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Ormat Technologies Inc. (NYSE:ORA)

Q1 2009 Earnings Call

May 11, 2009 9:00 am ET

Executives

Marybeth Csaby – KCSA Strategic Communications

Joseph Tenne – Chief Financial Officer

Yoram Bronicki – Chief Operating Officer

Dita Bronicki – Chief Executive Officer

Analysts

Paul Clegg – Jefferies

Dan Mannes – Avondale

Elaine for Jesse Pichel – Piper Jaffray

Emily Christy – RBC Capital Markets

[Mary Austin – Pax World Fund]

[Gil Bashon – IBI]

Patrick McGlinche – Sidoti & Co.

[Seth Tenant – Citi]

Michael Lapides – Goldman Sachs

Timothy Arcuri – Citi

Operator

I would like to welcome everyone to the ORMAT Technologies first quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the call over Marybeth Csaby at KCSA Strategic Communications.

Mary Beth Csaby

Hosting the call today at Dita Bronicki, Chief Executive Office, Yoram Bronicki, President and Chief Operating Officer, Joseph Tenne, Chief Financial Officer and Esmidar Lavy, Vice President of Corporate Finance and Investor Relations.

Before beginning, we would like to remind you that information provided during the 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 of future trends or results. Actual future results may differ materially from those projected as a result of certain risks and uncertainties.

For a discussion of such risk factors and uncertainties, please see risk factors as described in the annual report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009.

In addition, during this call, statements that may be made also include financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission, such as adjusted EBITDA. This measure may be different from non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Management of Ormat Technologies believes that adjusted EBITDA may provide meaningful supplemental information regarding liquidity measurement that both management and investors benefit from referring to this non-GAAP financial measure in assessing ORMAT Technologies liquidity and when planning and forecasting future periods. This non-GAAP financial measure also may facilitate management's internal comparisons to the company's historical liquidity.

Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanies this call and can be accessed on Ormat's website at www.ormat.com under the events link found in the investor relations tab.

With that said, I would now like to turn the call over to Joseph to review the quarter's financials. Yoram will then update the status of operations and following Dita's remarks, we will open the call to questions.

Joseph Tenne

Good morning everybody. We have included certain financial highlights from our company's state of operations and balance sheet in our earnings release in the accompanying slides. I would like now to review the main issues that affected our financial results, starting with Slide 4.

For the first quarter of 2009, total revenues were $99.9 million, a 44% increased from revenues of $69.4 million in the first quarter of 2008. As you can see on Slide 5, this quarter's product segment added a significant contribution with record revenues of $37.3 million as compared to $9.9 million for the first quarter of 2008. Most of the increase in revenues was derived from EPC contracts for the construction of two large geothermal projects in Nevada and in New Zealand.

With regards to our electricity segment on the next slide, while the revenues increased by 5.2% to $62.6 million mainly as a result of new projects that came on line, in Kenya, New Zealand and the U.S., and due to better performance of the Steamboat 2&# plants, the average revenue rate per megawatt hour declined from $81.00 in the first quarter in 2008 to $70.00 in the first quarter of 2009.

The decline was a result of lower energy rates in the Puna power plant due to lower oil prices and as a result of the expiration of the "adder" and additional energy rates paid to us under the Heber 2 purchase agreement.

Moving to Slide 7, the company's gross margin was 31.8% compared to 32.7% in the same period last year. Gross margin for the electricity segment was 29.9% for the first quarter of 2009 compared to 35% in the same quarter last year. The decrease is mainly due to a lower average revenue rate per megawatt hour as I mentioned before and on the cost side, due to accelerating maintenance we did in our Omissa and Heber plants in California in order to ensure higher availability during the summer.

In the product segment, gross margin was 34.9% compared to 18.4% for the same quarter last year. This increase is attributable to a high volume of revenues, a different product mix and to the decreasing cost of revenues as a result of the global decrease in commodities prices.

And on Slide 8, net income for the first quarter was $14.5 million or $0.32 per share basic and diluted as compared to net income of $10 million or $0.24 per share basic and diluted for the first quarter of 2008. Such increase in net income was principally attributable to an increase in our operating costs.

