatively impacted by the February crisis in Texas that reduced net income by $8.8 million, or 16 cents, respectively. Adjusted net income attributed to the company's stockholders was $19.9 million, or 35 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 rates of 31.4% compared to 14.8% same time last year. Adjusted EBITDA of $107.9 million increased 8.7% in the first quarter compared to $99.2 million in the first quarter last year, with EBITDA growth being largely driven by electricity segments. Breaking the revenues down at the segment level, electricity segment level increased 12.1% to $160.5 million, supported by contribution from new asset gain through the Terrigen acquisition, expansion of our McGuinness Hill complex, and increase in the operation in Pune, which also benefited from higher electricity prices. This newly added generation capacity was slightly offset by the impacts of shutting down Heber One power plant following the fire in late February. The Heber One binary units are now back in operation. While 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, expected BI insurance income is not booked as revenue. but will be booked as a reduction to cost of goods sold, or in a separate line item if proceeds will top the cost of goods sold. 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 difference is driven by the absence of $5.4 million one-time revenue event related to the February power crisis in Texas, as well as by 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 1 fire and the impact of the commissioning work we had at the taxon plant, which allowed the recent capacity expansion. In the product segment, gross margin was 7%, 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 segment reported a gross margin of 13.5%, compared to elevated gross margin of 62.4% in the first quarter last year. The decrease was again primary to the absence of a one-time revenue in Q1 2021, which had an outsized impact margin performance in last year's first quarter. The electricity segment generated 95% of OMAD's total adjusted EBITDA in the fourth quarter. The product segment generated 2% and the energy segment reported adjusted EBITDA of $3.8 billion, representing 3% of total adjusted EBITDA. Reconciliation of EBITDA and adjusted EBITDA are 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 positional much well as we walk to work 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 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 4.1%, further supporting our capital needs. Cash, cash equivalent, and marketable securities at fair value, including restricted cash and cash equivalent, as of March 31, 2022, was approximately $284 million, down from $387 million at year end. Marketable securities at fair value were $43 million. The accompanying slide break down the use of cash for the three months, illustrating our much ability to reinvest in the business, service debt, and return capital to our shareholders in the form of cash dividends, all from cash generated by our operation and our strong liquidity profiles that we continue to maintain. Our total debt as of March 31st, 2022 was nearly $1.9 billion net of deferred financing costs. And its payment schedule is presented on slide 26 in the appendix. The average cost of debt for the company in the quarter was 4.38%. We think it is most important to note that as we prepare to deploy capital to fund our multi-year growth target, nearly all of our debt is at fixed rate in nature which should help position OMAD competitively in the rising global interest rate environment. Moving to slide eight, the significant growth in both electricity and storage segment will require 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, as of the end of the quarter. Our total expected capital for the last three quarters of 2022 includes approximately $380 million of capital expenditures, as detailed in slide 27 in the appendix. Overall, Ormat is 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 an outstanding share of common stock as of May 16th, 2022, and it will be payable on May 31st, 2022. That concludes my financial overview. I would like now to turn the call to Daron to discuss some of the recent developments in our growth plan for the next three years.
spk06: Thank you, Ashley. Turning to slide 11 to look at our operating portfolio. During Q1 of 2022, power generation in our geothermal power plant increased by approximately 8.6% compared to last year. We are capturing the benefits from the addition of the Dixie Valley and Biwawi plants to our portfolio, as well as the increased output from the Guinness Hills and Puna. These contributions were partially offset by lower generation at Heber 1 due to a fire outage, and also offset by a planned outage at the tungsten plant, which has required a standard shutdown to complete our successful expansion. As I mentioned earlier, we successfully commenced the operation of tungsten 2, which added 13 megawatts to the tungsten complex. This increase was higher than expected, resulting in a total of 42 megawatts of geothermal generating capacity. As noted on slide 12, our Puna geothermal power plant is running and operating at an approximately 25 megawatt level, and currently PPA prices continue to be positively impacted by higher global energy prices exceeding the first quarter and continuing even further in the second quarter. In addition, we are evaluating the positive decision the POC made to conditionally approve the 46 megawatt PPA with HELCO subject to an environmental assessment process, which may take one to two years to finalize. We remain on track to drill new wells and expect to further increase generation at the site as the year progresses. Turning to slide 13, let me discuss our plan to improve performance of our assets as the year continues. First, our assets in Guadeloupe return to full capacity And now our focus is on advancing the 10 megawatt expansion of the Boyan project in the island. Second, with respect to our Olkaria power plant in Kenya, which is currently generating approximately 123 