Good morning, and welcome to the Ormat Technologies Q2 2014 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rob Fink of KCSA Strategic Communications. Please go ahead.

Thank you, operator. And thank you, everyone, for joining us today. Hosting the call are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; 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 the 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's current estimates, projections, 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 Ormat Technologies annual report on Form 10-K filed with the SEC on February 28, 2014. In addition, during the call, we will present non-GAAP financial measures, such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information is set forth in the press release that was issued last night, as well as in the slide posted on our website. Before (sic) these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from our 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, under the IR news and events link that is found on the Investor Relations tab. With all that said, I would now like to turn the call over to Isaac. Isaac, the call is yours.

Thank you, Rob. Good morning, everyone, and thank you for joining us today for the presentation of our second quarter 2014 results and outlook for the near future. I'm excited to be speaking with you today as the CEO for Ormat, a position I officially assumed on July 1, following the close of the second quarter. I've been only -- been a member of Ormat Group for a few months, but it's already apparent to me that I'm surrounded by an exceptional group of dedicated employees with a deep knowledge of the geothermal industry. The strong and accomplished Board of Directors with extensive experience and industry expertise will continue to be an asset to the company and a resource for management going forward. With that said, I would like to start the call with a review of the quarter and half year operation summary. Then I will turn the call over to Doron to review the financial results. I will finish with the business updates before opening the call for Q&A. Starting with Slide 5. We are pleased with the results for the second quarter, which reflect the continued success of our business and contributed to strong financial results in the first half of 2014. Total generation for the second quarter of 2014 was approximately 1 million megawatt hours, which is a decrease of 2.2% from the last year. The decline in generation is primarily the result of scheduled shutdown, due to enhancements at Heber complex, lower generation at direct facilities due to lower load in the gas pipeline and uncontrolled well flow at North Brawley. On the other hand, the generation of Mammoth complex and a multiplant power plant was higher in the second quarter this year compared to the same period last year as a result of enhancements…

Thank you, Isaac, and good morning, everyone. Let me provide an overview of our financial results for the second quarter of 2014. Starting with Slide 10, total revenue for the second quarter of 2014 were $127.6 million, a 16.4% decrease over revenues of $152.7 million in the second quarter of last year. In our electricity segment, as you can see on Slide 11, revenue grew 4.5% to $91.7 million in the second quarter of 2014, over $87.7 million in the second quarter of 2013. The increase was primarily due to new capacity coming online from Olkaria III complex in Kenya and Don Campbell plant in Nevada, that was somewhat offset by the 2-month shutdown of Heber 1, as part of the scheduled refurbishment project. Based on our policy, we continue to take actions to mitigate the impact of natural gas and oil prices on our electricity segment throughout -- through our hedging activity. We have entered into derivative transaction at a fixed price of $4.07 per MMBtu to reduce our exposure to fluctuations in natural gas prices through December 31, 2014 and $4.95 per MMBtu for the period from January 1, 2015, until 31st of March, 2015. As a result of our hedging activity, for the second quarter of 2014, we recorded a net loss on derivative transactions on oil and natural gas prices of $0.3 million compared to a net gain of $3.6 million during the same period in 2013. Excluding hedging adjustments, electricity revenue increased 9.3% year-over-year. In the product segment on Slide 12, revenue for the second quarter of 2014 was $35.9 million. As guided, performance of the segment this quarter was reason primarily due to timing of revenue recognition, timing of release of notice to proceed of certain projects and different product mix. We expect the…