As shown in Slide 9, adjusted EBITDA in the first quarter of 2009 increased 30.5% to $35.9 million as compared with the same quarter last year. Adjusted EBITDA includes consolidated EBITDA in the company's share, the operating income in depreciation and amortization totaling $1.5 million for each of the first quarter of 2009 and 2008 related to the company's dated interest in its 50% interest in the Mammoth complex in California.

Turning now to Slide 10, as of March 31, 2009 the company had cash and cash equivalents of $42.7 million compared to $74.4 million as of December 31, 2008. We used in the first quarter this year $73.8 million to fund capital expenditures and $28.6 million to partially pay revolving debt and long term debt, however, our cash position improved by $90 million. Receipts from the financing of Olkaria III project power plant and $42.5 million derived from operating activities.

Our total outstanding debt as of the end of the first quarter of 2009 is $474 million and it will be repaid as presented in Slide 11.

Moving on to Slide 12, on May 8, 2009 Ormat's Board of Directors approved the payment of a quarterly dividend of $0.06 per share pursuant to the company's dividend policy which started its annual pay out ratio of at least 20% of the company's net income subject to Board Approval. The dividend will be paid on May 27, 2009 to shareholders of record as of the close of business on May 20, 2009. The company expects to pay a dividend of $0.06 to share in the next two quarters.

Before I will turn the call over to Yoram, I would like to note that certain amounts in the financial statements related to the Orcasee organization transaction have been reclassified to reflect the implementation of Class Number 116. The main impact is the specification of most of the minority interest to liability. There was also an impact on the status of operations presentation with no impact on the net income. Full consideration is included in the financial statements.

And now let me turn the call over to Yoram

Yoram Bronicki

Good morning everyone. I would like to begin with Slide 14. Our generation from both U.S. and International facilities was approximately 890,000 megawatt hours, an increase of about 21% from the same quarter last year. The year over year increase in our generation resulted from the completion of new facilities and from improved performance in some of our existing power plants.

This quarter we have completed the construction of a 9.5 megawatt of reg power plants. Plant number two our OREG II project and the Peetz plant in Colorado.

Slide 15 is an update on our construction development and exploration activities. In the past quarter, we have successfully drilled one well in the Heber complex and one well in the Amatitlan power plant in Guatemala. We expect that the completion of the tie ins of the wells during the second quarter will bring both facilities to their design capacities.

In Ormesa, we anticipate the testing of a new exploration well. A successful test will indicate an increase in the resource potential of the Ormesa complex.

Turning to Slide 16, we have continued work in the North Brawley and have updated our forecast to reaching full capacity towards the end of the third quarter, a three month delay from our previous schedule. As we noted in February, we have encountered a higher than expected solid content in our geothermal fluid which leads to limitation on injection capacity.

During this quarter we have successfully implemented mitigation measures in the surface equipment which will be coupled with modifications to the completion of the existing injection wells and drilling three shallow injection wells.

We expect that this will provide us with the required injection capacity and enhance power generation. One of these shallow wells is already complete and we are proceeding with the drilling of the other two. The increased cost of North Brawley was taken into account in the CapEx guidance we give for 2009.

On the next slide you can see an update on our construction activity. In the next two years we plan to add between 71 and 83 megawatt generating capacity from both geothermal and recovered energy power plants. As we share with you in the past, it is our intent to add eight megawatt through the addition of OEC units that will make use of resources that hasn't been used so far and through other optimization of the plant in well field.

Although we would have like to complete the project in late 2009, the negotiation on the PPA for the additional power is not complete and we will limit the project activity in this quarter to well field upgrades and maintenance.

Given where we are in the PPA negotiations, we now expect a very late 2009 or early 2010 completion. Extensive well field work will reduce our second quarter revenue from this power plant which should reduce down time when the expansion project is complete.

In the 30 megawatt East Brawley project, we have begun manufacturing equipment and performed exploration drilling, but are still waiting for the required permits. The project completion is still expected in 2010.

We have continued engineering and permitting work of the Jersey Valley project in parallel to the exploration drilling in the field.

