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Ormat Technologies Inc (NYSE: ORA) Call for third quarter 2020 effects November 4, 2020, 10 a. m. Et
Operator
Good morning and welcome to Ormat Technologies, Incorporated’s third quarter 2020 earnings convention call. [Operator Instructions] Please note that this occasion is recently being registered. Now I’d like to talk to Rob Fink of FNK IR. Go ahead.
Rob Fink – Managing Partner
Thanks operator. Today, Doron Blachar, CEO, is the host of the call; Assi Ginzburg, CFO; and Smadar Lavi, vice president of corporate finance and investor relations. occasions that are forward-looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements sometimes relate to the Company’s plans, objectives and expectations for long-term operations and are based on estimates and existing control projections, effects or long-term trends. The actual long-term effects may differ materially from those projected due to certain hazards and insecurities.
For a discussion of these threats and uncertainties, see the threat points described in the Ormat Technologies Annual Report on Form 10-K and the quarterly reports on Form 10-Q filed with the SEC. Provide non-GAAP monetary measures such as Adjusted EBITDA Reconciliation with directly comparable maximum GAAP measures and the reasons why the control presented this data are defined in last night’s press release, as well as on slides posted on the Company’s online page. they are not calculated according to the PCGA, they deserve not to be considered as something isolated from the monetary statements ready according to the PCGA. Before making the call to control, I would like to remind everyone that you can see a slide that accompanies this call on the company’s online page in ormat. com, in the provision link on the Investor Relations tab.
Having said that, now I’d like to move on to Doron Blachar. Doron, the call is yours.
Doron Blachar – CEO
Thank you, Rob, and hello to everyone. Thanks for coming today. Starting with slides five and 6, it’s another smart quarter for Ormat. We continue to effectively address the demanding situations of the COVID pandemic, improving our profitability year after year and making significant progress in implementing our long-term plan to increase the capacity of our geothermal garage and our geothermal hybrid solar garage. Our third quarter effects reflect the strength of our business style and operational performance.
We generate double-digit increases in the operational source of revenue and adjusted EBITDA year after year and advance our efforts to expand our Electricity and Storage segments. We generated significant operating money this quarter through a $20. 1 million payment earned from ENEE, our consumer in Honduras, for unpaid bills in recent years and advanced the collection of KPLC, our consumer in Kenya. KPLC made all invoices planned for the third quarter and began cutting the remarkable amount in October.
In Kenya, too, we have welcomed the $190 million taxArray, the largest of the taxes issued through the KRA.
I’ll send the land to Assi Ginzburg for a review of the monetary results, before we inventory our operations.
Assi Ginzburg – CFO
Thank you Doron. Let me begin my review of our monetary functionality on slide 8. Total earnings for quarters were $15. 9 million, down 7% and the profit charge was reduced to a low by 9% to $105 million. gross margin. However, gross margin increased from 32. 5% last year to 34% this quarter. Switch to slide nine to get more main points in our Electricity segment; Revenue for the quarter in our Electricity segment was $124 million, in line with the same era last year. This quarter, we benefited from a profit accumulation in Steamboat Hills, Ormesa and Brady, offset by minimizing profits in Olkaria due to the limitation The profit charge for this quarter included insurance profits opposed to Puna-related operating losses of $2. 6 million out of a total of $20. 4 million of insurance gains earned this quarter.
This compares to $1. 2 million included in last year’s gross margin. As a reminder of the PCGA, we first affect the earnings of operating loss insurance at the expense of profits in the Electricity segment and when exhausted, the balance is allocated to the insurance products under operating expenses on a separate line from the source of the profit statement Let’s move to slide 10. As expected, the gains in the Products segment were a decrease of $13. 4 million in the quarter compared to last year due following the effect on Slide 11, the power garage and control facilities sector generated $5. 7 million in profits, an increase of 62. 5% over last year. This sector benefited from the incorporation of Pomona after its acquisition in July, which contributed $2. 4 million to our quarterly earnings.
Let’s move on to slides 12 and thirteen for a discussion of our gross profit and margin; Consolidated gross margin for the 3rd quarter improved as a result of increased functionality in the Electricity and Storage Gross Margin segments in the Electricity sector demonstrating our efforts to improve the power of our operating assets In the Products segment, we are seeing a minimisation in Gross Margin basically due to the higher revenue charge similar to Ngawha’s allocation that we are recently building in New Zealand , this allocation has been affected, inter alia, through the country restrictions and limitations relevant to COVID-19. The top cost of Ngawha’s allocation this quarter also had an effect on gross margin by 2020, which is expected to be in line with this quarter’s margin.
