Good morning, and welcome to the Ormat Technologies, Inc. Fourth Quarter and Full Year 2018 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 Hayden IR. Please go ahead.

Thank you, Operator. Hosting the call today 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'd 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 plans, objectives and expectations for future operations and are based on management's current estimates and 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 and quarterly reports on 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 and adjusted net income attributable to the company's stockholders. Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information as set forth in the press release that was issued last night as well as in the slides that are 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 ormat.com, under the presentation link that is found in the Investor Relations tab. With that all said, I'd now like to turn the call over to Isaac Angel. Isaac, the call is yours.

Thank you very much, Rob, and good morning, everyone. Thank you for joining us today. Starting with Slide 5. The fourth quarter was a strong end to a solid year for Ormat, made even more impressive by the fact that we've overcome a wide range of significant challenges this year, not the least of which was the volcanic eruption, which forced the extended shutdown of one of our important power plants located in Hawaii. Even with this challenge, Ormat delivered record results and met the guidance. For the quarter, total revenue grew 14.5%, giving us 3.8% growth overall the year. Electricity revenue, even with the loss of Puna for eight months of the year, grew 9.5% for the year, benefiting from our newer plants, including Platanares, Tungsten Mountain, Olkaria and the three power plants we acquired as part of the US Geothermal acquisition. We delivered $368 million in adjusted EBITDA for the year, up 7%, even with the lost revenue and profits from Puna. As you may recall, our 2018 guidance suggested adjusted EBITDA to be between $370 million and $380 million for the full year, assuming successful resolution of our business interruption insurance claim for the Puna situation by the end of 2018. We stated that absent this resolution, our adjusted EBITDA would like to be impacted by approximately $20 million. Taking into account that we received $12 million in insurance proceeds instead of the $20 million assumed, we exceeded our adjusted EBITDA outlook. All-in-all, considering the challenges, this was highly successful year and I believe we continue to position Ormat for long-term success. As a vertically integrated company, we have the unique advantage of controlling the entire value chain of geothermal development. This will help us to bring Puna back online as quickly as possible, and work is well underway in this regard. I will talk about the progress later on the call. On the property insurance coverage, all the insurers accepted and started paying for the costs to rebuild the destroyed substation and other damaged property. However, only some of the insurers accepted that the business interruption coverage started already in May 2018. We are still in discussions to reach an understanding with the rest of the insurers to start paying for the business interruption as of May 2018. Turning to our product segment. Our 2018 results were above our updated guidance. Our pipeline continues to build and based on our current backlog, we are optimistic about the continued contribution of the segment to our business. I will turn the call over to Doron for the review of the financial results, before I provide an update on our operation. Doron, please.

Thank you, Isaac, and good morning, everyone. Starting with revenues on Slide 7. For the full year 2018, total revenues were $719.3 million compared to $692.8 million last year, an increase of 3.8%. The increase was attributable to a 9.5% year-over-year increase in the electricity segment revenues and a 179.4% increase in revenue from our other segment, which was partially offset by 10.1% decrease in revenues from our product segment. Moving to Slide 8. Revenues in our electricity segment was $509.9 million for the full year of 2018 compared to $465.6 million in 2017. This increase was primarily attributable to the commencement of commercial operations of our Platanares power plant in Honduras effective September 2017; the consolidation of US Geothermal, which was acquired in April 2018; the commencement of commercial operation of our Tungsten Mountain power plant in Nevada effective December 2017; the commencement of commercial operation of our Plant 1 expansion project in Olkaria complex in Kenya effective June 2018; and higher energy rates under the new Ormesa 1 PPA commencing December 2017. The increase was partially offset due to a decrease in revenue at our Puna power plant that we shutdown immediately following the volcanic eruption in May 2018, and generation at some of our power plants that were taken off-line to address maintenance issues and enhancement, high ambient temperatures and curtailments. Full year 2018 revenue for our product segment was $201.7 million, down 10.1% compared to $224.5 million for 2017. The decrease was primarily attributable to the timing of revenue recognition over the signed contract included in our backlog. On Slide 10, you can see that the other segment contributed $7.6 million of revenue compared to $2.7 million in 2017. This segment includes revenues from the provision of energy storage, demand response and energy management service. Moving…

