Ormat Technologies, Inc. (ORA) Q4 2020 Earnings Report, Transcript and Summary

Good day, and welcome to the Ormat Technologies Fourth Quarter and Full Year 2020 Earnings Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Rob Fink of FNK IR. Please go ahead.

Thank you, operator. Hosting the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, 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 risk factors and uncertainties. For a discussion of such risks and uncertainties, please the Risk Factors section as described in Ormat Technologies' annual report on Form 10-K and their quarterly reports on Form 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. 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 slides posted on the company's 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 the 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 all that said, I would now like to turn the call over to Doron Blachar. Doron, the call is yours.

Thank you, Rob, and good morning, everyone. Thank you for joining us today. Ormat continues to successfully navigate the challenges of the COVID pandemic, delivering year-over-year improvements in our overall profitability and making significant progress in executing our long-term plan to increase our geothermal, storage and hybrid solar geothermal capacity. For the year, we met our adjusted EBITDA guidance, due in large to improved gross margins within our electricity and storage segments. Importantly, we achieved profitability in our energy storage segment and this part of our business is growing rapidly. We also strengthened our balance sheet through a combination of long-term debt and an equity offering. We achieved this while bringing Puna back online and successfully resolving all pending Kenya tax assessment. These achievements, amidst the global environment facing unprecedented challenges from the COVID pandemic, positioning us for long-term success. This year, we laid a solid foundation to accelerate the growth of our electricity and storage segments. Our expectation is that 2021 will be a significant buildup year as we work to bring new geothermal, energy storage and solar PV projects online. These projects are expected to increase our generation portfolio by 50% to approximately 1.5 gigawatts by 2023, with a significant contribution coming from our energy storage business. This next step-up in the size of our overall portfolio represents approximately 29% increase in our geothermal and solar capacity, and up to approximately 400% increase in our energy storage assets by the end of 2023. As a result of our ambitious plan, we estimate that we will reach an annual run rate of $500 million in adjusted EBITDA towards the end of 2022 that we expect to continue to grow as we move forward with our plans in 2023 and onwards. I will turn the call over to Assi to review the financial results before I provide further updates on our operations and future plans. Assi?