Turning to slide 23, we outlined our revenue outlook for 2014. For the full year 2014, we reiterate our electricity segment revenues to be between $370 million and $380 million, and product segment revenues to be between $170 million and $180 million. As we guided on the previous 2 calls, we expect the second half of 2014 to be stronger than the first half. With the release of the Sarulla contract, we have a robust product backlog that will carry us not only through the several -- through the next several quarters, but the next few years. In the electricity segment, we expect generation to trend higher as we complete scheduled enhancements at some of our plants. Moving to slide 24. In addition to the internal prospect and improvements plan, there are several domestic legislative development that will further support renewable energy development. On the federal level, there is currently a bill in the U.S. Senate that will extend the ITC and PTC for an additional 2 years, covering plants that begin construction by December 31, 2015. Additionally, about 1 year ago, President Barack Obama announced a new National Climate Action Plan and recently the EPA under Obama's plan released the Clean Power Plan proposal, which, for the first time, cuts carbon pollution from the existing power plants in the United States. The Clean Power Plan will be implemented through a state-federal partnership, under which states identify a path for using either current or new electricity production and pollution control policies to meet the goals of the proposed program, including cutting carbon emission from the power sector by 30% nationwide below 2005 levels by 2030. On the state level, in May, California State Senate approved the proposed geothermal legislations Senate Bill 1139. The bill, if enacted, will require retail sellers…

[Operator Instructions] Our first question comes from Dan Mannes of Avondale.

I wanted to go back through and talk a little bit about the margins and cost structure in your power business. Obviously, you were pretty clear that last quarter, it was maybe an aberration that margins were very high. But I guess this was a little bit worse than we were expecting. Could you maybe walk us through, maybe, some of the cost increases that were incurred from the first quarter to the second quarter, with maybe some particular attention to North Brawley?

Okay. We had, as you know, we had an uncontrolled flow in North Brawley during the quarter, which cost us about $3.3 million, reducing $1 million we got from the insurance, it's about $2.2 million. And we also lost about $1 million of income from the power plant itself. Furthermore, there were some operational expenses that moved from, as we said on our Q1 conference call, that were moved from Q1 to Q2. And end-to-end, they lowered or decreased our operational margins in Q2. But if you look at combined 6 months, we are on 33%, which are the numbers that are much more representative than the Q2 numbers.

Okay. And just digging a little deeper, when you talk about the expenses that shifted, are you including also any operating costs of Heber? Or are you just talking about sort of annual expenses this year Q2 instead of Q1?

Dan, I'm relating mainly to annual regular expenses of maintenance that shifted, as you know. And I learned to know, during the last 3 months, that in a project company, unfortunately, the power plants are not behaving on quarterly basis, and they excuse themself for that.

But was there -- can you talk, maybe, about any operating costs that were incurred at Heber in the quarter? Or was most of the costs at Heber, both lost revenue as well as CapEx?

Dan, it's Doron. The cost, actually, that shifted between Q1 to Q2, doesn't relate specifically to Heber. These are mainly well field cost that expected them to be in Q1. They didn't happen in Q1, some of them happened in Q2. So Q1 looked a little bit better than what was expected; in Q2, the opposite. But I think as Isaac said, looking at the 6 months' numbers, you can see actually that the numbers are getting back to normal.

Okay. And then lastly, on North Brawley, you mentioned the uncontrolled flow. Was that remedied during the quarter? Can you talk about any root cause analysis? Or is that maybe an ongoing issue that we'll have to see in future quarters?

No, we expect that it's a one-time event and there was a full remedy during the quarter. The well is back on operation already and let's keep our fingers crossed that it's not going to happen again in Brawley or elsewhere. But as you understand, when you are running so many power plants, sometimes it's cost of doing business.

Okay. Just a couple other quick ones and then I'll jump back in queue. It looked like -- outside of Sarulla, it looks like maybe you had another maybe $50 million of new business in the quarter on the product side. Obviously, it sounds like some nice wins. Anything material you can point to in that group or just a lot of small ones or?

If -- I assume you're referring to the backlog, so the backlog last quarter was about $120 million and this quarter, it's $376 million. Actually, if you take -- if you split it between Sarulla $254 million, you get to about $122 million. So actually, we were able to sign new contracts in the same amount of money that we recognized revenue for the quarter.

Right. I was just wondering if there was anything material or notable in what you saw in your...

We will be on the road after this conference call during September, and we will certainly give you much more color on the upcoming product contracts and the ones that we've signed and so on.