The next slide address our activity on our longer term projects. In Sarulla the consortium continues to negotiation certain amendments including an adjustment to the commercial term of the PPA and we intent to proceed with the project after those amendments become effective.

The next slide describes the product segment. As we previously announced, we have started the year off with a record backlog in our product segment which includes a significant order of the $65 million supply contract for the Las Pailas project in Costa Rica. As of the end of the first quarter, our backlog for the product segment was approximately $153 million which implies a revenue contribution of approximately $70 million for 2010.

Thank you and I would like to turn the call to Dita.

Dita Bronicki

Moving to Slide 20, our business continues its positive development in the Federal Environment for renewal energy and while it was not too long ago that we reviewed the regulatory environment in our February earnings call, there are several points that I would like to bring to your attention.

I want to briefly review the recent enactment of the American Regulatory Stimulus agencies so material to our business environment. This stimulus extended to production of renewable energy projects from power plants placed in service by December 31, 2013. It also includes the potential tax which can be taken in place of the production tax liability to 2013.

In both cases, tax [inaudible]. The company applied for a cash grant from the U.S. Department of Treasury in an amount equal to the 30% Amatitlan facility while relations covering it are now expected by July of this year, we believe that the number of geothermals at Amatitlan and the construction and development may qualify for the cash grant from the Department of Treasury.

Geothermal is also supported by new programs established with the Department of Energy which expands the scope of existing Federal loan guarantee program to cover renewable energy projects. To be eligible for under the new program the support project must have started construction and the guarantee must be issued by December 30, 2011.

We are hearing that the implementation the new long guarantee program will require the involvement of commercial financial institutions which will assist in screening the ability to be [inaudible].

Looking now at the financing activity on Slide 21, in March 2009 we closed the Olkaria III financing for $105 million. The further investment of $19 million on March 23 and the second of approximately $50 million is expected in early June '09.

This additional cash when combined with cash from operations and our available lines of liquidity, secure our ability to maintain our work for 2009 and to make the necessary investment to work toward 2010 construction and exploration towards the period beyond 2010.

Also, as we previously mentioned, it has been out intent to refinance in Amatitlan. The [inaudible] implementation of the financing and closing is expected shortly.

With respect to North Brawley we explored several financing options including those also under the Stimulus which opened the door to new options. We decided that the best course of action for North Brawley is to take the test grant available under the new act and finance the long term debt. We have started to review possible debt options in the current markets.

Looking at capital expenditure requirements on Slide 22, we plan to invest during the rest of 2009, $168 million for enhancements and development and construction of new projects. In addition, our capital expenditure budget is approximately $10 for the rest of 2009.

ORMAT expects to invest $31 million in its exploration in 2009 and approximately $2 million invested in machinery and equipment. We have in place the capital resources necessary to fund our capital requirements of about $201 million.

If you turn to the final slide, Slide 23, I'll provide the revenue update guidance for 2009. Mainly due to the delay in commercial operation of North Brawley, the cost of bigger than expected in the Puna rates, we expect our electrical segment to be between $265 million and $275 million. We also expect an additional $9 million of revenue from our share of electricity revenue generated by a subsidiary which is accounted for under the equity method.

With respect to our product segment, we currently expect our 2009 revenue would be between $110 million and $120 million.

I would like to thank you all for your continued support or ORMAT. We continue to move forward with our aggressive exploration and development and our strong product backlog demonstrates the high value ORMAT Technology holds in the global arena.

We continue to adapt our claims to the financing opportunities, current opportunities that [inaudible] and we will continue to do so taking advantage of our strong balance sheet. Thank you and I will now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Paul Clegg – Jefferies.

Paul Clegg – Jefferies

You mentioned a loan guarantee program and I was curious is you're seeing any strings attached to the loan guarantee program that make them less palatable for you to pursue. Some parties we've been talking to seem to be worried about the requirements for labor rates and environmental estimates and things like that.