Thank you, Doron. Let me start my review of our financial highlights on Slide 5. Total revenue for the full year 2020 was $705 million, down 5.5% from prior year. In the quarter, revenues were down 6.8% over last year. Both in the full year and in the quarter, the drivers for the decrease was the product segments, which was impacted by COVID-19. Full year 2020 consolidated gross profit was $276.3 million, resulting in a gross margin of 39.2%, 310 basis points higher than in 2019, same increase noted in the fourth quarter with our growing electricity and Energy Storage segment driving the improved performance. 2020 ended with a net income attributable to the company stockholders of $85.5 million. Diluted EPS for 2020 declined by 4% compared to last year, mainly impacted by a nonrecurring tax benefit recorded in 2019. Excluding this tax benefit, diluted EPS increased by 13%. For the quarter, diluted EPS increased 62.5% to $0.39 per share. Adjusted EBITDA increased 9.3% to $420.2 million in 2020. For the quarter, this was 7% increase compared to 2019. Moving to Slide six. Breaking the revenue down, the electricity segment revenues slightly increased compared to 2019, supported by contribution from new added capacity at our Steamboat Complex and better performance of other projects in our portfolio, offset by lower generation at the OREG facilities and increased curtailment in Olkaria complex, mainly due to COVID-19. In the product segment, revenue declined 22.5%, representing 21% of the total revenue in 2020. The decline year-over-year is expected to continue in 2021, as the continued global pandemic limited and still limit our ability to sign new significant contracts. Energy Storage segment revenues increased 7.6% year-over-year to $15.8 million and represented 2% of our total revenue for the full year 2020. This growth mainly driven by revenues from the acquired Pomona energy storage asset and the contribution of Rabbit Hill in Texas. In the fourth quarter, the electricity segment revenues grew 1.3% to $146 million while product segment revenue decreased 37.5% to $27 million in the fourth quarter of 2020. Energy Storage segment revenue were $5.8 million, increasing 36% year-over-year compared to $4.3 million in the fourth quarter of 2019. Let's move to Slide 7. Gross margin for the electricity segment for the full year expanded year-over-year to 44.6%. For the fourth quarter, gross margin was 45.2%. The improvement was primarily due to improved efficiency at some of our power plants as well as decrease in lease expenses related to the Puna due to the termination of the lease agreement. Electricity gross profit in the full year 2020 was positively impacted by $7.8 million in business interruption insurance payments compared to $9.3 million in 2019. In the product segment, gross margin was 22.4% in the full year of 2020 compared to 23.6% in the prior year. The product segment gross margin in 2020 was impacted by higher cost of revenue related to the Ngawha project that we build in New Zealand, which was impacted by, among other things, restrictions and limitations associated with COVID-19. In the fourth quarter, we saw an increase in gross margin in the product segment of 160 basis points to 29.8%. Energy Storage segment reported a positive gross margin of 11.1% for 2020 compared to a negative gross margin in 2019. The improvement was primarily driven by our acquisition of the Pomona energy storage assets. Turning to Slide 8. The electricity segment generated 92% of the total adjusted EBITDA in the full year of 2020, and electricity segment adjusted EBITDA increased 11% over last year. The product segment generated 7% of the total adjusted EBITDA for the full year of 2020. The storage segment reported, for the first time, a full year positive adjusted EBITDA of $3.2 million, including $1.7 million in the fourth quarter. As Doron noted in the opening remarks, we expect a continued increase in EBITDA as we grow this segment. The key takeaway here is that all of the 3 segments are now contributing positive adjusted EBITDA. Reconciliation of EBITDA and adjusted EBITDA are provided in the appendix slide. Turning to Slide 9. For the full year 2020, we successfully raised approximately $760 million in the aggregate, including $340 million net proceeds from the issuance of common stock, $290 million profit from the Bond Series 4 and approximately $130 million of proceeds from senior unsecured loan. Our net debt as of December 31, 2020, was $920 million. Cash and cash equivalent and restricted cash and cash equivalent as of December 31, 2020, was $537 million, compared to $153 million as of December 31, 2019. The accompanying slide breaks down the use of cash for the 12 months and illustrate our ability to invest back in the business, service the debt and continue to return capital to our shareholders in the form of cash dividends, all from cash generated by our operation. Our long-term and short-term debt as of December 31, 2020, was $1.46 billion, net of deferred financing costs. And its payment schedule is presented on Slide 31 in the appendix. The average cost of debt for the company is currently 4.7%. On February 24, 2021, the company's Board of Directors declared, approved and authorized a payment of quarterly dividend of $0.12 per share pursuant to the company dividend policy. The dividend will be paid on March 29, 2021, to shareholder of record of the close of business day on March 11, 2021. In addition, we expect to pay dividend of $0.12 per share in the next 3 quarters, representing a 9% increase over Q3 2020 dividend. That concludes my financial overview. I would like now to turn the call over to Doron to discuss some of the recent developments and our growth plans for the next 3 years. Doron?