Okay. And then just let me close out, one last question. You did take the write-down on Wister this quarter. I think you've been talking about terminating the PPA on Wister for a period of time. Can you talk about, maybe, what brought it to the conclusion now? Because I mean, frankly, I think you've kind of been a little bit cautioned on the timing of Wister for some time. Why take the write-down now versus in a prior period? Or wait on it, given maybe an improving environment in California in terms of geothermal demand?

Look, when we have these exploration sites, there is various work that is done, some of it is drilling wells and others. And others are analyzing models and statistics and information that we get constantly on our exploration sites. And it's a question of one, our exploration team, the resource team comes to the conclusion that they don't see between all of our sites, that this site has the right priority or the ability to come to a full-blown power plant. And if we write it off or not, there are some accounting thresholds that we need to meet. But it's a process that we keep. We keep analyzing exploration sites until we get to a decision. It's not a binary decision every quarter. And we have a very capable exploration team that -- they have a mandate to explore each and every site that we have. And if their conclusion is that we will not be able to pick up this site and go ahead with it, and we don't have a choice, but to take it off.

Makes sense to me.

Our next question comes from Gregg Orrill of Barclays.

Just a couple of questions on Sarulla. Just if there's anything you could help us with in terms of the products revenue being realized, sort of the timing of that and what milestones might be the triggering factors, if it's not obvious?

It's Doron. In the Sarulla project, as we said, we got notice to proceed in Q2. Again based on the accounting guidelines and our policy, we need to reach some threshold in order to start recognizing revenue. We expect to reach this threshold in Q3 and recognize a relatively small amount of revenue from Sarulla. And going forward, starting from Q3 but much stronger in Q4, we will recognize revenue percentage of completion. So Q4 is expected to be higher than Q3 and to start with the normal pace going forward. For Sarulla, as we said earlier, we expect in the range of $35 million of revenue from Sarulla. This is obviously an estimated number since it's based on the number of hours that we will do and the procurement that we build, but we do expect to recognize revenue already starting in Q3.

Okay. Maybe just switching gears. Isaac, I know you mentioned you're going to do some investor outreach balance of the year, but any additional thoughts on repositioning the company, if at all? And -- just interested in your initial impressions.

I'm here only 4.5 weeks and -- but I was here before 3 months in a listening mode. And we are sitting on strategy right now with the new management that's come in place, which consists of Ormat employees, obviously. That is sitting on strategy. But now, the upcoming weeks, our main focus is enhancing our existing assets. We are specifically, and I may use the frame sitting on 3 specific assets, that we want to enhance fast, and we are planning to do that. And later on, it will be some growth strategy. And I will again, as I said, Doron and myself will be on the road during the upcoming months and we'll give you much more details on a bit of shifting of strategy in this aspect.

Our next question comes from JinMing Liu of Ardour Capital.

First is on the -- just a quick question on North Brawley. So what is the financial situation of that facility? Is that running at EBITDA positive right now or you're still losing money?

It's Doron. The plant was expected to do this year somewhat positive EBITDA. However, with the uncontrolled flow that we had, which, actually, had on one hand an additional cost, that we expect to receive most of them back from the insurance, but also have the reduced revenue. So we assume that this year, it will have a negative EBITDA.

But if we exclude all this one-time thing, the power plant itself should be running at the EBITDA positive, right?

Our position that excluding this event, it should have been slightly positive.

Okay. Good to hear. Switch to Sarulla project. What kind of product margins we should expect? Is that in the low 20% or much higher, like in what we achieved in the second quarter?

In the Sarulla project, you should assume somewhere in the high 20s, similar to our regular contract. Usually, what we try to do in the project, we will start with a range of between 25% to 30%, having some contingencies. And as we move ahead with the project, assuming we are able to manage the contingency, we will sometimes see margins going up. Not always, but sometimes. So as a basic strategical project, somewhere between 25% to 30%.

Jim, this is Isaac. You should realize that it pretty much depends on the product mix that we have in a certain quarter. Because if we can get synergies from the other projects, obviously, we will have a bit more margin and if we don't have synergies in a certain period or quarter, then those synergies not existing, it will be a bit lower.

Okay, that's helpful.

This concludes our question-and-answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.