Thank you very much, Doron. Starting with Slide 30, is an update on operations. During 2018, we added approximately 115 megawatts, and increased our fleet to 910 megawatts by adding three operating assets acquired as part of the USG acquisition and by bringing new power plants online mainly McGinness Phase 3 that has recently commenced operation. Additionally, as you can see on Slide 31, we adjusted the generation capacity of our existing power plants based on their performance, and we expect continued adjustments and enhancements to optimize plant performance. At Ormesa, we are replacing all the equipment. In Amatitlan, we will reduce the pipe losses by improving the gathering system that connects the wells to the power plant. And in Tuscarora, we plan to reduce the use of water for cooling by converting part of the water cooling system to an air-cooling system. Turning to Slide 32. Generation in 2018 was positively affected by the commencement of Olkaria III expansion in mid-2018. Platanares and Tungsten Hills that come online in late 2017 as well as from the consolidation of Neal Hot Springs, San Emidio and Raft River power plants from the end of April 2018. The increase was partially offset by the impact of the Puna shutdown. The overall generation year-over-year increased by 6.9%. Moving to Slide 33 and 34 for an update on Puna. We continue with our efforts to resume operation. We have already constructed a new access road to the power plant, drilled a new fresh water well and started to open production wells that were plugged due to the lava eruption. Also an additional rig is being dispatched to the island to enable us to drill additional wells, if it is necessary. Along with this rapid and hard work come some encouraging news. Initial test to…

[Operator Instructions]. The first question comes from Noah Kaye with Oppenheimer.

First, I think, just topical, during this earnings season, can you provide an update on your exposure to PG&E? And how you would access the risk with any other off-takers or sort of a second derivative?

Okay. The risk today remains in Mammoth power plant with around 18 megawatts of power supply to PG&E. As we've notified that the -- after Chapter 11, they will continue to pay. Our expectation is that the impact will be low or no impact, as we can see that the price so far electricity provided is lower than many, many PPAs that they have, including solar and others.

Okay. And in terms of any second derivative risk, whether it's with SCAPPA, CE or any others? You don't see any contingent impacts?

Not as of now.

Okay. Very good. I appreciate it. And with Puna, I just want to understand and really appreciate all the detail. Should our base assumption be that the plant will begin generating revenue again in early 2020? Is there any reason at this point not to think that will be the case? You mentioned something about kind of testing the adequacy of the resource again. Can you just unpack that a little bit and how we should think about kind of our longer-term forecast?

Yes. First of all, our operational plan is that the power plant will be selling electricity by the end of this year, but obviously depends on the fact that we are unplugging production wealth as we speak. The first one is being unplugged this week. And even though we tested the reservoir through the injection was that they were not plugged and the reservoir seems to be okay, we cannot be sure that those plugged wells are intact. Even if they are not, then we are moving in an additional larger rig to fix those wells. So overall given the fact that the damage to the power plant was minimal and the expectation that the reservoir is intact, we are very optimistic that we will be able to be online, as I said, before the end of this year. Given the fact that also we are completely coordinated with the local government and the local utility that they know and they are striving for this green energy to be provided, I am very optimistic about Puna.

Okay, great. On the energy storage side, you commented to bringing a new leadership. Where exactly do you feel the segment is falling short? What do you expecting to change? How should we think about your go-to-market strategy?

As I said before, we are regrouping. We did regrouping during Q4 of 2018. And we are more focusing as of now on the immediate project, on more products which are in front of the meter and mainly providing services of frequency regulation, voltage regulation and simply providing electricity -- they sold electricity to the grid. And those are the end more on projects under our own ownership. So the new management is regrouping in this manner. As I mentioned during the call, we already started three power plants during 2019 -- sorry, '18 and the first quarter of 2019. We have few more prospects, one of them being already build and will be delivering electricity towards the end of this year and we have more. So we simply change management, change focusing. And we're building assets by means of software and hardware. We build the lab in our main facility in Yavne that is simulating a power plant and by that enhancing our ability providing more efficiency in battery usage. So overall, because of this focus, I am optimistic -- management is optimistic that 2019 is a turning point for us in this industry.

Sorry, if I could just squeeze in one more here. Maybe a longer-term question for the team. I know that there were only targets rather than guidance, but going back to the 2017 Investor Day, the goal was to get to something around $600 million of adjusted EBITDA by 2022. I think, if we add back the Puna contribution, we'll add something like $400 million run rate for '19, with call it a 15% to 16% increase in the operating portfolio expected to come online over the next couple of years. So just how should we be thinking about that long-term $600 million target? How we're going to get there?

Noah, one of the things that -- first of all, we are pretty much on target on our electricity segment by the -- true organic growth. We are still looking to few M&As. And if you recall, within those targets, we had a certain percentage of an M&A, which is not -- which was not small. And overall, looking in what are we doing, we are -- I am optimistic that we will be close to the number. We have a slight delay on the storage side. As you realize that this is lagging a year on what's expected. Overall, I think, we are okay towards the target.

I apologize, I actually don't recall like an M&A goal was specified as part of that. Can you just remind us what it was?

It was 2017, I have to go back and look at the presentation, which is not in front of me right now. But as I recall, there was a certain percentages of M&A added to that. So I'll come back to you later on this.

The next question comes from Paul Coster with JPMorgan.

This is Mark Strouse on for Paul. So just a question about the insurance proceeds. So I understand there is no contribution included in your 2019 guidance. But, I guess, how should we think about the amount that you will be seeking from insurance in 2019? Is the $26.7 million in EBITDA that you mentioned that the Puna had in the GTM prior to the eruption? Is that kind of a right ballpark of the amount that you will be requesting anyway?

