Good morning, everyone, and welcome to the Ormat Technologies' Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Sam Cohen with Alpha IR. Please go ahead, sir.

Thank you, operator. Hosting the call today are Doron Blachar, Chief Executive Officer; Assi Ginzburg, Chief Financial Officer; and Smadar Lavi, Vice President of Investor Relations and ESG Planning and Reporting. Before beginning, we would like to remind that 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 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 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 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's found on the investor relations tab. With all of that said, I would now like to turn the call over to Doron Blachar. Doron, the call is yours.

Thank you, Sam. And good morning, everyone. Thank you for joining us today. The fourth quarter marked a strong finish to 2022 with 10.7% top line expansion, reflecting growth across all our operating segments. 2022 was a year in which we executed successfully our strategic plan by expanding our portfolio and improving our operational performance. During 2022, we added 78 megawatts of new generating capacity to our Electricity segment operating portfolio, including our CD4 and Tungsten Phase 2 geothermal power plants as well as our Wister Solar and 2 hybrid solar projects. In addition, we added a 5-megawatt new storage facility operating in the CAISO. Also in 2022, we signed long-term power purchase agreements, PPAs, for up to 365 megawatts, with 285 megawatts of those PPAs covering geothermal facilities and 80 megawatts for energy storage. These new agreements are expected to improve our economics in both segments. In our Product segment, we experienced a significant recovery, delivering the highest quarterly revenue since the start of the COVID-19 pandemic. We now have a $148.1 million backlog, demonstrating the growing global demand for our geothermal products. As we look toward 2023, we expect to benefit from our portfolio expansion strategy, which has resulted in new geothermal and solar power plants in our Electricity segment that started operation in the second half of 2022. We also expect to bring 170 megawatts of new capacity online, of which 66 megawatt is in the Electricity segment and 104 megawatts are in the storage segment. For 2023, we expect to deliver between $480 million to $510 million of adjusted EBITDA, an increase of approximately 14% at the midpoint over 2022 actual results, which is the highest growth we have seen in years in EBITDA. This growth is supported by the new capacity added during 2022 and the expected capacity we plan to add in 2023. On an annualized basis, the new assets that will be added in 2023 as well as the potential improvements in Puna and Olkaria are expected to add between $25 million to $30 million of additional adjusted EBITDA versus 2022 partial operations. We continue to see strong tailwinds globally for renewable energy supported by the Inflation Reduction Act benefits, including the PTC for geothermal and ITC for storage. We expect these benefits will reduce our capital needs and boost our EPS in the coming year. In addition, we are experiencing significant demand growth for geothermal energy and storage driven by the volatile fossil fuel prices and global decarbonization efforts. We remain on track with our capacity expansion plans in both the Electricity and the storage segments, with the potential to add approximately 700 megawatts by the end of 2025, which supports further top line EBITDA and net income expansion. Now before I provide further updates on our operations and plans, I will turn the call over to Assi to review the financial results. Assi?

Thank you, Doron. Let me start my review of our financial highlights on Slide 5. The fourth quarter marked a strong finish to an overall excellent year in 2022. Total revenue for 2022 was $734.1 million, up 10.7% year-over-year. And revenue for the fourth quarter was $205.5 million, up 7.6% year-over-year, reflecting growth across all 3 of our operating segments. Across the full year 2022, our adjusted EBITDA results of $435.5 million increased 8.5% compared to $401.4 million in 2021. Fourth quarter adjusted EBITDA of $124.7 million increased 7.5% compared to $116 million in the fourth quarter of last year. Year-over-year, the increase in the adjusted EBITDA was largely driven by an increase in revenue in each of our 3 operating segments. In addition, G&A expenses were lower in 2022 due to lower, reduced legal costs. In the full year 2022, net income attributable to the company shareholders was $65.8 million or $1.17 per diluted share. This represents an increase of 6% and 6.4% versus the same period last year, respectively. On an adjusted basis, net income attributable to the company's stockholder was $92.2 million or $1.63 per diluted share, an increase of 7.3% and 7.1% versus the same period last year, respectively. The year-over-year earning growth was driven by better performance of our assets and lower effective tax rate. In the fourth quarter of 2022, net income attributable to the company stockholder was $18 million or $0.32 per diluted share, in comparison to the $18.9 million or $0.34 per diluted share in the same period last year. The net income and earning per share -- diluted share were negatively impacted by an after-tax noncash write-off of related to our Brawley power plant. On an adjusted basis, net income attributable to the company stockholders was $41.2 million or $0.73 per…