Joseph Tenne

The new loan guarantee doesn't have the regulation but in the existing loan guarantee, the 2005 loan guarantee you are right, there is a requirement to pay a labor rate which is equivalent to union rate. It's not that you have to use the union, but the rate has to be equivalent to union rates. It may cause a slight increase in construction costs, but the benefit outweighs the additional costs. On the environmental side we don't see any changes.

Paul Clegg – Jefferies

You mentioned a decrease in global commodity costs or commodity pricing again. Last quarter you were talking about that expecting to start seeing the benefit at some point, but really you were just not at a point yet where you were seeing it. Any better visibility this quarter on seeing that flow into your capital costs?

Joseph Tenne

The gross margin in our product segment which is way higher than what it used to be is a reflection of the reduction in the commodity price. How to quantify this, I'm not sure that it has reached the bottom or not, but we definitely see it for this segment.

Paul Clegg – Jefferies

Any visibility of when that might actually start flowing for you into the guarantee or construction costs at some point?

Joseph Tenne

I believe the [inaudible] because most of the cost has been incurred before. If only some of the costs had been incurred before, some realized benefit from the reviewed costs, I think the logically the first quarter we are going to see the full impact/

Paul Clegg – Jefferies

What kind of magnitude would you be looking for in a CapEx for a megawatt basis?

Dita Bronicki

It's hard to say, but probably in the 7% to 15%.

Operator

Your next question comes from Dan Mannes – Avondale.

Dan Mannes – Avondale

On North Brawley, with an incremental three month delay there, what sort of confidence level as to the start up now with the end of Q3 just given the delays we've seen to date and if you could just give us a little bit more color on the specific issue with the solids, if you've seen this anywhere else and what sort of mitigation plan you're actually putting into place.

Yoram Bronicki

I think that we're fairly confident and I think that it's fairly hard for me to tell you anymore than that. I think that as soon as the plant is operating we'll probably notify the world on that. But we're fairly confident that we understand the situation and the challenge is just the high inertial of these problems that after you've understood the problem or let's say that after you've developed a hypothesis on what the problem is, it does take a number of months to source the equipment and sometimes you also need permitting.

But just sourcing the equipment and putting it in place until you can see the results. And the problem that we have is not unique to North Brawley but I think that the magnitude is probably unique. I think that we've seen this in Sandy Wells everywhere, but in most cases our fields were diverse enough for the problems to be more localized to specific wells and not to have such a big impact, where North Brawley just the nature of the field is one that the problem is fairly uniform.

So that's a general question. In terms of being a little more specific, the issue is both large particulates and small particulates that are produced with reduced fluids, and then some are that get dislodged even in the injection well bore. Because we're dealing with both the large particulates and small particulates and because they come from two separate sources, our solution does require if you like, it's an involved solution that addresses both the upstream part, capturing and getting a grade of some of the particulates just by the production well and then disposing or removing some of the particulates just before injection and then a different completion of the injection well to make sure that neither particulate can plug the injection.

Dan Mannes – Avondale

As you look forward to East Brawley and I assume putting a similar type of mitigation plan in place, how does this impact the capital costs on East Brawley if you have to do something similar there which it sounds like you probably will.

Yoram Bronicki

It has no dramatic impact on the capital costs and of course for East Brawley having this experience would make it a completely unnoticeable, it will just be a design feature. It's not a big ticket item in terms of cost in no way. It's just not having it in the original design, figuring out what the problem is and sourcing the solution that takes more time.

Dan Mannes – Avondale

And that's already entailed in your current schedule for East Brawley?

Yoram Bronicki

Correct.

Dan Mannes – Avondale

Moving over to the product side, as Dita mentioned great quarter in terms of gross margins on the product segment, can you talk about how much of that related to falling commodity costs versus better pricing? And then historically you've said maybe in the 20% tot 30% range was a sustainable margin. Can we assume maybe for the next couple of quarters as you benefit from lower commodity prices we'll see more elevated margin levels?

Yoram Bronicki

I think the answer to your first question is we're trying to quote fair prices and even more or as important as this it's important to stand behind our quotes and when we've given a firm price we make everything that is within our power to deliver on time, on budget and at performance, and this affected us very much in 2007 and we've taken measures to protect ourselves for the very rapid increase in cost in other proposals that some of them actually materialize into contracts later on.