The garage and energy control sector recorded a gross margin of 25. 6%, particularly advanced compared to negative gross margin in recent quarters. The improvement was driven by the incorporation of Pomona [indecipherable] with a amortization of $1 million this quarter, generating a hope that Pomona’s annual depreciation and amortization rate will be $4. 8 million consistent with the year This was the time in the consecutive quarter when our energy workshop business contributed to a positive EBITDA for our conforgedataed results. For slide 14, 3rd general and administrative quarter Expenses were $18. 6 million compared to $15. 7 million last year. The accumulation was mainly due to consistency with sales commissions, insurance rates and other
Moving to slide 15, the operational source of revenue for the third quarter increased by 33. 5%. On the slide, you can see the breakdown of the operational source of revenue across the segment. For slide 16, net interest expense for the third quarter of 2020 was $21. 8 million, compared to $20. 1 million in the previous period. Interest expenses for this quarter were affected by the interest charge on the $290 million bond, which we borrowed at the beginning of the third quarter, while the procedure was used to repay the unpaid debt towards the end of the quarter, adding up all lines of stirring credit. The issuance of $290 million in bonds and the amortization of all outstanding lines of credit allow us to be well prepared for the expected accumulation of investments in 2021 to our investments in the United States and Indonesia.
Regarding slide 17, the provision for the source of income tax for the third quarter was $ 15. 4 million for an effective tax rate of 39%, compared to a source of income tax expense of $ 10 million. for the 3rd quarter of 2019. This quarter we had a non-cash amount of $ 3. 7 million. Parts tax similar to a recent replacement under US law. With respect to slide 18, the net source of income attributable to the company’s shareholders was $ 15. 7 million or $ 0. 31 consistent with diluted share, compared to $ 15. 6 million or $ 0. 30 consistent with diluted share. for the third quarter of last year. The net source of income attributable to the company’s shareholders benefited from $ 8. 1 million similar to Ormat’s after-tax portion of the Puna insurance source of income, partially offset through a non-cash rate of $ 1. 4 million similar to SarullaArray. Additionally, a recent replacement in tax law in the United States resulted in a source of income tax expense of $ 3. 7 million. Overall, those points definitely have an effect on our diluted EPS of $ 0. 059 consistent with the stock.
Let’s move on to slide 19; Adjusted EBITDA for the quarter was $107. 1 million, compared to last year’s $85. 5 million. On slide 20, you can see that the contribution of electricity to our total EBITDA is greater than 92. 5%. Please note that this adjusted EBITDA includes the total effect on THE BI insurance earned this quarter, while the effect on the EPS is reduced through relevant taxes and through a similar part to our partners. The adjusted EBITDA and EBITDA reconciliation is presented on the schedule slides. slide 21; The money and money as of September 30, 2020 was approximately $290 million, compared to $153 million as of December 31, 2019. This slide shows the use of money for the first nine months and demonstrates our greatest ability to reinvest in the company for our expansion plans.
Our long- and short-term debt as of September 30, 2020 $1. 5 million, net of deferred financing prices and its payment schedule is presented on page 22. The average interest rate on our debt is recently 4. 9% Our net debt as of September 30, 2020 $1. 2 billion. Let’s move on to slide 23, which provides a review of our recent fundraising activities. These activities are part of our plans to continue and expand our exploration and progression efforts for new internal projects to expand electric power and the garage. segment in the US. And globally in 2023 and beyond On November 3, 2020, the Company’s Board of Directors declared a $0. 11 dividend consistent with a consistent percentage in accordance with the Company’s dividend policy.
The dividend will be paid on December 2, 2020 to shareholders registered at the end of the business day on November 18, 2020. Before we finish the call to Doron, I need to expand some of the positive expansions we have on the international front. In September, we earned $20 million from our consumer in Honduras on unpaid bills last year. In addition, we approved the collection of KPLC, our consumer in Kenya. KPLC made all invoices planned for the third quarter and began cutting the remarkable October amount.
Finally, after the end of the third quarter, we concluded an audit by the Kenyan Tax Authority, also known as KRA, of a $190 million tax payment issued through them in December 2019, and we have reached a very favourable agreement. net have an effect on Ormat’s results, which will be fully recorded in the fourth quarter of 2020, is approximately $6 million, only $0. 12 consistent with diluted action, adding all related interest and penalties. The deal covered the years 2013 to 2019 and included the postponement of past tax benefits through Ormat, resulting in a payment to the KRA in the fourth quarter of this year of $28. 2 million, which the company is expected to recover largely through long-term tax relief. We still have two unresolved tax tests at various trading stages for a total of $9 million, adding all interest and fines.