I'll say, the $26 million is in the ballpark assuming that all the insurers will act as they should act and pay the claim. So, in general, business interruption -- the idea of the business interruption is to pay the company once an event happens. As this -- the event didn't happen, that's the idea. And this is the range, I don't have an exact number in front of me, but on 12 months, that's the range.

Okay, that's helpful.

Mark, on this respect, look, we are very adamant on this thing. We bought a lava insurance, paid premium and there was lava. As a matter of fact, large portion of the insurance pays and they recognize the fact that this happens. And we have exactly the same policy with each one of those insurers. So our expectation is, each one of them will pay as they should.

Okay. That's good to hear. And then can you just maybe provide a bit more color on the assumptions that go into your electricity segment guidance for the year? Just regarding capacity factors and pricing per megawatt hour, if you can?

So pricing per megawatt hour is based on the specific PPA. Some of them were disclosed, some of them we cannot -- we do not disclose specific pricing of them, but -- when you look and see on the capacity factors, power plants that come online, like McGinness, say, 1, 2, 3 or Campbell, they have a very, very high capacity factor. They actually operate almost 100% or 98%, 97% of the year. The other ones have lower capacity and sometimes gets us to the 90%. So the best way to look at it is to look on the 28 numbers and from that look forward.

If I may add to that, most of our low-capacity power plants are obviously in Imperial Valley, which we are in the process of enhancing both Heber and Ormesa. So looking forward, there will be sustaining capacity rate as our Nevada power plants -- from newer Nevada power plant. And also we have a few older-type power plants in Nevada, such as Steamboat, which is also being enhanced, as we speak now.

[Operator Instructions]. The next question comes from Jeff Osborne with Cowen and Company.

A couple of questions on the product segment. I saw that you are excluding $60 million from the backlog. Can you just talk about the decision behind that? And if you were to get that across the finish line, would any of that revenue come through in 2019?

Hey, Jeff, the idea is that we don't include anything in the backlog, unless we have a properly signed contract and the down payments. Simply, this particular contract is phases of signatures and the down payment is not yet received. That's the reason that it's not included, but on the other hand, it's in very advanced phases. So we felt that we should mention it in the press release and in the conference calls.

And, Jeff, to add, we don't talk about -- as Isaac feels specific contract, but since we feel that this is in very advanced or very late stages, I think signature phases, we started right to put it in, but into the backlog comes only, as Isaac said, the signed contracts and only after they're signed.

Got it. But, I guess, what I'm trying to get a hand on is your level of conservatism, which certainly, that is one, but if that were to be signed next week, for example, is your understanding of the project that it's attributable to? Would any of that product to be delivered in calendar 2019? Or is that more of an issue for next year in 2020?

Part of this $60-something million will be delivered in 2019 year.

Yes. And I will just say that it is forecasting timing of future project, this potential project, at least in the '19 numbers, we have some assumptions on it included in this guidance that we gave. So the guidance is not only signed contract, the guidance is some of our expectation and we expect to sign this contract.

Got it. Okay. That's helpful. And then can you just talk about what the situation is you're seeing in Turkey, given your exposure there? And the lower-margin guidance for the product segment? Are you passing on some of the currency risks that your customers have? Is that manifesting itself in lower pricing? Or is the pricing more of an indication of just the competitiveness of the overall environment?

First of all, Jeff, relating to the Turkish market, due to the financial situation, which burst in the last six months over there, there is a slowness in the Turkish market. Even though today the Turkish market is representing the lower margins in our orders, the company did tremendous effort during the last six months to diversify. The 2019 number will include much more other markets than 2018 and up, but we are still very cautious on giving guidance on a lower margin because there is and there was serious competition mainly on product issues, not only in Turkey, but in some other countries. And that's why even though the product sales will be -- market will be diversified looking forward '19 and '20. We are still cautious on the gross margin side.

Got it. The last one I had for you was around the cadence of the product revenue through the year. Do you have any sense of your delivery schedules? And how we should think about that through the year? Is it 60% in the back half of the year or evenly distributed through the year? Any thoughts there would be helpful.

As of today, the first cues use on the numbers provided look stronger, as you mentioned, comparing to the second half. But as in the product market, this can change. And maybe another piece of information, Jeff, if you remember that our delivery times used to be around 18 months, they drop down to 11 months. And today, they are less than 10, which again makes this segment a bit more fast-moving segment, which can change during the year.

This concludes the question-and-answer session. I would like to turn the conference back over to Isaac Angel for any closing remarks.

Thank you very much, operator. First of all, as we said, this was a very challenging year for us. And we made it through very successfully. And I'd like to thank all our employees around the world that made tremendous effort during this year on all segments to make it happen. And I'm sure that we are now positioned much well for a better 2019. Thank you very much for your support.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.