Good morning, and welcome to the Ormat Technologies' Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Joshua Carroll with Alpha IR. Please go ahead.

Thank you. 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'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, see risk factors as described in Ormat Technologies' annual reports 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 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 all yours.

Thank you, Josh, and good morning, everyone. Thank you for joining us today. Ormat concluded 2023 on a positive note with its fourth quarter results finishing off a successful year. The company reported robust fourth quarter revenue growth with a 17.4% increase compared to the previous year's quarter and commendable 11.5% rise in adjusted EBITDA. Throughout the year, Ormat maintained its momentum with a successful development execution and enhanced operational performance from existing facilities coupled with the promising recovery in the product segment. These factors collectively contributed to a 13% increase in total annual revenues and a 10.6% increase in full year adjusted EBITDA. Throughout 2023 and the beginning of 2024, we successfully augmented our capacity by adding 239 megawatts through development projects and acquisitions. Among these portfolio additions, 157 megawatts were integrated into the electricity segment comprised of 100 megawatts of geothermal and solar PV assets acquired in January 2024 and 82 megawatts from the addition of 5 new storage facilities to the storage segment. This expansion aligns with our multiyear capacity expansion targets, further strengthening our EBITDA and earnings generation in 2024 and beyond. Since the beginning of 2023, we have signed 4 long term PPAs for a total of 98 megawatts in our electricity segment and 55 megawatts or 180-megawatt hour in our growing energy storage segment. As we continue to successfully execute against our growth strategy, we expect the benefits of improved generation capacity and our team's demonstrated ability to sign PPAs with attractive pricing terms will continue to support solid returns and earnings performance for our shareholders as we head into 2024. In our product segment, we are encouraged by the recovery we saw in 2023 annual product segment revenues grew $87.3 million versus 2022, and our increased backlog of $152 million is representative of…

Thank you, Doron. Let me start my review of our financial highlights on Slide 5. The Q4 marks another strong finish to an overall excellent year in 2023, creating positive momentum as we head into 2024 and positioning us well as we aim to deliver on our multiyear financial and operating targets. Total revenues for 2023 was $829.4 million up 13% year-over-year. And revenue for the fourth quarter was $241.3 million marking 17.4% growth year over year. This fourth quarter and full year results represent solid growth across both our electricity and product segments. Across the full year 2023, our adjusted EBITDA results of $481.7 million increased 10. 6% compared to $435.5 million in 2022. Our record fourth quarter adjusted EBITDA results of $139 million increased 11.5% compared to $124.7 million in the fourth of last year. Year over year, the growth in adjusted EBITDA was largely driven by an increase in revenue in electricity and product segments combined with a larger contribution from tax equity transactions. In the full year 2023, net income distributed to the company stock holders was $124.4 million or $2.08 per diluted share. This represents an increase of 88.9% and 77.8% versus the prior year, respectively. On an adjusted basis, net income attributable to the company's stockholders was $121.9 million or $2.05 per diluted share, an increase of 32.2% and 25% versus the same period last year respectively. The significant year-over-year earning growth was driven by higher operating income, further supplemented by the impact of the IRA benefit that flow through our tax line. In the Q4 of 2023, net income attributable to the company's stockholders was $35.7 million or $0.59 per diluted share in comparison to $18 million or $0.32 per diluted share in the same quarter last year. On an adjusted basis, net…

Thank you, Assi. Turning to Slide 13 for a deeper glimpse at our operating portfolio. Generation growth in our core electricity segment carried support from our multiple CODs we achieved during 2023, most notably at North Valley in April. Additionally, we brought operation back online at our Heber 1 facility following the replacement of the equipment, allowing higher generating capacity. And we also completed an expansion to the Dixie Valley Plant that we undertook to maximize the value of our existing PPA. Our portfolio capacity also carried additional support from full year operations at CD4 and Tungsten Phase 2, which achieved their respective CODs over the course of 2022. This was partially offset by a reduction in capacity at our Puna facility due to operational issues related to the performance of the well field, which caused us to run the plant at lower capacity rates. The performance of Puna improved in the Q4 and is currently operating above 30 megawatts. Our current total generating capacity, including the Enel Asset we recently purchased, stands at 1215 Megawatts in the electricity segment compared to 1070 Megawatts in 2022. This marks a 13.6% increase versus prior year level, positioning us well to achieve our multiyear portfolio expansion target. Turning to slide 14. I will give more details on our operating footprint. We are back to normal operating at -- the operation at Puna and have successfully increased generation above 30 megawatts, up from the low 20s we observed earlier in the year. We recently received an approval from the Hawaiian POC for new PPA of the facility and confirmation of the EIS. The new PPA expands the contracted capacity and carries a fixed energy rate that will remove the volatility of the current avoided cost structure. The PPA will be in effect following…