Thank you, Assi. Turning to Slide 12 for a look at our operating portfolio. Power generation in our power plants declined by 3.1% compared to last year. This decline is mainly due to the lower generation at our OREG facilities and increased curtailment in Olkaria power plant. However, revenues of our electricity segment remain unchanged with higher average rate per megawatt hour of $89.6 compared to $86.6 for last year. We adjusted the generation capacity of our existing power plants based on their performance this year, as detailed on the slide, and the current portfolio stands at 932 megawatts compared to 914 megawatts last year. This year, the main addition was 19 megawatts in Steamboat Complex following the completion of the Steamboat enhancement. As noted on Slide 13, Puna resumed operations in November 2020, 2.5 years after the eruption of the Kilauea volcano, currently at low output relative to its generating capacity before the eruption. In November, Puna reached 10-megawatt generating capacity, and now it is operating at 13 megawatts. We continue our field recovery work and drilling of new wells, and we expect Puna to increase power generation during the second quarter of 2021. We target close to full production at Puna by the middle of this year. On the insurance front, for the entire 2020, we collected $29.1 million insurance proceeds. The $7.8 million were recorded under cost of revenues and the balance in other operating income. We are still working with our counsel to collect the rest of what we believe should be paid to us. Turning to Slide 14 for an update on our international fund and specifically in Kenya. As discussed earlier, one of the impacts COVID had on our operations in Kenya relates to increased curtailment there by KPLC, which was the main driver to reduction in revenue of approximately $6.5 million compared to prior year. The curtailment continued into the fourth quarter in a lower frequency compared to the first 3 quarters in 2020. We are also encouraged by the improved collection from KPLC that continues reducing the overdue amount. Also in Kenya, we had an important achievement, concluding all open tax audits with the Kenyan tax authorities and reached a favorable settlement related to the 2019, 3 tax assessment originally totaling $200 million. The settlement agreement extended the audit period for the issues addressed within the main assessment to cover the period from 2013 through 2019. Full financial impact was recorded in the fourth quarter of 2020. Turning to Slide 15 for an update on our backlog. Our product segment has been the part of our business most impacted by the COVID-19 pandemic, with our customers' projects around the world being delayed. However, we believe this is a short term phenomenon. In Turkey, a new feed-in tariff was announced. But although it is lower than the previous feed-in tariff, we expect the market to adapt to it, and we anticipate new potential projects in Turkey in the coming months. As of February 24, 2021, our product segment backlog was $33 million. We anticipate continued weakness in our product backlog and as a result, our 2021 guidance for this segment's revenue is significantly lower than recent years. Our business model is resilient and a key part of it relates to our vertically integrated structure, which enables us to better allocate our manufacturing capacity and resources while focusing on internal initiatives to support our electricity segment growth. We started to see this shift already in the second quarter of 2020 and in the full year 2020. Inter-segment revenues increased more than 30% over 2019 and 130% over 2018. Ormat is the only vertically integrated company in the geothermal industry. We can efficiently transition from manufacturing components for third-party customers to develop components for our company-owned projects. This means we can bring projects online more effectively by using internal resources and expertise. This will also extend our energy storage segment as well as our construction expertise is tapped to help development at energy storage products. As a result, we are also able to feed capacity at our manufacturing segment, avoiding unutilized expenses. However, we firmly believe that as the pandemic abates, we will see increasing demand for our products around the world. Partially offsetting the weakness of the product segment has been a consistent improvement in our energy storage business. Energy Storage, discussed on Slide 16, continues to evolve, to grow and to become more profitable, as Assi presented in his financial remarks. This year, we commissioned the Rabbit Hill 10-megawatt storage facility in Texas, which provides auxiliary services and energy optimization to the wholesale markets managed by Ormat. On February 13, weather conditions in Texas caused abnormal reduction in