This concludes my overview. Now I would like to pass the call to Doron for operation and upgrade. Doron?
Doron Blachar – CEO
Thanks, Assi. Let’s move on to slide 25 to take a look at the generation; Electricity generation in our power plants was minimized in the quarter by 3. 5% compared to the previous year, this reduction is basically due to the minimization of production at our OREG plant and certain discounts at the Olkaria power plants, without However, revenue was unchanged from force rates in our contract portfolio. As shown on slide 26, our efforts to resume production at the Puna plant have progressed and the structure of the force substation and the transmission line is complete and the plant is lately connected to transmission lines. , we have connected a new production well to the plant and are in the process of connecting a momentary production well.
We expect to start generating electricity in the coming weeks with a slow increase in production to 29 megawatts until the end of the year, although the precise moment remains uncertain. We plan to further expand production in 2021 to build a new 46 Megawatt Power Plant Moving to Slide 27, we are moving forward with our paintings to expand our most successful power segment and we are on our way with our progression to rise from 160 megawatts to 180 megawatts over the next two years, and from the 24 megawatts we have climbed over the more than two years , from 2019 to 2020, and as a result of these expansion efforts, we expect our investments in 2021 to be higher than those of subsequent years.
As discussed last quarter, as a component of our preparation for a low 2021 in the Products segment, we are using our vertical integration features to change production capacity and focus more on internal allocations for long-term expansion in our Electricity segment. and capital resources to continue our expansion in 2023 and beyond. We are expanding our exploration activities at home and around the world, obtaining better existing operating assets, reaching new internal allocations in the US. And around the world that will increase our profitability. We are also actively looking for M&A opportunities in the US. But it’s not the first time And around the world to expand our portfolio. As you can see in the list, we’ve added a new sun allocation to our portfolio.
We reflect successful tungsten hybrid allocation and load solar force into our existing geothermal force plant to meet geothermal auxiliary needs. Let’s move on to slide 28 for an update of our backlog; Our product segment has been – the component of our corporate maximum affected by the COVID-19 pandemic with delayed international assignments, we believe it is a short-term phenomenon, however, we signed a $12 million contract and in November 2020 our backlog in the product segment was $50 million. We have an additional contract portfolio and look forward to pointing out a new agreement until the end of 2020 or early 2021. However, lately we expect a continued weakness in the profit segment that will decrease the segment’s earnings componently. 2021 in relation to the 2020 guided gains and decrease EBITDA in this segment.
A steady improvement in our mechanical workshop business partially made up of weakness in the Products segment. The electrical workshop, discussed in slide 29, continues to evolve, slowly adapting to a more affordable level but suitable for a comprehensive renewable strength strategy. We only have greater demand for a strategic garage strength solution. With those favorable winds, we continue to win businesses in California and elsewhere to expand our presence in this conversion market. We look forward to publishing more updates on the segment’s progress in a long time. During the third quarter, we signed two resource adequacy agreements that expand our strength garage footprint in California.
Two Community Choice or CCA aggregators have signed an agreement for 2. 5 megawatts of resources suitable for our Tierra Buena energy garage assignment, which is currently in progress in Sutter County, Northern California. operations through June 2022 and are expected to generate $1. 2 million in annual profits. These are the first energy garage offerings for those two CCA. The two CAAs will begin to serve the multi-year term across the state to load 3. 3 gigawatts of additional resources. California’s network adaptation until 2023. California remains the leading expansion market for our energy garage. During the third quarter, we also completed the acquisition of Pomona, California’s 20 megawatt/80 megawatt-hour power garage facility, as we saw its contribution to utility and EBITDA in the 3rd quarter.
Pomona’s assets have increased our existing operating portfolio to 73 megawatts, representing 136 megawatt hours. Moving on to slide 30, our planned capital expenditures for the rest of the year come with approximately $52 million for capital expenditures for the structure of new projects and innovations for our existing power plants that control has released for structure. In addition, we estimate the additional $53 million for investments indexed on this slide. We estimate the total spend for the rest of 2020 at approximately $127 million. Go to slide 31 to see a We are updating our forecast for 2020. We expect total revenue to be between $707 million and $717 million with electricity segment revenue between $550 million and $555 million, adding approximately $6 million in expected revenue similar to the Puna plant assuming its reopening in the fourth quarter.