Thank you, Assi. Turning to Slide 13 for a look at our operating portfolio. Generating growth was positively supported by inclusion of CD4, Tungsten Phase 2 and Wister Solar; as well as higher capacity at Puna. The generation was partially offset by the shutdown at Heber 1 following the fire early in 2022 and by lower generation at our OREG facilities due to lower availability of the heat source. As you can see, our generating capacity was updated to 1,070 megawatts in the Electricity segment compared to 1,012 megawatts in 2021. We added 73 megawatts of new geothermal and solar power plants, which will slightly offset by adjustment to the generating capacity reflecting changes in the well field performance. As noted on Slide 14, in the fourth quarter, our Puna geothermal power plant operated at a level between 23 and 25 megawatts. In 2022, we received higher energy rates at the plant as a result of the global elevated oil prices. We are currently negotiating new amendments to the fixed-price PPA we signed with HELCO that would allow us to continue with our plans to repower the Puna complex and increase its capacity to a total of 46 megawatts. At our Olkaria power plant in Kenya, the lower performance of the well fields limited its generation of the power plant that is currently generating 125 megawatts. We are currently performing a drilling campaign and expect to increase its capacity during the year. With respect to Heber 1. As you know, Heber 1 is experiencing a partial outage due to a fire in early '22. And it's operating at 20 megawatts, less than half of its capacity. We have decided not to rebuild the Heber power plant. And we settled the insurance claim related to the fire event, including all business…

[Operator Instructions]. We'll take our first question this morning from Noah Kaye of Oppenheimer.

Maybe we could start with the $150 million cash tax benefit you're expecting from IRA. Can we compare that to pre-IRA? Obviously the geothermal PTC had lapsed at the beginning of 2022, but I assume you had some projects that already met -- commenced construction, so how much of the $150 million is really incremental post-IRA? And then just on a housekeeping matter, how should we be modeling those benefits flowing through the P&L and cash flow statements that treated as reduction in tax expense, income from sales tax benefits? Any color you can provide there would be helpful.

There are a few elements to the IRA that's going to impact us. And as you rightfully say, in the past, we also had, I will say, tax equity transactions we have done on the geothermal. We expect in 2023 approximately $125 million of the $150 million to come from 2 new tax equity transaction that we plan to do in the U.S. One of them will be for the Heber combined operations. So it will be 3 when you combine the 2 Hebers. I will say that, if you look before that, that amount is probably lower by 10% because, as you remember it, ITC -- the PTC is up from 25% to 27.5%. So instead of $125 million, that number would have been probably closer to somewhere $110 million. The other piece will be PTCs that we will be able to sell, through the year, to third party. And those will be showing up either as other income or as part of the tax equity income. And the last piece, which is around $15 million, should flow through the tax line item. These are ITCs related to a new storage project. Now when you look at the CapEx that we're spending in 2023 and you look in 2024, we will see a much bigger amount coming from the ITC part because, as we see it, in 2024 we have the COD of Bottleneck which is around $100 million and $105 million project, in addition to Montague which is another large project. So we will receive anywhere from 30% to 40% on those in form of a tax return. And those should flow through the tax line item, so we will see a boost in earning per share, especially in 2024, because of the Bottleneck project and the Montague project.

Very helpful, Assi. And maybe just to follow up on that just to help us with the simple math on expected funding mix for '23 CapEx. You've got this $150 million benefit plus the cash from operations. We assume you would need to raise additional project debt. Maybe talk through that and where you would expect project debt to pencil out on new projects.

So as you rightfully so say, that the funding requirement next year will include project debt, tax equity transaction and maybe other form of financing. Right now, based on our best estimate, the project debt will fall in the -- around 6% debt. That's the last quote that we got. This will be a long-term debt fully secured. If you look at bank debt format, we are in the 6-plus, I will say, anywhere from 20 to 45 basis point. It depends on the mood of the market and the date.

Okay, if I could sneak one last one in, just on the guide for '23, including some improvements at Puna and Olkaria with some rollover benefits. Just what incremental improvement in capacity do you expect to get for those projects? And what's the rough timing on when you think they reach those capacity targets?

