Ormat Technologies' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Ormat Technologies (ORA)

Q2 2011 Earnings Call

August 04, 2011 10:00 am ET

Executives

Rob Fink - IR, KCSA Strategic Communications

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

Analysts

Mark Barnett - Morningstar Inc.

Benjamin Kallo - Robert W. Baird & Co. Incorporated

Elaine Kwei - Jefferies & Company, Inc.

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

JinMing Liu - Ardour Capital Investments, LLC

Paul Clegg - Mizuho Securities USA Inc.

Timothy Arcuri - Citigroup Inc

Peter Christiansen - BofA Merrill Lynch

Daniel Mannes - Avondale Partners, LLC

Presentation

Operator

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ormat Technologies Second Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn conference over to Mr. Rob Fink of KCSA Strategic Communications. Mr. Fink, please go ahead.

Rob Fink

Thank you, Julianne, and thank you, everybody, for joining us. Hosting the call today are Dita Bronicki, CEO; Yoram Bronicki, President and COO; Joseph Tenne, CFO; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations. 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 plan, objective and expectations for future operation and are based on management's current estimates and projections of future results or trends. Actual future result may differ material from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see risk factors described in the annual report on Form 10-K filed with the SEC on February 28, 2011.

In addition, during this call, statements may include financial measures such as -- defined as non-GAAP financial measures by the Securities and Exchange Commission, such as EBITDA and adjusted EBITDA. The presentation of financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with GAAP. Management of Ormat Technology (sic) [Technologies] believes the adjusted EBITDA may provide meaningful supplemental information regarding liquidity measurement and that both management and investors benefit from referring to this non-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 comparisons to the company's historical liquidity.

Before I turn over 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 under the IR Events and Presentations link that's found on the Investor Relations tab. With all that said, I would now like to turn the call over to Dita. Dita, the call is yours.

Yehudit Bronicki

Thank you, Rob. Good morning, everyone, and thank you for joining us today for the presentation of our second quarter 2011 results and outlook for the near future.

The second quarter was highlighted by stronger results in the Electricity segment where revenue increased by 18% year-over-year and generation by 11%. Operationally, we continue to focus on an efficient operation of our existing power plants. Works were issued for each operational well in -- of North Brawley, and execute on the last Product segment orders were received while continuing the activity for long-term growth. Strategically, we are seeing increased interest and business activity from key markets outside of the United States. I will go into greater detail on how we view this international growth later in the call. But before I do, Joseph will provide the financial review and Yoram will update on our operational progress. As usual, following my remarks, we will open the call up for Q&A. Let me now turn the call over to Joseph.

Joseph Tenne

Thank you, Dita, and good morning, everyone. Beginning on Slide 5. Total revenues for the quarter ended June 30, 2011, were $104.6 million, an 18 -- an 8.7% increase over revenues of $96.3 million in the second quarter of 2010. In our Electricity segment on Slide 6, revenues for the quarter were $81.2 million, an 18% increase over revenues of $68.8 million in the same quarter last year. The increase revenues is the result of an 11% increase in total output and increase in the average revenue rate from $78 per megawatt-hour in the second quarter of 2010 to $83 to a megawatt-hour in the second quarter of this year. In the Product segment, on the next slide, revenues for the quarter were $23.4 million, down from revenues of $27.5 million in the same quarter of 2010.

In the second quarter, we recognized $7.9 million relating to an experimental energy plant in Spain, which represents the amount we received from the customer in July following their acceptance in the second quarter of 2011. Upon completion of final acceptance test, the amount -- the customer will pay the remaining balance of approximately $8 million, which will be recognized as revenues in the fourth quarter of 2011 or in 2012.

Moving to Slide 8, which represents combined gross margin and gross margin for each segment for the quarter. The company's combined gross margin for this quarter was 31.7% compared to 19.4% for the second quarter of 2010. The Electricity segment's gross margin was 23.4% this quarter compared to 7.7% in the second quarter of last year and 15.8% in the first quarter of this year. Excluding North Brawley, the Electricity segment gross margin would have been 32.3%. In the Product segment, gross margin was 60.5% compared to 48.6% in the second quarter last year. This increase is attributable to the $7.9 million in revenues relating to the experimental energy plant with virtually no associated cost of revenues since the related costs have been included in research and development costs in previous periods. The increase is also attributable to a different product mix and different margins in the sales contracts.

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