Because the drop was not so much a drop in prices, but just the fact that price increases stopped. This is what had a very significant impact on what's happening on our product side today. It's not so much the reduction in prices, it's just if you like, the complete reversal of the trend of continuous increases and as much as we were hurt in 2007, we were more fortunate in 2009.

I wouldn't say that this would be our practice going forward and therefore what we said about our guidance on what we expect long term on our product sector stays the same.

Dan Mannes – Avondale

But given the fact that you're going to be working off a couple of major contracts between now and mid next year in this better input price environment, then maybe the long term doesn't change but maybe the short term does?

Yoram Bronicki

Maybe.

Operator

Your next question comes from Elaine for Jesse Pichel – Piper Jaffray.

Elaine for Jesse Pichel – Piper Jaffray

I was wondering if you could talk a little more about your oil pricing assumption on your prior guidance for electricity and how that's changed and whether that oil pricing is tied to futures or spot or is there a little more color there?

Joseph Tenne

We have only project where the oil price has remained and this is the Puna project. When we initially projected our revenue for the year we assumed that the oil prices are going to be similar to early oil prices. The revenue that we did is going to be similar to early 2007 prices with a similar oil prices.

For some reason the electric avoided cost in the last published tally were more than our assumptions. We do not fully understand why. We don't know if it's a one time event or it's a continuous event, but to report it will reduce slightly our revenue projections to take into account the oil tally that is available that is available at this plant.

They are issuing the plant demand and changing the demand and maybe the oil reduction, we don't know, but to report them, we will do projections.

Jesse Pichel – Piper Jaffray

How significant was the Heber 2 add in terms of the revenue change in electricity?

Joseph Tenne

I think it was about $1 million to $2.5 million or so. $2.5 million.

Jesse Pichel – Piper Jaffray

Could you break out the domestic versus foreign generation and whether the lower U.S. revenue was primarily due to Heber and what might have accounted for the higher foreign revenue.

Joseph Tenne

I don't think that the Heber break out from domestic and international but the domestic price per kilowatt hour was used not only because of the reduction of the Puma tally but also because of the additional energy generation megawatts into our megawatt base and the rate of recovered energy on a per megawatt base is lower than the [inaudible].

All in all we had a reduction of I think 12% to 15% of megawatts from last year to this year but a substantial reduction.

Jesse Pichel – Piper Jaffray

Are there any incremental new projects you're seeing being considered now as a result of the stimulus package and the ITC cash grant?

Joseph Tenne

If you look at our exploration plan each one that we are exploring is an incremental project depending of course on the exploration results.

Operator

Your next question comes from Emily Christy – RBC Capital Markets.

Emily Christy – RBC Capital Markets

When you look out beyond 2010 do you have a target growth megawatts per year and then when you think about that what are the biggest bottlenecks that might interfere with that?

Dita Bronicki

Our target is we would like to come back to 100 megawatt that we've seen in the past, and there is one bottleneck, exploration, exploration. It's not sight unseen. It's not production capacity. It's not manufacturing changes. It's engineering people. We are well staffed in all of these areas.

Exploration is slower than we expected in two area. Number one, the permit which enables us to add more exploration sites and number two, [inaudible]. We have rate in our exploration team to say it's large enough to meet our target. Equipment is not a problem in today's business environment but it takes years from the time you get an exploration started to decide to explore and you get to full construction.

And it takes a long time. Number one because of permitting. You wouldn't believe how long it takes to permit exploration. In some cases it's more than a year and the other this the time that you take to do the scientific work in all those sands.

Two years ago we believed that beyond 2010 we would have a published exploration results which will enable us to come back to a higher rate of construction.

Emily Christy – RBC Capital Markets

In terms of the exploration, have you seen cost come down? Have you seen any positive implications from the slowdown in oil and gas at the moment?

Dita Bronicki

You mean technically?

Emily Christy – RBC Capital Markets

In terms of more availability of people to do this work, maybe a faster permitting process because there's less permits for oil an gas, that sort of thing.

