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spk07: Good morning, and welcome to the RMOT Technology second quarter 2022 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to your host, Sam Cohen with Alpha IR. Please go ahead.
spk04: Thank you, Operator. Hosting the call today are Duran Blashar, Chief Executive Officer, Ozzie Ginsberg, Chief Financial Officer, and Smadar Levy, Vice President of Investor Relations and ESG Planning and Reporting. Before beginning, we would like to remind you that 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, current estimates, and projections, future results, or trends. Actual 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 ORMET 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. Reconciliation is 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 ORMAC.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 Duran Bushar. Duran, the call is yours.
spk02: Thank you, Sam, and good morning, everyone. Thank you for joining us today. In the second quarter, we continue 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 segment. This quarter makes significant milestone achievements that validate our strong operational capabilities, our healthy financial position, and the attractiveness of the markets we are operating in. Since the end of the first quarter, we commenced the commercial operation of five projects and added 73 megawatts to our portfolio, with the addition of the tungsten-2 and CD4 geothermal power plants, the Worcester and Steamboat solar power plants, and the Tierra Bueno storage facilities. With respect to CD4, we are optimizing the interconnection to allow additional megawatts to be sold through the grid. We are 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 our North Valley plant, totaling up to 285 megawatts. These 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 project's renewals. This contract, which we signed and renewed at attractive rates, showed a 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 2.5% via the issuance of $431 million of convertible green 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 updates on our operation and future plans, I will turn the call over to Asi to review the financial results. Asi?
spk08: Thank you, Daron. Let me start my review of our financial highlights on slide 5. 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 dollars this resulted in a gross margin of 34.1 percent down slightly from a gross margin of 35.4 percent 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 dollars or $0.20 per diluted share in the quarter. This compared to $13 million or $0.23 per diluted share in the same quarter last year. On an adjusted base, net income attributed to the company stockholder was $12.2 million or $0.22 per diluted share, with net income attributed to the stockholder down 6.7% and diluted EPS down 6.4% 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 these currency-related issues, our EPS would have been 27 cents per share. Adjusted EBITDA of $100.7 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 format, and our 12-month trailing adjusted EBITDA is now equal to $426.2 million. The increase was largely driven by strong contribution within our electricity segment and lower G&A cost 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 Terrigen acquisition, the expansion of our Tungsten II power plant, and increased operation and higher rates at Puna, which has benefited from elevated oil prices. These contributions to revenue will offset slightly by the impact of the fire in Heber 1 operation and maintenance work at Dixie Valley Power Plant. For Heber 1, while 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 BI insurance proceeds related to Heber 1. In Dixie Valley, revenue were negatively impacted by $4 million as a result of a prolonged maintenance work that started at the beginning of April 2022, which Doron will discuss later. In the product segment, revenue increased 40% to $10.4 million and represents now 6.1% 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 33% to $7.5 million when compared to the second quarter of 2021. This meaningful increase is driven primarily by higher rates in our Plumstead and Stricter storage assets at PGM, which increased our revenues by an 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 60 basis points compared to the same time last year. In the product segment, gross margin was 0.2% for the quarter, compared to 20% in the same quarter last year. Gross margin was impacted by contracted sign in 2021 that had to absorb 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 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 slide. Moving to slide nine. Our net debt as of June 30, 2022, was approximately $1.7 billion. In June, we raised convertible bond at rates of 2.5% and in connection with the insurance of the convertible bond, we enter into a capped call transaction. The capped call transaction was intended to reduce the dilution to the outstanding share or and offset part of all of the cash payments we will be required to make in excess of the principal amount of the converted notes. In the event that at the time of the conversion, the share price exceed the conversion price. To further reduce future dilution, we use part of the proceeds for a buyback of approximately 260,000 shares at a very attractive price. Proceeds were also used to repay the $221.9 million Senior and Secured Bonds Series 3 that carried higher interest rates. We intend 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. This attractive transaction with our $75 million new bank term loan further enhance our financial strength and flexibility as we look to realize our long-term growth objectives. Cash and cash equivalents and restricted cash and cash equivalents as of June 30, 2022 was approximately $356 million compared to $387 million as of December 31st, 2022. The slides break down use of cash for the three months, illustrating our much ability to reinvest in the business, service our debts, and return capital to our shareholders in form of cash dividends and also buyback, all from cash generated from our operation and our strong liquidity profile that we keep and maintain. Our total debt as of June 30, 2022, was approximately $2.1 billion. net of deferred financing costs, 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 to 4%. We think it is important to note that as we prepare to deploy capital to fund our multi-year growth plan, nearly all of our debt liabilities are fixed rate in nature, which should help position OMAP competitively in this rising global interest rate environment. Moving to slide 10. In the first half of 2022, we invested nearly $265 million in CAPEX to advance our growth. 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, OMAD 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 3, 2022, our board of directors declared, approved, and authorized the payment of a quarterly dividend of 12 cents per share to all holders of the company, issued an outstanding shares of common stock on August 17, 2022, payable on August 31, 2022. That concludes my financial overview. I would like now to turn the call over to Daron to discuss some of the recent developments.