electricity supply, along with record demand for electricity. Some assess that events that are unfolding in ERCOT represents one of the worst shocks to U.S. electricity market in the recent decades. The extreme weather conditions resulted in shortage of electricity supply, which caused electricity and power REG prices to reach record of thousands of dollars per megawatt hour, probably all-time high. Starting February 16 and until February 19, our Rabbit Hill facility could not charge from the grid due to the energy emergency alert, which resulted in limited ability of the Rabbit Hill storage facility to provide power REG services. In order to reduce our merchant risk and increase our contracted revenue in 2021, the company signed a hedge transaction for 80% of the volume at a fixed rate, exchanging the floating power REG hourly revenue for a fixed hourly revenue at the end of 2020. Due to the inability to operate the facility during these times, we expect to record in Q1 financial results up to approximately $11 million of nonrecurring loss associated with this hedge. This event is still unfolding, and our goal is to minimize our exposure. This year, we also completed 2 acquisitions: one is an operating facility in California, Pomona, that shift the EBITDA in margins in this business from loss to profit; the second acquisition was an asset under development, Upton in Texas, that will contribute for the growth of this business. Before I move to a discussion on our growth plans, I would like to briefly discuss our commitment to sustainable future and step we took this year to support the environment, our community and our employees, in Slide 18. Sustainability is the core of our business and our way of life, saving emissions by generating clean energy that replaces the emitting conventional forms of energy. Our goal to increase our clean energy portfolio aligns with sustainability values and further saves emissions to the environment globally. In 2020, the health and safety of Ormat employees, our contractors and the communities in which we live, work and do business are of utmost importance. Throughout this global pandemic, Ormat followed strict protective measures necessary to safeguard every stakeholder health and safety. This includes adhering to all government regulations and maintaining clear, comprehensive plans and protective measures for employees who work in our energy plants, manufacturing facility, offices and elsewhere. We believe that our success depends in large part on our ability to create and engage workforce. Accordingly, investing in our employees is a key element of our corporate strategy. Since the beginning of the pandemic outbreak, we did not lay off any employee due to COVID-19. In the communities we operate, we have created special social projects, aiding thousands of people and donating food and medical supplies. Also, we presented personal protective equipment to hospitals in Kenya, Guatemala, Honduras and the U.S. Moving to Slide 20. As I mentioned at the beginning of this call, 2021 will be significant build up year, comprising mainly of geothermal projects. Our operating portfolio stands to date at over 1 gigawatt, comprising of 873 megawatts of geothermal, 53 megawatts of REG, 7 megawatt of hybrid solar and 73 megawatts of energy storage. We have a robust growth plan to increase by 2023 our total portfolio by almost 50%, with a significant contribution from the energy storage business, as detailed in the following slide. This increase is subject to obtaining all permitting and regulatory approvals required as well as completing the development and construction of these power plants as planned. Moving to Slide 21. Our medium-term goal is to increase the capacity of the electricity segment from our previous estimate of approximately 170 megawatts by end of 2022 to between 250 and 270 megawatts by the end of 2023, representing a total increase of up to 29%. In our rapidly growing energy storage portfolio, we are planning to enhance our growth and to increase our portfolio by up to approximately 400% and add between 200 megawatts to 300 megawatts by the end of 2023. This represents a significant increase compared to our previous growth target of 80 to 175 megawatts we set for 2021, 2022. Additionally, we believe that we may see additional increase coming from potential M&A activities. The next slide displays 14 projects underway that comprise the majority of our 2023 growth plans. We already secured long-term PPA for the majority of these projects and affirm the resource viability. While our electricity segment has navigated the pandemic well, we had some challenges and changes to the timing of projects coming online. The current expected commercial operation of CD4 and Heber is during the first half of 2021, a change that was caused mainly due to delays in permitting