Yoram Bronicki

The answer is no. The permitting, in many cases the regulating agencies are, they could be the same but they work under different rules and so we haven't seen any relief in terms of the time that it takes.

And then on exploration, the biggest issue is really time, and doing the word. Sometimes its securing access to land and then it's the permitting side and then it's performing the work. That's the biggest issue. It is not so much the accessibility of equipment or the cost of equipment. So there, there is no, a slowdown in oil an gas does not help.

When it comes to development, the development drilling campaigns where there is a large quantities of equipment and so on, this is where drilling wells today is less expensive and would be substantial when you develop the field for a project. But it's not that substantial on exploration.

Emily Christy – RBC Capital Markets

In terms of the PPA that you're negotiating, can we expect the same sort of mechanism with avoided cost for that PPA?

Yoram Bronicki

That's not our expectation.

Operator

Your next question comes from [Mary Austin – Pax World Fund]

[Mary Austin – Pax World Fund]

You talked about issuing debt to finance one of your projects and I'm wondering did you mention how much it was or where it would be in the capital structure?

Joseph Tenne

We are looking in the traditional. We are additional debt. Based on current market conditions we think that you can get debt with a covenant ratio of 5.5 and we are now exploring the market. So it's too early to say what the terms are going to be.

[Mary Austin – Pax World Fund]

Your backlog in the products is $153 million at the end of the first quarter. Do you have that number for the fourth quarter of '08?

Joseph Tenne

At December 31 it was $193 million.

[Mary Austin – Pax World Fund]

Your guidance for the year is revenues between $375 million and $395 million and that looks like t here will be an upside, that the remaining three quarters can either be flat or an upside of $20 million in revenue. Is that correct?

Joseph Tenne

Can you ask again the question?

[Mary Austin – Pax World Fund]

When I look at my model, the last 12 months it looks like if it's correct, $375 million of revenue and your forecast for the year in revenue is $375 million to $395 million. So that leaves either flat to upside of $20 million in the remaining three quarters. I just wanted to make sure that was correct.

Joseph Tenne

You're right. The mix might be different because in the summer months we typically have higher electricity revenues so the mix might be different but we are talking about $375 million to $395 million of revenue.

Operator

Your next question comes from [Gil Bashon – IBI]

[Gil Bashon – IBI]

My question is regarding the lawsuits regarding the North Brawley project, what is true, what is not true. Can you comment on that?

Yoram Bronicki

To the best of our knowledge there is a pending case in court between a group of farmers and the IID which is the entity that manages among other things, manages the water allocation and distribution in the Imperial Valley.

The reason I qualify this and say that it's to the best of our knowledge is we're not part of that lawsuit. It's not about us. It's really a dispute over long term plans for water distribution and rights in the area and a lot of this is driven by the fact that with recent draughts, the draughts have been expanding for quite a number of years in the area.

People are getting concerned about whether they will have all the water that they wanted going on. As I said, we're not part of the case. The only reason that we were mentioned there is that North Brawley was given as an example in the plaintiff's documents.

And really at this time we don't think that this will have any impact on North Brawley. It doesn't have an impact today. We are getting the water that we need. We have all the water to generate 50 megawatts, and as I explained earlier, this has not been the issue.

Since we have varied agreements with the IID for the supply of the water to North Brawley, I find it difficult to see how North Brawley could be affected.

[Gil Bashon – IBI]

So this has nothing to do with the delay?

Yoram Bronicki

No it has nothing to do with really with North Brawley. Where it could have an impact is in the bigger picture is around East Brawley and for as long as water becomes such a hot issue in the local policies, this slows down the regulatory process somewhat, but given the minimal impact that our use of water has on the overall water consumption in the area, we think that it's likely that our water allocation would be granted and we'll get the permits and eventually the water.

[Gil Bashon – IBI]

Did you mention when you predict the production will begin in North Brawley project?

Yoram Bronicki

We anticipate full capacity late in the third quarter.

Operator

Your next question comes from Patrick McGlinche – Sidoti & Co.

Patrick McGlinche – Sidoti & Co.

Could you give a little more clarification on the red tape that has been holding up the Sarella project and Ormesa and when you think construction of that project might realistically begin?