Thank you. [Operator Instructions]. Our first question comes from the line of Justin Clare with ROTH MKM. Please go ahead.

Hi. Thanks for taking our questions. So, first off here, I might have missed it, but did you share the expectations for electricity gross margins in 20224, if not, would you mind providing the expectations there? And then just wondering, if we compare the gross margin in 2024 to 2023, what are the key elements, that we should be thinking about that are influencing the change? So there's Puna operating at a higher level of capacity. There's also the acquisition of Enel assets, but what are the other factors that we should be thinking about?

Good morning. So when we look at 2023, our electricity and I'm going to talk on the full year. For the full year, the gross margin was roughly 36.6%. When we look at 2024, we expect a slight uptick by 1% or 2% in the gross margin. It's coming basically from three elements. One, as you rightfully said that Puna is operating at a much higher capacity for the full year expected 2024 versus 2023. Second, in Olkaria, we had a very successful drilling campaign that we expect in the second half of the year to impact us positively. And third is the assets of Enel that also contributing higher relatively gross margin.

Okay. Got it. That's helpful. And then you reiterated the 2026 capacity target here, 2.1 to 2.3 gigawatts. I was wondering if you are still anticipating to meet the interim target for 2025? So you had talked about 1.9 to 2 gigawatts potentially by the end of 2025. Are you on track there? It looks like you do have the assets, in geothermal and solar to achieve that target. Storage, it seems like some assets maybe they'd be added to the pipeline still. So how are you thinking about that?

Yes. We are expecting to reach the target for the end of 2025. As you said, when you look at the list of projects that we released including the Shield project that we released this week, we are very close to have all of the detail all the projects that would get us there. There's still some project on the energy storage that we'll need to release and we are working to release them getting the final permits. And so we do expect to be in line with these targets.

Okay, got it. And then maybe just one more, it looks like your prospects that you're exploring here increased a decent amount quarter over quarter. I think you have 42 now versus 33 last quarter. I was wondering if you could just expand on what drove the increase there and what opportunities you're pursuing?

The prospects in the U.S., that's what you are referring to increased mainly due to the acquisition of Enel that brought in new targets, new Greenfields in Utah and in California. And it's an ongoing process that we continuously look at opportunities. Whenever we have a chance, we buy new lands that the BLM issue, but I think the main difference is the acquisition of Enel and the potential prospect they brought in.

Your next question comes from the line of Ryan Levine with Citi.

Good morning. Hoping to start off on New Mexico. I noticed you have one development project there. There's recent legislation that came into -- that got passed last week. What's your outlook for development in that state and is there more meaningful commercial opportunities that you're seeing emerge in New Mexico?

Yes. So we have Rincon in New Mexico as a potential greenfield, which we actually like. I can tell you that until the last legislation and few weeks ago, we didn't see strong regulatory support in New Mexico. But with this new change, we are looking at it. We know that there are power plants over there operating. I can tell you that we are also looking on the energy storage market in New Mexico. So this is definitely a place that we are looking into.

Okay. Maybe shifting region of the world. In terms of Kenya, can you give us an update around the cash payments you may have received this this quarter, as the case night out and how the state of commercial negotiations or the state of those projects are progressing?