due to COVID-19. Slide 23 shows the geothermal pipeline we hold for long-term growth. These are additional prospects that are in different stages of exploration. Moving to Slide 24 and 25. The second layer of our growth plan comes from energy storage segment. Slide 24 demonstrates the energy storage facilities we have announced or started construction. The other projects included in our growth plans are in different stages of development, and the release will require a site control and execution of interconnection agreement, all obviously subject to economic justification. Our current pipeline presented in Slide 25, which is updated frequently, include 33 named potential projects with a total potential capacity of over 1 gigawatt, which are in different stages of development. As I mentioned earlier, we believe that we can develop from this potential pipeline between 200 to 300 megawatts by the end of 2023, mainly in Texas, New Jersey and California. This target excludes any add-on for M&A activities that we are proactively seeking. Moving to Slide 26. The significant growth in both our electricity and storage segments will require robust investments over the next couple of years. To fund this growth, we have over $900 million of cash and available and restricted cash and lines of credits. Our total expected capital expense for 2021 includes approximately $450 million for capital expenditure for construction of new projects of geothermal, solar and storage; enhancement to our existing geothermal power plant that management readies for construction; maintenance of capital expenditures, including our work at the Puna power plant; and enhancements to our production facilities as detailed in Slide 32 in the appendices. Overall, Ormat is well positioned with excellent liquidity and ample access to additional capital to fund future initiatives. Please turn to Slide 27 for a discussion of our 2021 guidance. We expect total revenue of between $640 million and $675 million, with electricity segment's revenue between $570 million and $580 million. The electricity segment includes $33 million from the Puna power plant in Hawaii, assuming we will meet our plans to bring it close to full operations in mid-2021. We expect product segment's revenue between $60 million to $70 million. Revenue for energy storage is expected to be between $20 million and $25 million. We expect adjusted EBITDA to be between $400 million and $410 million. We expect annual adjusted EBITDA attributable to minority interest to be approximately $32 million. Moving to the last slide. The winter of 2020, 2021 brought a wave of beneficial legislation to the renewable energy industry in the United States. In December, the Congress package included extensions to the production tax credit and investment tax credit for renewable projects, including geothermal, solar and storage and recovered energy projects. While the December legislation did not provide a tax credit for stand-alone energy storage facilities, storage facilities related to the functioning of the solar facility were determined to be eligible for the ITC, and we believe that our Upton energy storage facility can benefit from it. In addition, safe harbor provision for renewable energy developers to claim this tax credit was extended from 5 to 10 years. This enhanced flexibility will encourage renewable developers to get construction going on more projects over the next decade. Finally, a few days ago, the California Public Utility Commission, the CPUC, issued a ruling requesting comment on a proposal for 1000 megawatts each of new geothermal and long duration storage procurements between 2024 and 2026. With the tailwind of this support, 2021 is going to be a significant build-up year, accelerating our growth in the storage and electricity with a goal to reach $500 million of annual run rate of adjusted EBITDA towards the end of 2022 that we expect to continue to grow as we move forward with our plans in 2023 and onwards. This goal shows that our way to deliver accelerated profitability growth in the geothermal business is also applicable to our storage business. This will happen by applying our vertical integration approach, mitigation, the partial inherent merchant risk through diversification, using our stable geothermal portfolio as a solid foundation for our storage business and maintaining a strong capital position with access to various sources of capital. We are planning to conduct an Analyst Day likely in May of this year, where we expect to discuss in more details the growth goals in our electricity and storage segments, and our plans achieving the adjusted EBITDA goal. This concludes our prepared remarks. Now I would like to open the call for questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Julien Dumoulin-Smith with Bank of America. Please go ahead.