spk02: Thank you, Asi. Turning to slide 13 for a look at our operating portfolio. Generation growth was positively supported by the inclusion of Biwawi and the generation of the Dixie Valley power plants. This was partially offset by the Ibewan fire, 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 at an approximate 25 to 26 megawatt level, and currently PPA prices continue to be positively impacted by the higher global energy prices we experienced in the second quarter, and we expect this dynamic to continue in the third quarter. Over the longer term, our plants in Hawaii are still focused on repowering the power plant and we are currently amending our agreement with HELCO to enable us to address current market conditions in the new long-term PPA. Turning to slide 16. First, in our Olkaria power plants in Kenya, we are on track to begin our drilling campaign during the third quarter, which will enable us to further increase capacity. Second, with respect to Heber 1, we are currently optimizing the complex through repowering work, which is expected to be completed in the second quarter of 2023. Next, while we experienced a shutdown at Dixie Valley due to a generator failure, it has not impacted our 4D operation significantly. The plant was already scheduled for steam turbine maintenance in Q4, but due to the unplanned shutdown, we elected and were able to pull forward the scheduled maintenance and thus the shutdown that was completed earlier in Q2. The Dixie Valley 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 contract totaling approximately $20 million during the quarter, including a sizable contract in the Philippines, as we discussed previously. Moving to slide 18 for an update on the energy storage segment. The energy storage segment delivered another strong quarter, supported by elevating energy prices at PGA market. Next quarter, we expect to start also benefiting from the recent operation of the Tierra Bueno facility. Moving to slide 20 and 21. As we have communicated, 2022 is a significant buildup year comprised mainly of geothermal and hybrid solar PV projects in development. This buildup supports our robust growth plan, which is expected to increase our total electricity portfolio generation to approximately 1.2 gigawatts. In our energy storage portfolio, we plan to enhance our growth and increase our current 88 megawatts, 196 megawatt-hour portfolio by an additional 190 to 270 megawatts, or 465 to 605 megawatt hour by year end 2023. These additions will enable us to reach a total storage portfolio of between 273 and 353 megawatts, with the assumption that we can overcome any permitting and supply chain challenges. Slides 22 and 23 display the sixth geothermal and five hybrid solar PV projects currently underway following the commercial operation of Tungsten 2, CD4, Wister and Steamboat Solar, which comprise the majority of our 2023 growth goal. We are on track with North Valley, Tungsten Solar, Brady Solar and North Valley Solar, all of which we expect to come online during the first quarter of 2023. With respect to our 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 to identify whether additional mitigation measures are necessary to protect the Dixie Valley Toad and have the project move to completion. While we go through this process, or must have decided to temporarily pause construction to allow full focus on these efforts to bring the power plant online and operating. Moving to slide 24 and 25. The second layer of our growth plans comes from the energy storage segment. Slide 24 demonstrates the energy storage facilities that have started construction. Following the recent operation of the 5 MW, 20 MW hour Tierra Bueno, we continue with the development in this segment and currently have seven projects under construction with a combined capacity of 184 MW or 444 MW hour. As you can see, there are slight delays in commercial operation dates, but we are on track with our 2023 growth 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 guidance. We expect total revenues to range between $710 and $735 million, with electricity segment revenues between $630 and $640 million. We expect product segment revenue between 50 and 60 million dollars. Guidance for energy storage revenue is expected to be between 30 to 35 million dollars. We expect adjusted EBITDA to be between 430 and 450 million dollars. We expect annual adjusted EBITDA attributable to minority interest to be approximately 38 million dollars. As noted in the previous quarter, adjusted EBITDA guidance for 2022 includes $15 million in business interruption insurance proceeds, of which $5.2 million were already recorded in the six months ended June 30, 2022. 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, including batteries and solar panels, we remain focused on increasing our capacity and delivering meaningful revenue expansion while accelerating our bottom-line growth. This momentum is further supported by the recently proposed Inflation Reduction Act that, if passed, will enable us to enjoy additional tax benefit in both electricity and storage segments in the U.S., including potential investment tax credit for standalone storage facilities, and would increase our ability to realize the value of our production tax credit in a more efficient way. We are encouraged by our macro 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 storage, and solar generating portfolio to approximately 1.5 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. Operators, please.