Noah, it's Doron. So thank you for the question. These are 2 additional items. In Puna, we finished an important part of our campaign. And we are in the process of connecting the wells that we finished drilling, production and injection oil rigs. We expect to connect them toward the beginning of Q2, and we expect to see the benefits impacting starting in Q2 going forward. And we -- following that, we plan another, to drill another well over there; and to see an additional increase somewhere toward the second half of the year. So we do expect a larger impact starting Q2 and then another one toward the second half. Olkaria, we are in the middle of the drilling campaign over there. And we expect a gradual increase in capacity as we connect each well that we drill over there. We finished one well that we plan to connect these days actually, so we do see -- we do expect to see an increase over there. And the other well fields, in Olkaria, the wells are very deep. The timing to drill takes a bit longer than in other places, so we expect that to happen -- to increase mainly in the second half of the year.

We'll go next now to Justin Clare at ROTH MKM.

So I guess, first off here, I just wanted to ask also on the $150 million in tax credit expected in 2023. Are there any assumptions for getting bonus adders within that $150 million such as the energy community adder? And then is -- if not, is that possible? And do you need to see treasury guidance before you can fully figure out exactly what the tax credit benefit will be?

For 2023, the numbers do not include any adder because we are not in these that you mentioned. With that being said, there is a potential that for 2024 some of our storage assets are in these areas. And that's why we expect to get almost, in those cases, 40%. And when we look at 2025, we are also looking for options to buy batteries in the U.S. in order to try and qualify to anywhere between 40% to 50% on the storage. On the geothermal, right now we are assuming the basic $27.5 of PTC. With that being said, as you mentioned rightfully so, we are looking at the actual guidance to see if we can take that number higher [indiscernible] 10% because there is not available equipment similar in the U.S. of geothermal. So the question is will we be able to claim local manufacturing? Because the drilling is in the U.S. The construction is in the U.S. So that's a question we will ask course going forward, but we are still waiting for the guidance. Many of the guidance are still up in the air, but the things that we are claiming for in 2023 are the base -- and when I say the base, I mean the, 5x the base. The base is $5.50, for example. We are claiming $27.5 because we're getting 5x the base.

Got it. Okay. that's really helpful. And then just on storage, we've heard that the supply chain could be improving in terms of the availability for batteries. This might be in part due to some demand softening for electric vehicles, but could you just update us on what you're seeing in terms of the supply chain? Do you have all the batteries that you need? And is there any potential to pull projects forward if batteries are more freely flowing these days?

Yes. Thank you. So I will say the project -- the 8 projects that we listed in the presentation, all of them have secured batteries from different vendors. So on them, the supply chain issue is mainly delivery issues and things like that. We have seen in the last couple of weeks a reduction in the battery prices, a small reduction, which follows what you've said, a bit of a weakening in that market due to the EV market. I can say that we have between 3 to 6 projects that are looking for batteries. And once we have the batteries at the right price, it's a question mainly of price and timing. We will be able to release them going forward. And these are part of our plans and targets for the over 1 gigawatt hour generation at the end of 2025 for the storage. So we have projects in the storage. We have the site control. We're in a very, very advanced interconnection and permitting process. And I think the last block is the batteries, and we are happy that the market is softening a little bit. And hopefully, once we are able to secure the battery, we'll be able to release the projects.

Great, okay. And then maybe just one more. Your guidance for the Product segment suggests that quarterly revenues could be $30 million or maybe a little bit above that in 2023. At that level of revenue, could you get back to a gross margin range of 24% to 28%? And is that assumed in your guidance, that kind of level for margins?

So we had a very good Q4 with margins are being better. And there is no doubt that the contract that we signed in 2022 and the one that will impact 2023 are already at an improved margin. We are still in the sub 20%, I will say, in our guidance, somewhere between 18% to 20%. We think that it might be better, but at this point, supply chain can still be an issue for 2023, so like always, we are being, I will say, a little bit making sure that we're going to meet the numbers. We think it's going to be somewhere around the sub-20%, maybe 18%.

We'll go next now to Jeff Osborne with Cowen and Company.

A couple of quick ones on my side. I was wondering if we could get an update on the Bottleneck project. I think in the third quarter call you had talked about getting CPUC approval by the end of the year. I don't think that happened. And then I noticed in the investor presentation that moved to Q1 of '24 versus the end of '23, so can you give us an update on where that is?