This is Anya. I'm filling in for Julien here. So first is I wanted to ask about the battery storage pipeline, so you have 33 name prospects. Could you talk a little bit about those opportunities on a risk-adjusted basis by region? How do you think of that? Specifically, how comfortable are you with taking on merchant versus contracted exposure? And then what new U.S. markets are you looking at, given likelihood of a storage ITC?

So we are looking, we are focusing, as we said, on the 3 main markets, which is mainly California, Texas and PGM. We are also starting to look at other markets like New York. But at this stage, these are the 3 that we are focusing on. The 33 projects that we have has the potential of around 1 gigawatt of energy storage. And we estimate basically weighting them for the next 3 years to be between 200 to 300 megawatts. We have some detailed methodology basically on the development process, whether a site, we've got a land position there, whether we have interconnection. And based on that, we weigh the different projects. Regarding the merchant risk, we see that the portfolio will grow. There will be some kind of a balanced portfolio that will be built on merchant risk, tolling agreements that we see in the market. The RA contracts and hedging contracts that we see across the different states and portfolio. So we'll be building some kind of a balanced portfolio.

Okay. Just following up on that.

We need to take into account that when you look at the end of the day...

Sorry, go ahead.

All right. I was just, wanted to say just one more thing that when you look at Ormat, yes, when you look at Ormat, when you look at each of the separate segments, this is the banner that we see. But when you look in overall in Ormat, we need to remember that the entire geothermal portfolio today is contracted. So on an overall basis, the merchant prices, the merchant percentage is not very high.

Okay. Okay. Makes sense. And then is there any sort of target you would think about for revenue or EBITDA coming from storage by maybe run rate 2022? Just sort of maximum exposure? Or what are your expectations for storage as a percent of the overall business?

We didn't give any specific target for this run rate for 2022 between the different segments, but we do see the storage as a growing segment and the percentage should grow.

Okay. And just one final one here. Could you provide some more color around the decline in product backlog? What was maybe the cause of delays in signing contracts recently? I mean, I know COVID, but maybe more specifically? And then when do you expect to return to a more normalized run rate? And any estimate of what that run rate would be?

We see, globally, we see the pandemic may be a bit slowing down, so we do see some weakening of projects, of potential projects. We see that as part of the tender process that we are participating in, which we now see more of them in Ethiopia, in Indonesia, in the U.S. and in other. The feed-in tariffs in Turkey, which was an important part of our product segment, came out a couple of weeks ago. And now the market is looking into it. And as I said, we hope that, that market will come up again. And also, we see the New Zealand market is also somewhat waking up a bit. So we do expect during the year, that, that could grow up. However, the impact on the P&L has a delay because once we do sign a contract, the revenue recognition is percentage of completion, and that has a little bit longer period of time since we start the contract. But what we see in the last, just to summarize, what we've seen in the last few weeks is awakening of more tenders and more projects that we are responding. And we believe that customers are adapting to the situation and are returning to the previous plans to develop geothermal.

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

Maybe we can just start with maybe understanding a little bit of the walk year-over-year in EBITDA. I believe you mentioned in your prepared remarks that $29 million of business interruption insurance proceeds were received in the year. I assume you are not including any business interruption proceeds in your outlook for 2021. So can you first please confirm that? And also address how much you think could potentially be recovered?

No. We appreciate the question. In the $400 million to $410 million, we do have a small amount of up to $10 million that we do believe we will receive in 2021. With that being said, that's one of the reasons we do have a gap between $400 million to $410 million as part of our guidance for the EBITDA for 2021. In general, under the policy that we have in place, we can recover in total north of $30 million, 3-0. And if we do that, and if we receive it during 2021, we will increase the guidance similar to the way we've done it in 2020. So again, there is an upside in our guidance. It may take us more than a year to collect it. With that being said, you are right. If you exclude the $30 million from 2020 and add instead of $10 million, it looks like 2021 results are better than 2020 actual, even when they take into consideration the fact the product segment is down.

Well, I think that translates to my next question, which is you can tell us otherwise, but if I just apply a 25% type decremental on close to $90 million lower products revenue and I also add in what you just mentioned on the year-over-year headwind from insurance, it looks like the rest of the business EBITDA is growing around 8% to 9%. And that's without the benefit of much increased contribution from the geothermal portfolio additions during the year, except for Puna, is that correct?

Noah, I think you always, I always say to Smadar and Doron that you are one of our smartest analysts. When you look at our portfolio, it looks like electricity and storage is growing very nicely. And we are comfortable that the major levels that you just described of 9%, 10% is something that we can sustain for long term. There is no doubt that the sharp decline in product may not show people -- it's hard for people to see it. But overall, the piece of the business that we do control is actually doing very nicely, and we are confident in our ability by -- towards the end of 2022 to get to a real EBITDA -- run rate of EBITDA of north of $500 million. So as you are saying, 2 years from now, we think Ormat will be in a completely different place. This is a transition year. And if you look in between the numbers that you did, you will see that our guidance is not bad at all.