Joseph Tenne

[Inaudible] Any day we expect it but we don't know when. The information we are getting from Indonesia is that they issued [inaudible] holding the project up are very close to being resolved. Very close can be next week. It can be several weeks. Who knows? Only once we know will we be able to go to the final which means that in my estimation of the time permissions of the agreement it will take between nine and 12 months to start actual construction.

Patrick McGlinche – Sidoti & Co.

You have been very successful over the past year in securing contracts for the product side of the business for construction for either supplying equipment to third parties. I'm just wondering if there's anything you can speak about prospects on the horizon that might be able to secure over the next nine to 12 months?

Joseph Tenne

The difficulty with the product segment is that is difficult to predict than the other segment. So unfortunately we cannot say other than the project when it happens not if it happens, but when it happens, it's going to be a great contributor to the product segment, we cannot really identify what will come on line in the coming months.

Operator

Your next question comes from [Seth Tenant – Citi]

[Seth Tenant – Citi]

I was wondering if you could have a little bit of extra detail in terms of what some of the cost drivers were in the quarter. If you just touch on that again real quickly.

Yoram Bronicki

The cost drivers for?

[Seth Tenant – Citi]

In terms of the electricity segment where they had been a little bit better than I had been predicting and I wondered if you just give some highlights on what might have been some drivers there this quarter.

Yoram Bronicki

I don't think that there's anything to mention in particular. There's an element that is predictable in our annual work plan. There's an element that is somewhat driven by statistics where some costs are incurred with somewhat of soft timing as an example. Part of the well field work is pre-planned. Part of the well field work, we just anticipate that it will occur during the year because we have a good data base of how many pumps required replacement, but we do not replace a pump before it actually shows that level of wear.

So I think that there are challenges in a very precise prediction on costs on the power plants on a quarterly basis but generally on an annual basis, it evens out.

[Seth Tenant – Citi]

Could you compare your outlook for capacity adds for the full year 2009 now as maybe what it was previously?

Yoram Bronicki

It depends on how far back you want to go, and I think it will be hard for us to, we're not prepared with everything that we've said in the past, but I think that really the two major points that we had for 2009 and we're now putting into the end of 2009 or actually into 2010, are East Brawley, two projects that if you go a year back were slated to be in 2009 and we have now revised that. I think that these are the big items that were shifted from 2009.

[Seth Tenant – Citi]

What was CapEx in the quarter?

Dita Bronicki

This quarter was approximately $70 million.

[Seth Tenant – Citi]

And so the outlook for the remainder of the year now is $200 million?

Dita Bronicki

Yes.

Operator

Your next question comes from Michael Lapides – Goldman Sachs.

Michael Lapides – Goldman Sachs

Can you talk about which plants used that are already built that you think you have the best opportunity to do either the ITC or the cash grant from the government as part of the stimulus or if available tax equity?

Dita Bronicki

Only North Brawley.

Operator

Your next question comes from Timothy Arcuri – Citi.

Timothy Arcuri – Citi

Given the delays at North Brawley, when do you think that will be full? Do you still think that that's kind of end Q2, Q3? And also I think last call you talked about East Brawley being up late 2010. Is that still the expectation?

Yoram Bronicki

What we mentioned earlier on is that we expect North Brawley late in the third quarter and East Brawley still in 2010.

Timothy Arcuri – Citi

You had previously guided capacity adds this year to be 34 megawatts. Now you're saying something like 24 megawatts. As that pushes into next year, do you have some outlook in terms of what capacity adds will be for 2010?

Yoram Bronicki

The changes on 2009 is most because we've taken out what was already started up, the 9.5 that was started up in the first quarter. And then on 2010 we're quickly calculating, approximately 50.

Operator

At this time there are no further questions. I will now turn the call back to Dita Bronicki for closing remarks.

Dita Bronicki

Thank you for your interest. I think it was a good conversation. We think we have a good quarter, but we had a good conversation and we ought to continue to have a relation with you all. Thank you.

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Source: Ormat Technologies Inc. Q1 2009 Earnings Call Transcript
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