Yes. Thanks. It's, the Bottleneck CPUC, we got approval at the beginning of January. So the contract is fully approved by the CPUC and we're running on it. Moving between Q4 '23 to Q1 of '24, it's mainly issues of potential slow-up supply of batteries but mainly the connection to the grid and the process it takes from you -- when you finish construction until you can actually generate revenue. So we do expect to finish construction in 2023, but then the connection itself might take us into 2024.

Got it. That's helpful. 2 other quick ones just following up on Noah's question around taxes and the ITC. What tax rate should we assume for Ormat in '23 and '24? Is that a number you have handy?

When you look at 2024, I will say there definitely should be a much lower tax rate because we expect extremely large ICC benefits that will impact us. For 2023, you can assume, I will say -- if our normal tax rate is around 32%, you can assume at maybe 10% less than that.

So 22%. Or take off 3.2%...

No, no -- somewhere between 25% to 30%.

25% to 30%, okay, got it. And then the last one I had is just on the North Brawley facility. I might have missed that, but I think, going back to like 2010, that originally was a 50-megawatt resource. Then it went to 17 and then 13, and now it's 7. Is that all due to the sand and salinity issues that, that site has had for years? Or is there something else going on there?

No, nothing new going on there. It's mainly the same issues. Over the years, in various points in time, we had idea on how to solve it. We've invest the -- into different technologies and different structures in order to bring it back to higher generating capacity, but at this stage, we don't think that we can do it. But what I would say is that the North Brawley facility has a larger interconnection that is not going to be utilized through the geothermal. And we are in advanced discussions with a CCA there to build a storage facility and, by that, actually take the benefit of the interconnection that North Brawley has. And once this will be finalized, we will update you exactly on the project.

We take our next question now from Julien Dumoulin-Smith of Bank of America.

Listen. Just with respect to some of the impacts here, some of the operational issues on some of the geothermal assets, can you elaborate a little bit? I mean, how much of this is going to be made up, if you will, in '24? I don't know if it's exactly a fair question to ask, but in totality, whether we're looking at Heber or Brawley, obviously there have been some specific issues. But in totality, is there a good way to think about kind of the shift in value that you had previously contemplated in '23, moving into kind of more of a run rate '24 as a way to think about it across each of the discrete issues that you described earlier, maybe in EBITDA terms?

Julien, great questions. So as you know, many of the storage segment assets' CODs moved from 2022 to during the year 2023. And also we decided to take a closer look at our drilling campaigns in Olkaria and in Puna, which now look very, I will say, on track to perform this year. So these 2 items, in addition to the on the geothermal, which is like you mentioned rightfully so -- Heber and North Valley should rate on a run rate base additional $25 million to $30 million of EBITDA in the following year. So if everything would have gone right in 2022 and things would have been on time, everything, you're right. Our guidance for 2023 would have been $25 million to $30 million higher, which will put us probably at record EBITDA for the company growth. I will say that we are long-term marathon runners. And for us, if something will start operation in January or April, it does make a difference. And we want it as early as we can, but we want it right, so when we look at 2024, not including assets that we will add in, in 2024, we are seeing a pickup in EBITDA on those assets of $25 million to $30 million, with almost -- all of it also coming from a top line growth of storage and geothermal assets. So I will say, when you combine this, I think there's a lot of value in what we have done over the last 2 years. And maybe there's a little bit more patience that is needed, but I think that $25 million to $30 million on top of what we gave guidance for 2023 are very good numbers for the company.

Indeed. And just sorry just to clarify that, if I can. And hopefully, it's a fair question. That $25 million to $30 million is incremental versus projects that were previously contemplated for in service in '24, right? i.e., this is just the shift that you're announcing here in time line in...

Yes. It's assets that were supposed to start online mostly in end of 2022. They will start operation in 2023. They will contribute some amount in 2023, but on top of it, on an annual base when you look at 2024, they will add additional $25 million to $30 million of adjusted EBITDA.

Right. It's the of your catch-up for some of the assets reaching through the year in '23 as well as some of the operational issues really getting fully resolved here.

Yes.

Exactly. Sorry. I don't mean to belabor that too much. And then just on the Product side, super quick: Obviously pretty incredible developments and re-acceleration, backlog largely contemplated to be consumed seemingly this year. How do you think about adding more to that backlog? It's been a pretty impressive recovery trajectory here in the last couple of years and obviously looking to '23. Can you talk a little bit about expectations on adding backlog here over the next few months to continue this momentum? Or is this the new run rate, if you will?