I guess one additional question. Obviously, the CapEx guide is very robust compared to past years and ties to your commentary around accelerating the growth. I think in the appendix, you unpacked that a bit. And predominantly, that spend is envisioned for geothermal development. It looks like you've disaggregated into a couple of hundred million dollars for projects that are already basically released with about $150 million in exploration and potential enhancement. So that would obviously be a much bigger number for both, but particularly for the exploration enhancement. Is that really being driven by the PTC renewal by California's potential increased procurement of geothermal? Can you help us understand what's driving your increased exploration spending here?

I think, first of all, definitely, the ability to get PTC and to get start of construction in 2021 is driving some of the exploration. But also, if you look on 2019 and 2020, we didn't have a lot of geothermal coming online. So this is a process that we've pushed for a couple of years trying to accelerate the exploration and the permitting. And if you look on the numbers, we have quite a large growth plan for 2021, for 2022 and onwards. So that is kind of a backlog of exploration projects coming to fruition in the U.S. and then afterwards internationally.

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

A couple of questions on my end. I was wondering if you could further elaborate on the $11 million charge that you mentioned. Two questions. One, I assume that's the Rabbit Hill storage project. And then also, where in the P&L and the income statement should we be modeling that for Q1?

So on the Rabbit Hill in Texas, it relates to the Rabbit Hill project, the 10-megawatt project that we have in Texas that started to work last year. As part, we have a little discussion about merchant versus fixed price. We've decided end of last year basically to hedge 80% of that facility. And we did this hedge last week with the very extreme weather conditions. We weren't able -- the market was basically shut down in Texas due to the emergency alert that ERCOT issued, and we weren't able to operate in the market. However, the hedges, the hedge and the exposure there -- or the potential exposure there, is up to $11 million that we are now analyzing to see what is the actual -- what will be the actual impact from it.

With respect to the P&L, we are still looking at the best way to book it. But since this is a nonrecurring item, we will probably adjust it out of our adjusted EBITDA. So I think the best way is, even if you put it on a separate line item on your guidance or your forecast, that will be fine.

Got it. And then it was touched on earlier around the product visibility and the lack thereof because of COVID. But with the Turkish feed-in tariff being reinstated but changed, how should we think about your exposure in Turkey, given your facility there? And then as Turkey or assuming turkey rebounds, do you anticipate the margins to be similar to what they were in the past or possibly worse, just given the nature of the feed-in tariff change?

The facility that we have in Turkey is a very small facility. We reduced it to the minimum required in order to keep our presence there. So today, it's not a real burden. And part of the feed, the new feed-in tariff, is an increased subsidy to products manufactured in Turkey, and our facility will be an important part of this term. We do expect the Turkish market to rebound in the next few weeks or in the next few months. Margins, it's very hard to say. We hope they'll be similar to what they've been in the past.

Got it. And my last question is just on the guidance itself for 2023. If I heard you right, there's no M&A either for geothermal or for the elevated storage outlook. And so that would be upside. If that's correct, can you just talk about what the pipeline is for M&A? Is that something you intend to be active in post the capital raise that you just had?

Yes. So it doesn't include any major M&As. It will include, if we buy a product that hasn't been built yet, like Upton, that's part of the focus, where we buy land position or small developers. And on the geothermal, it doesn't include any -- it's a different kind of operation, it doesn't include any M&As. We are active in the field. We see quite a lot of potential deals coming to the market, both in the geothermal and in the storage, and we are looking on both areas. And we do hope that we'll be able to close, to sign basically and after that close the transaction in one or both of these segments.

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

Okay. Thank you. So thank you all for joining us. We appreciate the support. It's been a very -- as we discussed, a very good year for our electricity segment and storage segment. And the product is the one that is a bit more challenging, but we do see today the beginning of new projects coming online into the -- in our customers. And as I finished in my earlier remarks, we'll likely have an Analyst Day later in May. And thank you, everyone.

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