As I mentioned in the last call, Kenya AR last year was rising not because of KPLC inability to pay, but because of a lack of U.S. Dollars in the country, because of a very good weather in the second half of 2023 that positively the agriculture export. In addition to the fact that the Kenya government was able to issue EUR2 billion of new debt bond a few weeks ago, I'm happy to say that in the first 50 days of 2024, we already collected over $32 million. So out of the $80 million that was owed to us by end of 2024 -- end of 2023, $32 million was already collected and there was a very good outlook to continue with the strong collection. So I will say that so far for the year, a very good outcome to our cash and benefiting us tremendously. If you look at the cash flow last year, we were suffering the almost $60 million increase in the receivable. I hope that this year we'll see the opposite and therefore the operating cash flow will be much stronger. As of the negotiation, as you know and everybody knows that in every negotiation there is it needs to be a win-win situation. We have a valid contract with PPA until 2034. We are always happy to negotiate new terms on a win-win base. I can't say that there was any change in the prospects of getting into a new term because mainly of the fact that almost electricity is needed and it's already priced probably the most cheapest electricity in Kenya other than Kenjin. So I don't anticipate any major changes in the contract going forward and if there will be one, we will announce it to the market. But as you said at the beginning, they need electricity and they are paying for it and we expect 2024 at least from as of today to have a very strong collection in Kenya.

Okay. And then on the storage segment, you know, appreciate all the disclosure around your fixed versus merchant risk or revenue mix. Is there any key hubs that may have caused the margin pressure in this recent quarter? And how are you seeing the outlook for storage margin going forward? And to the extent there's any resource adequacy or any other payments that are relevant for that margin outlook that we should keep in mind?

I would say 2023 was relatively low merchant pricing across all markets that we operate in and that's why you saw lower margins in the energy storage. Part of the balancing of the risks that we're doing is signing tolling agreements or PPA agreements. We signed we have Pomona 2, we signed with Bottleneck that will come online this year. And as I said before, we expect at the end of the year to be around 40% contracted. And then next year we have additional contracts coming with PPA. Then we are negotiating additional contracts with PPA. So all in all, there's going to be a balance. So we will not see this high volatility that we see today. However, we definitely do not want all storage assets to be contracted because we do believe that we can get benefits from this volatility. We just want to have it better aligned. And on margins, so we expect in 2024 around 10% to 15% gross margins and the second half of 2024 to be even higher at around 15% to 20% once Bottleneck into operation.

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Thank you very much, guys. I hope you guys are well. Look, thank you. First off, if I can, just can we talk a little about the storage segment? Just what exactly is going on vis-a-vis just the latest revenue guidance? Obviously, a little bit more flattish last year off of a robust 22. But how are you thinking about the cadence of that business over time here? You've had a couple of flattish years, you've been putting more capital into it, obviously more profitable in the earlier years, but just a little bit more color on just why it still is sort of in the same ballpark here, if you will. And the negative margins in the quarter.

I think on the negative margins of the quarter as we said relates mainly to the merchant pricing and the fact that most of the fleet is merchant. What was going to change once a Pomona tolling agreement kicked in and Bottlenecked the second half of the year. We finished 2023 with around $29 million. The guidance that we gave is $35 million to $45 million which is close to 40% increase year-over-year. What we see in the storage market is that as we bring online more projects and we sign more contracted asset, pricing goes up. Actually, if you will go and annualize 2023 and 2024 to see how they would look if the of all the assets that come online would was operated for the full year. You will probably see over 50% interest year-over-year. So we actually are starting to benefit from the growth that we see in the storage. When you see the plan that we have to grow the storage to over -- to 700 to 800 megawatts at the end of 2026, it is a significant growth and we expect this segment to grow -- to continue and grow significantly as we continue to release large projects during the year. And as I said on the margins, we expect 24% to be 10% to 15% with the second half after Bottleneck coming into operations around 15% to 20%.

Got it. Excellent. And then just vis-a-vis the longer term here, know, obviously, we're talking here about storage growth, but overall, you guys have this analyst day coming up. How many years forward do you expect to provide here? And then the interim here, just as you think about these targets that you had, how are you thinking about achieving the sort of 2025, 2026 financial metrics that you'd articulated? I get that maybe you're now going to pivot to something that might have a little bit more of a longer dated view to it, by midyear.