We -- thanks, Julien. So on the Product backlog, as we said, we see a change in the demand not only in the U.S. but globally. We are competing today on multiple projects that we expect to win some of them, we would say the largest opportunities in New Zealand, which is a big part of our backlog today, but the potential there is huge. And we do hope that Turkey, and we've seen some indications from our customers that Turkey might wake up again. And assuming the economy will be a little bit better in Turkey, the potential there is very, very big, so we do expect the backlog to continue. It's not something that you can measure it by quarter, but we definitely expect the backlog over time to increase.

Okay, excellent. And then -- but maybe related to that, the product level here. Just in terms of this new level that you've got for this year, call it, , do you think that we're going to see that as being a new run rate? Or we're going to continue to accelerate. It sounds like further acceleration is possible, but you're not ready to articulate it yet.

I couldn't answer you better than the question.

All right, fair enough. We'll leave it there.

[Operator Instructions]. We go next now to Ryan Levine at Citi.

I'm hoping to start off with the power market exposure. You highlighted some of the duration in the PJM forwards and some other markets. Can you quantify the materiality of that movement to your '23 outlook? And are you looking to change any of your hedging profiles on a go-forward basis?

Thanks. On the -- I'll start with we are not doing today any hedging within the storage market. And we have -- most of our contracts are merchant, apart from the RA contracts that we have in California. In 2024, we'll have Bottleneck with a tolling agreement, but we are not hedging any contracts. We are playing in the merchant market. PJM prices in 2022 were very, very high. They were above $50. Today, they are in the range of $20, $25, so that's a big decline in the PJM, but again it's a merchant market, so it depends quite a lot of the weather and the demand. PJM is related a lot to the gas price -- natural gas pricing, so if natural gas pricing are going up, the PJM prices will go up. So this is a merchant play.

Ryan, let me add one thing. We have roughly a 40 megawatt now operation in the East Coast in PJM. If we will see a pickup in prices towards what we saw in 2022, we expect revenue in the storage to be higher by $6 million to $8 million. So we are already taking into consideration the fact that prices are slightly lower. And if there will be a pickup in prices back to the $40, $50, then we should see roughly another $6 million to $8 million. I will say that this thing is very volatile. December started very slow, for example. And then over one weekend, we generated $2 million of revenue. So overall, we like some of our assets to be in these areas. And we believe that even at $25, $30 per megawatt we still have a very good return on our investments over there.

Okay, great. And then in terms of your dividend policy with the incremental $150 million of capital offsets from the federal policy and some of these moving pieces with time lines of implementation and movements in power curves. How are you thinking about your dividend policy on a go-forward basis? And could that be something that gets reevaluated in light of some of these moving pieces?

So the dividend policy is reevaluated between the management and the Board every quarter and every year when we do our work plan. However, as we discussed, there is such a large demand for geothermal assets and storage assets in the U.S. and globally that the view of the company is to invest in capital as much as we can and not to go and increase the dividend. We see the big upside in growing the business. We have in 2023 a 14% increase in EBITDA, which is the highest we had for many, many years, highest growth in EBITDA for many, many years. And this is where the focus that we're putting on.

Okay. And then last question for me. In terms of the CapEx outlook on a per-megawatt basis, are you seeing any movement there given some of the components costs evolving?

Over the last year or so, 2 years basically, prices did -- for raw materials did go up, and drilling costs, due to the boom in the oil industry. Drilling costs went up a bit. Now they are going down a little bit more. Shipment pricing went very high. Now they are going down, so all in all I think this is -- balances. And the reality is that, since we are a vertically integrated company and we do actually everything that is required to build a facility, we are able to manage between these. And costs to build the facility might go up or down by 5%, but in general it's the same area.

Thank you. And gentlemen, it appears we have no further questions this morning. Mr. Blachar, I'll hand things back to you for any closing comments.

Okay, thank you. Thank you, everyone, for joining us. 2022 was a very strong year. And we're looking at 2023 with a 14% increase in revenue and EBITDA, adjusted EBITDA; and continuing to invest and build our portfolio. And I'm confident that, as the year passes, we'll be able to give you more and more insight on the growth plan that we have and making them. So thank you very much.

Thank you. Again, ladies and gentlemen, that will conclude Ormat Technologies' fourth quarter and full year 2022 earnings call. And I like to thank you all so much for joining us and wish you all a great day. Good bye.