megawatts, I'm pleased to announce that we are on track to complete the enhancement of the OEC by the end of the second quarter and expect to gradually increase capacity by 10 to 12 megawatts and even more. In addition, We are on track to start our drilling campaign in the third quarter of this year, which should enable us to restore capacity further and potentially reach full capacity during 2023. Next, I'm also glad to report that we successfully brought back to operation approximately 20 megawatts generated by the binary units at our Hibbe 1 plant. We estimated that the outage of the power plant will reduce 2022 revenues by approximately $15 million. While we are updating our revenue guidance to reflect this reduction, we maintain our EBITDA guidance that we expect 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% increase compared to the same time last year. While we have no new material contracts to announce at this stage, we were awarded over $20 million in projects and expect to add them to the backlog once contracts will be signed. Moving to slide 15, we provide an update on the energy storage segment. As Asi mentioned, energy storage segment revenues decreased due to the prior year one-time revenue event related to the Texas power crisis. As you can see in the chart on slide 15, revenues from the core storage facility remain stable while contribution of the demand response activity is diminishing. Also on this slide, adjusted EBITDA of the storage segment increased nearly 29% compared to the first quarter of last year. Moving to slides 17 and 18. As we have communicated, 2022 is a significant build-up year, comprised mainly of geothermal projects in development. This build-up supports 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 generation of between 1,200 to 1,213 megawatts. In our energy storage portfolio, we plan to enhance our growth and increase our current 83 megawatt portfolio by an additional 230 to 290 megawatts or 550 to 660 megawatt hours by year end 2023. This addition will enable us to reach a total storage portfolio of between 313 and 373 megawatts, subject, of course, to our ability to overcome any permitting and supply chain challenges. Slides 19 and 20 display the nine geothermal and six solar PV projects currently underway, comprising the majority of our 2023 growth goals. We are on track with CD4, with solar, tungsten solar, too, and steam-motile solar. all of which are expected to come online in the second quarter of this year. With respect to our 12 MW Dixie Meadows project, which is currently under construction, it is possible we may experience delays or other impacts as a result of a recent endangered species lifting by the U.S. Fish and Wildlife Service of a toad located near our project. We will continue to work with the relevant agencies to ensure that any additional required processes as a result of the listing are met, as we have continuously done throughout the development of this project. Moving to slide 21 and 22. The second layer of our growth plan comes from the energy storage segment. Slide 21 demonstrates the energy storage facilities that have started construction. We continue to develop this segment and currently have eight projects under construction with a combined capacity of 189 megawatts or 464 megawatt hours. These projects will allow us to double our operating assets year over year in the next two years. We have already secured the batteries needed for these projects. However, as with the rest of the industry, we are continuing to experience delays in some projects due to supply chain challenges, including delivery time of batteries. Having said that, based on the information we have today, we keep our growth targets intact for 2023. The other projects that should help us hit our 2023 growth targets are included in the pipeline and are in different stages of development. Please turn to slide 23 for discussion of our 2022 guidance. We expect total revenues between $710 and $735 million, with electricity segment revenues between $630 and $640 million, reflecting the $15 million impact of Hibber One shutdown I mentioned before. We expect product segment revenues between $50 and $60 million, guidance for energy storage revenues is expected to be between $30 and $35 million. We maintain our expected consolidated adjusted EBITDA at 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 in insurance proceeds Fortuna and Hibber One. 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 1.5 GW 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 OMAD is fully integrated in the geothermal segment and plays a large role in the development of its storage assets provides us with significant advantages versus many other renewable energy developers. We believe strongly that our strategy, our assets, our competitive advantage, cost structure related 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 some 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.
spk01: Thank you. We will now start our Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you wish to withdraw your question, please press star 2. When preparing to ask your question, please ensure that your line is unmuted locally. And our first question comes from Noah Kay from Oppenheimer & Company. Please go ahead. Your line is open.
spk03: Thanks for taking the questions. First, a supply chain-related question for the electricity segment. I think battery supply and solar panel shortages, all that's well publicized. But for the geothermal expansion, any items to be aware of in terms of gating factors on supply chain? I know you 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 permitting and environmental considerations at this point?
spk06: I would say, I know, thank you for the question. As you said, we are vertically integrated. We do manufacture most of our products. But similar to everybody, we generate raw materials. There are challenges with raw 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.
spk03: Okay, that's positive. To follow up 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?