We expect profits in the Products segment to range from $142 million to $147 million. Electricity workshop revenue and call-to-reaction activities are expected to be approximately $15 million. We are expanding the adjusted EBITDA and are now expected to be between $417 million. and $425 million. We expect the annual adjusted EBITDA attributable to minority interest to be approximately $34 million. In short, I am very proud of Ormat’s team for what we have completed this quarter. We will continue on our way with our plans to expand our most successful Electricity segment, which is taking an increasing percentage of our profits and dividends.
This concludes our early comments. Now I’d like to open the call for questions. Operator, please.
Operator
[Operator Instructions] The first comes from Noah Kaye with Oppenheimer. Go ahead.
Noah Kaye – Oppenheimer
Thank you, good morning, everybody. Thank you for answering questions. I guess, starting with Kenya, did I hear you say that KPLC indexed force majeure in September and that it’s only about paying regularly, but buying strength in/or comparable to prepandemic grades right now?Point??
Doron Blachar – CEO
Yes, they lifted force majeure at the end of September and bought more than they bought in the third quarter, a little less than last year, but what we’ve noticed in Kenya is that whatever COVID is, the country is way behind. general activities. We expect load items, which are smaller than the second trimester, to continue to decrease.
Noah Kaye – Oppenheimer
Yes, okay. That’s useful. Thank you. And then, with regard to interrupting trades, can you just . . . I mean, so that we can move on to next year, you can remind us, since the beginning of the year, what has been the insurance product and what is exceptional in terms of your claims when you start getting it and put it back online here in 4Q?
Assi Ginzburg – CFO
Hey, Assi. Si Noah. C, if you look between the gross margin and the separate line of insurance income, it’s about $30 million since the beginning of the year.
Noah Kaye – Oppenheimer
Everything is fine. And I’m sorry if I didn’t get it, but did you expect more in 4T and how much is left?
Assi Ginzburg – CFO
In the $100 million policy, we have collected about 60% of the policy and are still negotiating with the insurance company, adding with one of them, we are in the legal case at this time and therefore cannot provide this level with a recommendation for P4: I will say that we are less likely to have something in the fourth quarter.
Noah Kaye – Oppenheimer
Everything is fine. So maybe it still arrives in 2021, only in the products and obviously we have noticed that the accumulation of orders is minimized here. I think, at this level, he already seems to be pointing out smart customers in the short and medium term. get the advantages of modeling everyone, I mean, they deserve to think of that $50 million or more as a moderate earnings indicator by 2021 What’s the probability that you can make a sufficient ebook and then turn that into earnings over the next year higher than that $50 million level?
Assi Ginzburg – CFO
Therefore, we do not give any; In this state of affairs, we do not give instructions for next year, however, it is clear that there is a moment. Since we recognize the completion percentage of earnings, there is a lag between when we have signed a contract and when we can begin to recognize earnings. And then, of course, 2021, as we said, will be less than 2020. And the contract that we signed today can take effect around the third quarter and beyond if we tell you today.
Noah Kaye – Oppenheimer
Yes, it’s useful. And the last one, again, understanding that it is too early to give a formal recommendation now for next year. But you argued that capital expenditures will be consistent with next year, which I think is indicative that you are putting fuel on the market here. With the Order of Magnitude development, are we looking for an accumulation of 10 to 20 consistent with penny or maybe it’s even greater than that?
Assi Ginzburg – CFO
I think if you look inward, we said we had 24 megawatts in the last two years and we waited between 160 megawatts and 180 megawatts, interest in 2021 and 2022 will be more than 10% or 20%.
Noah Kaye – Oppenheimer
Yes, I’m going to do that. That’s useful. I’m just passing through. Thank you.
Assi Ginzburg – CFO
Thank you Noah.
Operator
[Operator Instructions] The next one comes from Mark Strouse of J. P. Morgan, come in.
Mark Strouse – J. P. Morgan Securities LLC – Analyst
Yes, thank you very much for answering our questions. Most of them got an answer, but if I could somehow break down the earnings forecast, reducing diversity for this year, could you just quantify the other groups that led to this?Have there been any adjustments?And expectations related to the Puna calendar or the decline in production in Kenya?
Doron Blachar – CEO
yes, thanks Mark. On the electric power side, the main parameters are as you said Puna. We hope it starts sooner. Unfortunately, it takes a bit longer to paint in the field, so it’s the main engine that pushes it down the range. In the product segment, we shorten the indications, which are in the middle, so there is no main replacement there. in the garage area, I think that’s pretty much where we said it.
