Ormat Technologies' CEO Discusses Q4 2010 Results - Earnings Call Transcript

Ormat Technologies (ORA)

Q4 2010 Earnings Call

February 23, 2011 10:00 am ET

Executives

Joseph Tenne - Chief Financial Officer, Principal Accounting Officer and Chief Financial Officer of Ormat Industries Ltd

Yehudit Bronicki - Chief Executive Officer, Director, Chairman of Compensation Committee, Chief Executive Officer of Ormat Industries, President of Ormat Systems, General Manager of Ormat Industries and Director of Ormat Industries

Yoram Bronicki - President, Chief Operating Officer, Director and Director of Ormat Industries

Marybeth Csaby - Managing Director and Director of Investor Relations

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Peter Christiansen

Dilip Warrier - Stifel, Nicolaus & Co., Inc.

JinMing Liu - Ardour Capital Investments, LLC

Paul Clegg - Mizuho Securities USA, Inc.

Daniel Mannes - Avondale Partners, LLC

Gregg Orrill - Barclays Capital

Benjamin Kallo - Stanford Group

Presentation

Operator

Good morning. My name is Wes, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ormat Technologies Fourth Quarter and Year End Earnings Conference Call. [Operator Instructions] I'll now turn the conference over to Marybeth Csaby. Please go ahead, ma'am.

Marybeth Csaby

Thank you, Wes. Hosting the call today are Dita Bornicki, Chief Executive Officer; Yoram Bornicki, President and Chief Operating Officer; Joseph Tenne, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations. Before beginning, we would like to remind you that information provided during this call may contain forward-looking statements related 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 related to the company's plans, objectives and expectations for future operations and are based on management's current estimates and projections of 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 the annual report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2010. In addition, during this call, statements may include financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission, such as EBITDA and adjusted EBITDA. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management of Ormat Technologies believes that adjusted EBITDA may provide meaningful supplemental information regarding liquidity measurement that both management and investors benefit from referring to this GAAP financial measure in assessing Ormat Technologies' liquidity, and when planning and forecasting future periods. This non-GAAP financial measure may also facilitate management's internal comparison to the company's historical liquidity. Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanies this call, and can be accessed on Ormat's website at www.ormat.com under the IR and Presentations link, as found on the Investor Relations tab. With that said, I would like to turn the call over to Dita. Dita, the floor is yours.

Yehudit Bronicki

Thanks, Marybeth. Good morning, everyone, and thank you for joining us today for the presentation of the summary of 2010 and the outlook for the near future.

2010 was highlighted by strong production in the Electricity segment. Year-over-year output increased by more than half a million megawatt hour and segment revenue grew by over 15%. Despite the number of unique challenges at North Brawley electricities in plants for long-term growth continue unimpeded.

As Yoram will explain for later in the call, we have made considerable progress in our construction, development and exploration activities. In parallel, we raised the capital required to support such activities.

Let me turn the call over to Joseph for a review of the financial. Yoram will review our operations and as usual, following my remarks, we will open the call up for Q&A. Joseph?

Joseph Tenne

Thank you, Dita, and good morning, everyone. Beginning Slide 5, our Electricity segment revenues for the year were $291.8 million, a 15.5% increase compared to $252.6 million in the previous year.

The increase in revenue is due to 14% increase in total electricity generation as a result of additional generation and capacity with Puna, North Brawley and Mammoth being the major contributors.

The increase also positively reflected by a slight increase in the average revenue rate of our electricity portfolio.

In our Product segment on Slide 6, revenue for the year were $81.4 million, a 48.9% decrease from $159.4 million in the previous year. This decrease in our product revenues is a result of a decline in our Product segment customers' orders which we have discussed in previous calls.

For the year ended December 31, 2010, total revenues were $373.2 million, compared to $412 million in the previous year as shown in Slide 7.

Moving to the next slide, the total gross margin was 20.8%, compared to 29.2% last year. Gross margin of the Electricity segment was 17%, compared to 29.1% last year.

As anticipated, the decrease in gross margin derived mainly from gross margin loss of $24.6 million in North Brawley and an increase in the depreciation amount related to the acquisition of the Mammoth complex.

A $25 million out of deferred revenue of the Mammoth complex and the acquisition date of the additional 50% ownership, which was allocated to the existing plant is being depreciated until the complex is repowered in 2013. However, in the mean time, this cost will continue to negatively effect our gross margin.

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