spk07: Absolutely. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one or your touch-tone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question comes from the line of Noah K. with Oppenheimer. You may proceed.
spk06: Yeah, thanks for taking the questions. You know, you discussed this subject at Investor Day, but I want to build on it here a little bit. And it's really around the return profile at this point for new geothermal projects. You know, we've continued to see inflation in a lot of parts of the cost structure. So can you comment to kind of what you're seeing in terms of inflation trends on average capex per megawatt And then, assuming that there's additional headroom for PPA increases, where do you think IRRs are penciling out?
spk02: I don't know. Thanks for the question. 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 and 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, although inflation is going up, what we've seen in the last few months is a significant reduction in the raw material prices. Actually, over the previous two, two and a half years, we saw a continuous increase in raw material prices that started to go down a few months ago. So, as we look forward, we see that the new project, 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 we are continuously improving. our products and continuously seeing alternative ways in order to reduce the cost of developing geothermal projects. And this is also something that supports our continued reduction in CAPEX costs. In parallel to that, you will know that in the market we see PPA pricing increases, the demand for geothermal is significant and growing, and the PPA pricing that we are signing is higher than everyone that we signed. So overall, we see a return similar and better for geothermal. Now with the new Inflation Reduction Act and the extension of the PTC for geothermal, We will see this continuing to support us, and at least on the draft, the mechanics of getting these production tax credits is much easier and less costly, probably no need for tax equity transactions. They can be utilized annually, so we see a very strong momentum.
spk06: Very helpful there. I 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 caused the pull forward of the maintenance and the shutdown? And I guess the broader question is, you know, we continue to see some pretty extreme weather events, certainly in a lot of the areas where your operations are. You know, are you just generally at this point planning for increased OPEX costs related to basically climate resiliency?
spk02: On Dixie Valley, this is, as you know, a project that we acquired last year from TerraGen. The issue that we had there was a failed generator. We were planning to do the maintenance for these generators in Q4 of this year. Unfortunately, the failure happened just before we did the overall maintenance. What we were able to do is actually to move backwards to the same period of time while fixing the generator to do the entire maintenance and shutdown of the plant that was due in Q4. Actually, it's an old generator, I think a 30-year-old generator that we knew needed maintenance, but unfortunately, the The failure happened just before we did the maintenance. And I said on O&M costs, these are things that we see some impact mainly on the labor market and the labor costs. But on other parts, this is part of the ongoing business to manage these expenses.
spk06: Yep. Maybe just sneak one more in. You highlighted the IRA. It looks like there's 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 you're engaged there?
spk02: The policy support that we got both in California and in Nevada pushed many utilities, NCCA, to look for geothermal projects. I think we are probably maybe the only or the most, the bigger developer of new geothermal because the support is for new geothermal projects, not recontracting existing ones. 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 last few decisions that he'll make will allow us to have permitting faster than what we had in the past. And I think these extreme weather conditions highlight the fact that you need to have more renewable energy And I can say personally also that managing a company that is actually part of the solution for the climate crisis is a very nice place to be in.
spk06: Great. Thank you for the call, Adrian.
spk02: Thank you.
spk07: Thank you, Mr. Kay. The next question comes from the line, Mark Strauss with JP Market. You may proceed.
spk05: Yeah, thank you very much for taking our questions. Just had a few follow-ups on the Inflation Reduction Act. When you're 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?
spk08: Mark, good morning. This is Asi. We are looking to see the final bill in order to assess the options to start enjoying almost a cash PTC versus tax equity transaction. Of course, we still need to sell those PTCs, but they can be sold according to the new ruling to a new company that actually makes money in the U.S., and there's plenty of those. So the bottom line is we will try and see if we can apply and enjoy also for the project, the tunnel construction, the new PTC loads.
spk05: Okay. Thanks, Asi. And then just one follow-up. When I'm looking at the geothermal pipeline and the storage pipeline and thinking about the IRA, is there potential that – some of the longer dated opportunities that you're talking about, maybe in 2024 and beyond, that you could potentially pull those forward into 2023, maybe? Or should we think about this as far as the ITC goes, benefiting more of the longer term visibility?