Mark Strouse – J. P. Morgan Securities LLC – Analyst
Ok, ok. That’s very useful to us. Thanks a lot.
Doron Blachar – CEO
Thank you.
Operator
[Operator Instructions] Next up is Jeff Osborne of Cowen and Co. Please continue.
Jeff Osborne – Cowen
Hey, smart afternoon guys. Some questions from me. In the – congratulations on solving the Kenyan Problem. This has in fact been an excess for investors for a while, it’s good to see it. How do we think the $6 million will be modeled for the next quarter?other expenses or is it a smart item charge?
Assi Ginzburg – CFO
Hello, I advise you to go with him to the tax office, he will come with approximately $3 million in interest and consequences and, for the moment, we plan to reserve everything on the tax item, this will have no effect. EBITDA, but only on the tax rate. But the good news is, as you know, that the fourth quarter is sometimes our most productive quarter and that’s why this shouldn’t have such a big effect.
Jeff Osborne – Cowen
They gave it to me. And then, on the garage side, you alluded to forced interruptions. Was there a cost you saw in the third quarter that you might not be able to reproduce the existing execution rate?I know you gave the direction for the year, but how do we think about what did you see in the third quarter in terms of related profitability, given the overall pricing environment for resources good enough as batteries?
Doron Blachar – CEO
Ouais. Il was quite there: power outages drove out-of-the-ordinary costs in California; prices above $1,000 and $2,000 consistent with megawatt hour power outage. 2019, they even had an hour with $9,000 consistent with megawatt hours. They had a mild summer, so it didn’t actually happen. So we see some anomalies in the third trimester in California. So Q3 – we expect Q3 to be a little bigger than other quarters in force storage. But since it’s not that dramatic for Ormat, it’s something we’ll have to stick to and clearly give them more recommendations as we expand this business.
Jeff Osborne – Cowen
They gave it to me. And Doron, has been targeting mergers and acquisitions for years and, apart from American geothermal energy, has not been so active.
Doron Blachar – CEO
yes, so, in geothermal, there is now an active portfolio of a forward-looking acquisition. On the geothermal front, we are looking to make acquisitions that are synergistic to us and that are reluctant to Ormat. And knowing the industry and knowing the dangers with resources, we have a greater understanding of the dangers and direction and, through that, we can underestimate compared to other forward-looking acquisitions that we have noticed happening. But today we are looking for some projects in the market. And in storage, we’ve made some acquisitions. We’re discussing an additional acquisition. These are usually smaller acquisitions like Pomona and others, so I expect to see more short-term acquisitions.
Jeff Osborne – Cowen
They gave it to me. It will be a complicated 2021 era for a possible allocation of capital, I suppose if you have a higher capital expenditure here, also mergers and acquisitions then how do you plan to pay for any merger and acquisition assuming it is vital in the geothermal aspect or if they are small enough?
Doron Blachar – CEO
They may only be in our capital capacity, in our capacity, so we raised the bond, a $300 million bond earlier in the quarter, we have steps in the component of other monetary establishments, to give us cash, to lend us cash. is available. If we have the right goal at the right price, we can fund it, we will.
Jeff Osborne – Cowen
Logique. Et was my last consultation on Honduras’ $20. 1 million alone. Was that in the adjusted EBITDA forecast for the last quarter?I’m just looking to have a concept of what’s moving with the replacement in the direction of EBITDA this quarter. To what extent did this constitute the occasion in Honduras in relation to some type of operational assets and some kind of transfer?
Doron Blachar – Managing Director
The occasion in Honduras an occasion of money, does not paint, does not pass through the P
Jeff Osborne – Cowen
They gave it to me. Everything is fine. That’s all I had. Thank you.
Doron Blachar – CEO
Thank you.
Operator
[Operator Instructions] This concludes our Q&A session. I’d like to go to Doron Blachar for your final comments.
Doron Blachar – CEO
So, thank you all for joining us, you know, on this special day in the United States. The results are still unknown, but I hope it is the right one, which you Array and I thank you for your continued support. And see you soon, thank you.
Operator
[Operator Closing Comments]
Running time: 37 minutes
Rob Fink – Managing Partner
Doron Blachar – CEO
Assi Ginzburg – CFO
Noah Kaye – Oppenheimer
Mark Strouse – J. P. Morgan Securities LLC – Analyst
Jeff Osborne – Cowen
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