spk06: We had quite a good discussion with the insurance adjuster and the insurance companies and we hope that in the coming weeks or months we will start to see payments for the 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 that's the reason that we reduced the revenue guidance due to this fact
spk03: Okay, that's helpful. And then, you know, you mentioned Dixie Meadows. You know, our understanding is that the protections there last, I believe it was 240 days. You know, how do you think this will play out? At what point will you be able to, you know, proceed with completion? And what should investors be watching for in the meantime?
spk06: I would say that setting the toad as an endangered species doesn't impact construction. So we believe that there's no legal basis to stop construction of the plant. We have developed with the BLM a robust mitigation plan due to these issues with the toad over six years. So this project could have come online already six years ago had we not worked with the BLM develop this mitigation plan and we think that this mitigation plan is good enough um so we obviously with this new lifting we'll of course continue to work with all the agencies blm as well as the fish and wildlife to address any further concerns that they have in the meantime you know we continue with the construction the 240 days that you mentioned is the time for them to finalize this emergency decision that they did. And we hope that we will be able to discuss with them and the BLM a good resolution that will allow us to operate this 12 megawatt facility since the US, the administration, and I believe everybody wants renewable energy in order to mitigate the climate crisis. And that's what we do. And since, you know, this is the target of a global target, administration and everybody else's target, you know, to get more renewable energy, we believe that there should be a solution where we'll have the right mitigation plan and operate the power plant over time.
spk03: Perfect. Thanks for taking the questions.
spk06: Thank you.
spk01: Perfect. Thank you, Noah, for your question. And as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. And our next question comes from Julian Dumoulin-Smith from Bank of America. Please go ahead.
spk04: Hey, good morning, team. Thanks for the opportunity to connect. I just wanted to follow up on some of the delays here on the project, specifically storage. Can you talk about supply sourcing at this point, which is what gives you confidence on the specificity on the latest delays? I'm just saying 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 22, 23, 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, getting confidence on the timeline is the key here that I'm curious about.
spk06: Hi, Julian. Thanks for the question. The one confidence that we have is that all of these projects either have been supplied with the batteries, like Bueno and Apto that are supposed to come online, or we've issued already PO and the batteries are due to come. So what we see with the supply chain issues is not getting batteries, but mainly might be some delay in timing-wise. But also that, you know, a PO has a defined time of delivery, and we expect them to come online. So all in all, the project that you see here, we feel today very confident that they will come on time, mainly due to the fact that we've ordered the materials. So they'll move, you know, in months or two. It might happen, but this is where we believe now.
spk02: Julian, one more thing to mention. We did keep the storage revenue for the year flat versus our initial year-end guidance of 30 to 35 million. And please also, I'll remind you that in the East Coast, we are enjoying record prices. As natural gas hit yesterday, $7.7 per MBTU. So even if we have a slight delay in project on the storage, the other assets are actually functioning very well. And as the one mentioned, and you can see on the slide deck, we continue to see improvements in the EBITDA margin of the storage. So we're really promoting this business. We think it's important. And we kept the revenue guidance for the year. you know, it wasn't a challenge. We actually see a good tailwind of prices.
spk04: Right. So actually, effectively, with that guidance and change, the thought process is that merchant prices are offsetting some of the delay in revenue recognition on new assets.
spk02: If that will be the case, that's the mitigating part, yes.
spk04: Got it. Excellent. Thank you, guys. And then just related here on California, there's some headlines around you know, extending nuclear asset life a little bit. I mean, that could impact total procurement. I mean, what are you guys thinking on and seeing any updates on RA procurement? I mean, obviously, that kind of extends in the early next year to a substantive extent. But are you seeing any updates on the overall scale of what the procurement is? Any updates on Ural's position therein? You know, I know multiple potential expansions.
spk02: We are in a definitely... A seller market right now, Julian, anything that we will bring in the next five years, we'll be able to contract in the West Coast in very good prices. So we see the same demand that we saw as we discussed in the recent investor day. Nothing changed.
spk04: Got it. All right. Excellent. I'll leave it there. Thank you, guys. Thank you.
spk01: Thank you so much, Julian, for your question. At this time, if there are no further questions, I'll pass back over to Jerome Blachar for any final remarks.
spk06: Thank you. Thank you, everyone, for joining us. As you've seen, this was a very solid quarter and a very good start for the year. We are focusing on the growth of our company and the capital investment, and we look forward to hearing from you and seeing you. Thank you.
spk01: Thank you everybody for joining today's conference call. You may now disconnect your lines.
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