spk02: It's very hard to pull projects earlier because the main constraints that we have on the projects are not related directly to OMAD. It's the permitting process and the interconnection process that you're probably familiar that takes time. We are ready to do them whenever we can, but we are usually waiting for permitting and for interconnection, so we will not be able to push forward projects unless something changing the regulatory environment, the local regulatory environment in the permitting and interconnection part.
spk08: I think, Mark, it's 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 revenues are related to natural gas, So they should not be lower as a result of the ITCs. In addition to that, we have RAs signed on all of our California assets that are operating. So even we will see a lower capex, you know, for future developments, we should enjoy the ITC and the higher IRR. So we do think that the IRA is something very supportive to ORMAT and to the whole industry.
spk05: Okay, that makes sense. Very helpful. Thank you.
spk07: Thank you, Mr. Shroff. The next question is from the line of Julian Smith, Bank of America. Please go ahead.
spk03: Hi, guys. Ania stepping in for Julian here. So my first question is I was wondering if you have an update on the supply chain issue, the supply chain situation across geothermal, solar, and storage. It just seems like there were maybe delays here and there across the portfolio of growth projects. But battery storage CODs seem for the most part generally unchanged last quarter. But yeah, I was just wondering if you could provide any details on levels of procurement across types. For example, how much is already versus what needs to be shipped and then any other color you could provide on what you'd negate those risks or shift your supply chain would be helpful also.
spk02: Okay, thank you. So I will start, you know, The supply chain issues is something that has been discussed for the last couple of years and I think that when you look at OMAD 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 down into the three segments that you related to on the geothermal and the storage and solar part. So I would say that on the geothermal part, we are the leading geothermal company. We're vertically integrated. We have experience and knowledge with multiple suppliers globally. And if we do get into some kind of supply chain issue with one, we move to the other. and we're able to manage them and the geothermal project, as you can see, come generally on time as we expect them to come. On the batteries and solar, this is a more challenging market, supply chain market, and we are seeing small delays of a few months. However, For the project that we've already announced, we have already ordered all the relevant materials, all the relevant batteries, and we are working with our suppliers in case there are issues. The way basically that we are mitigating it is that we have strategic stock that we buy. We maintain a level that can support our growth needs in the near and medium term. And by that, we are able to meet most of our timetables, both on the geothermal and on the battery storage and solar projects.
spk03: Thank you. And as just a follow-up, I was hoping to maybe if you can color on geothermal growth opportunity. Specifically, on your analyst day, you mentioned Indonesia and prospect. as particularly strong. So maybe write an update there. And then secondly, is there an additional upside that you could see for any argument targets at this point? Anything you're hearing on that one?
spk02: Your line is not very good, so I'll try to answer at least the parts that I heard and And as you said, and as we said on the Invest Today, Indonesia is a very important growing market for us. We have on top of Saula and EGEN that we are in developing already with Medco, our partners. We have two additional projects, Tokatidong and Ropsolit, where we own 100% of the project. We expect to start drilling. in Tokatidong this quarter and in Wapsali to start drilling end of the year, beginning of next year. So these are all the projects that are in development and they are not in our near term but in the mid-term growth plan that we have. On top of that, we have multiple discussions with local developers and with PLN, the Indonesian utility on doing projects, some of them on standalone where we own 100% and other with joint venture, the way PLN operates is through joint venture and that's required by the Indonesian law since it's a state-owned entity. We're working very close with them. We have a dedicated resource and a dedicated business development and sales team in Indonesia. And we see Indonesia in the mid-term to become an important part of our growth plan.
spk03: Okay, great. Thank you. Thank you. Thank you.
spk07: Thank you, Ms. Smith.
spk01: Again, to ask a question, please press star 1. There are no additional questions left at this time.
spk07: I will pass it back to the management team for closing remarks.
spk02: Thank you, everyone. As you've seen, this has been another very strong quarter for OMAC, both on top line and on our adjusted EBITDA numbers. On the CapEx, we've invested almost $250 million in the first half, and we plan to do the same And this demonstrates our confidence in the geothermal and energy storage segment going forward. This is a build-up year, and we expect to enjoy the fruits from this project that we are investing today in the near and mid-term time. So thank you all for your support, and have a good day.
spk07: That concludes today's conference call. Thank you. You may now disconnect your line.
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