Look, what we said now is that the target that we have set in 2022, the growth targets, we are reiterating the growth target and we expect to be in line with this growth target. As we come to the analyst day in June, we will obviously come with a longer-term target. I can't tell you exactly how many years down the road, but in all the previous analyst days, we give longer term targets. So you will know where the company is going. I think today we gave out the target for the end of 2026 again 2.1 to 2.3 gigawatt of operating assets, which is a very nice growth target.

Question will come from the line of Derek Podhaizer with Barclays.

Hey. Good morning. I just wanted to go back to the 2024, guide. You guys talked about, gross margin expansion on electricity, products and storage. But can you just clarify as far as how much EBITDA, support you expect out of the PTCs? Just trying to triangulate the guide and, you know, the different puts and takes there. So do you expand on, you know, what brings you -- we got the revenue guide, but what brings you on the margin front and then the, the PTCs would be helpful.

Good morning, Derek. As I mentioned on the call, we expect PTCs to be down roughly $5 million to $10 million year-over-year because of the elimination of one of our facilities that we enter into 10 years ago when it's basically ended. It's the [Indiscernible] tax equity transaction. This will be offset -- the $5 million to $10 million is the net number. We will plan to enter into new two tax equity transaction in Heber and in Beowawe. But the net number this year we had $62 million next year we expect $5 million to $10 million less.

Got it. That's very helpful. Thank you. I wanted to ask about the 12-megawatt reductions you guys put, in your deck. I mean, can you help explain that to us what's driving that? How should we think about that for all your other projects just going forward? And then just curious as far as what the call on the balance sheet capacity could be as potentially having to re-equitize or just some thoughts around that as far as what it means for covenants. Yeah, just everything with the covenants and the reductions and how we should think about it as far as the call and the balance sheet.

Let's start with the balance sheet. The balance sheet is very strong. debt to EBITDA at year end was at 3.7 times metrics. Our covenants are sometimes around 6 to 7 times debt to EBITDA. So for us to be even close to it, our EBITDA should be half or we should borrow additional $2 billion with no additional EBITDA. From a liquidity perspective, as we said, we have over $700 million of liquidity and we did not impact the liquidity by the NAND transaction because we borrowed additional $200 million to fund it. So on the balance sheet side, I think Ormat is one of the strongest companies in the industry with probably the lowest leverage in the industry. If you look at our peers, our peers have mainly leveraged 5 to 6 times and therefore we don't anticipate at this point any equity requirement. We raised the equity in 2023 anticipating a strong M&A market knowing what we see in front of us and we were actually right and timed very well the transaction of the equity versus the transaction of the offering. Can you repeat the question on the 12 megawatts? Which page are you looking at? Just for me to follow to so I can answer your question.

No. And I appreciate all those comments. The Slide number 13, just the 12-megawatt reduction. Just how to think about that, you know, what's driving that, and how should we think about that for the rest of the portfolio?

So, every time, every quarter, every year we balance all the power plants. Some power plants have maybe more cooling than what anticipated and that's how we adjust the portfolio. I don't think there was any one project that was big, but it was a mega here and a mega there.

Got it. Okay. That's helpful. And then just one more question for me. Can you just talk about the capacity factor trend? I mean, you're bringing on more solar, which should be diluted to the geothermal assets, but how should we think about your capacity factor over the next few years and all the puts and takes around that?

I think that the fact that we're bringing more and more new facilities should over time increase the capacity factor. Also you have in Puna and Kenya assets that were not performing well over the last few years. We expect them to perform much better over the next year or two starting even already in Puna. So we should see a slight uptick. You are right that actually solar is not as dilutive as you think because it produce -- we are producing more electricity from the power plant, but you're right the capacity factor of the solar is lower. But please remember that on our solar the effective price that we are getting is actually geothermal price. So maybe it's dilutive to the capacity factor, but it's very accretive to the earnings.

We have no further questions at this time. I will hand the call back to Doron Blachar for closing remarks.

Thank you. 2023 was a very good year and we expect 2024 to be even a better year. Ormat is committed to growth as we demonstrated in 2023 with the new project we released and the Enel acquisition, and we are continuing to grow the company with the target that we have set. So I want to thank all of you for your support and looking forward to see you in June.

This concludes today's call. [Operator Closing Remarks].