U.S. Geothermal's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: US Geothermal (HTM)

U.S. Geothermal Inc. (NYSEMKT:HTM)

Q4 2013 Results Earnings Conference Call

March 26, 2014 11:00 AM ET


Dennis Gilles - Chief Executive Officer

Doug Glaspey - President and COO

Kerry Hawkley - Chief Financial Officer


Jim McIlree - Chardan Capital

Jared Alexander - Canaccord Genuity

Chip Richardson - Wedbush Securities


Greetings. And welcome to the U.S. Geothermal’s Fiscal Year 2013 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dennis Gilles, Chief Executive Officer for U.S. Geothermal. Thank you, Mr. Gilles. You may begin.

Dennis Gilles

Thank you, [Devon] (ph), and I want to thank everybody for joining today's call. I want to welcome you to U.S. Geothermal's year end 2013 financial results conference call. Joining me today from the beautiful country of Guatemala is Doug Glaspey, our President and Chief Operating Officer; and with me in the room today is Kerry Hawkley, our Chief Financial Officer.

I’d like to start out by reminding all of you on today’s call that we are going to be providing forecast and making some forward-looking statements. So we are seeking Safe Harbor concerning these statements.

We ended the year with a very strong fourth quarter, exceeding our generation and associated revenue projections. Additionally, our EBITDA and associated net income also exceeded our previously provided guidance.

With that, I am going to ask Kerry Hawkley, our Chief Financial Officer to now provide you with the summary of our year end 2013 financials, highlighting the items of particular interest. Kerry?

Kerry Hawkley

Thank you, Dennis. Before beginning, we have some housekeeping to do. We would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecast 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 results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties.

In addition, during the call, we will present non-GAAP financial measures, such as EBITDA and 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. Because these measures are not calculated in accordance with U.S. GAAP, it should not be considered in isolation from our financial statements prepared in accordance with GAAP.

On our balance sheet, as of 12/31/2013, we have total assets of $232.8 million. Cash is at $28.7 million, a portion of which will be allocated to a partner. We have funded current long-term cash and bond reserves of $21.9 million.

And just as an aside, after we make the distributions to the partners and completed our reserve funding, our current cash position as of today is approximately $14 million. Our total liabilities on the balance sheet is $105.1 million, non-controlling interest is $58.2 million and our net stockholders equity is $69.6 million.

Our income statement as of 12/31/2013, we reflect a three-month net income for Q4 of $3.7 million. The 12-month net income figure is $4.1 million. Our Q4 revenues were up 118% from quarter three, due to increase production and pricing during Q4.

Revenues finished the year at $27.4 million. We had a reduction in salaries and wages of our development staff that are allocated to projects, causing an increase in our salaries and wages.

The 2013 drilling costs at both El Ceibillo and San Emidio Phase II have been capitalized as they are now considered development stage projects. Our interest expense in 2013 was not capitalized as the projects are now in service and the EBITDA for the year 2013 was $14.5 million.

Cash flow statement as of 12/31/2013, cash equivalents ended the year at $28.7 million. In the fourth quarter, cash generated by operations was $4.1 million. The funding reserves and bonds at Neal Hot Springs in San Emidio, they added an additional $4.8 million.

Note and construction related payments during Q4 were $13.3 million and we had additional planned expenditures of $4.2 million during Q4. Our statement of stockholder’s equity as of 12/31/2013, we’ve added net income of $3.7 million during Q4.

With that, I’ll turn it back over to Dennis.

Dennis Gilles

Great. Thank you, Kerry. I’ve asked Glaspey, our President and Chief Operating Officer to provide highlights of our operating performance for the third quarter as well as to summarize our development activities. Doug, would you go ahead and give everyone an update please.

Douglas Glaspey

Thank you, Dennis. Our total generation for the fourth quarter from all three of our plants was 96,508 megawatt hours and that’s compared to 52,827 megawatt hours in the third quarter which is a 54% increase in power generation quarter-over-quarter.

Our fourth quarter generation increased due to high operating availability in the plant at all three facilities and of course in conjunction with cooler, seasonal ambient temperatures which increases power generation.

Our full-year production for 2013 was 309,687 megawatt hours compared to our 2012 production of 127,875 megawatt hours which is 142% increase. So we’ve made substantial progress in our operations so their plants come on line and reach full capacity.

At the Neal Hot Springs, generation for the quarter was 53,445 megawatt hours which is 107% increase over the third quarter. The plant operated at 94.7% availability compared to the third quarter of 87.2%. And our annual average operating availability for 2013 at Neal was 83.1%. So you can see that as the time that progressed here, availability is coming up strongly at Neal Hot Springs and really producing well for us.

Our average hourly generation at Neal for the fourth quarter was 25.62 net megawatts per hour. But again it’s low due to the lower winter temperatures because we have air cool ventures there and higher plant availability.

The geothermal reservoirs remained stable through the year and that is actually outperforming our reservoir models. So we are very happy with that. The plant has been operating very well. It survived some very cold winter weather this year with very little impact on operations and there were also no significant outages during the quarter.

But I will note, we’re still working through some programming and equipment issues, which is normal for a new power plant especially for one like Neal that’s utilizing some new technology.

At San Emidio, our generation for the fourth quarter was 21,103 megawatt hours, which is a 15% increase compared to the third quarter and are -- let me -- generation at San Emidio was 29,976 megawatt hours but keep in mind that in 2012 that was a partial year and for 2013, we’re at 76,696 megawatt hours. So we had a substantial increase in year-over-year power generation at San Emidio.

The plant operated at 98.3% availability for the fourth quarter compared to third quarter availability of 94.7% and our annual availability for 2013 at San Emidio was 94.5%. So it’s performing very well.

Average hourly generation for fourth quarter was 9.72 net megawatts and the annual average for 2013 was 9.27 megawatts, so that’s performing up the average at 9 megawatts that we expected out of this plant.

Again, the San Emidio plant ran really well and the reservoir is remaining within its projected parameters and performing wells. The temperature is holding up and we are very happy with the reservoir there.

At Raft River, our generation for the fourth quarter was 21,742 megawatt hours and that’s compared to the third quarter, a 15% increase over the third quarter. For 2013, generation was 77,561 megawatt hours compared to 74,644 megawatt hours in 2012. I will note here that in our 10-K, MD&A, we do have a little error. We listed 77,552 megawatt hours as the generation for 2013. Please note that that is corrected to 77,561.

Our average hourly generation for the fourth quarter was 9.92 net megawatts and for 2013, the annual average was 9.16 megawatts. Our Raft River operated at 99.2% availability during the fourth quarter and that’s compared to 99.9% in the third quarter. It’s kind of hard to improve on something over 99%.

Again, Raft River continues to operate at a consistent high availability with stable generation and turning in very good performance for us this year. We are very pleased with the performance of all three plants and expect to plan availability for the first quarter of 2014, will continue in the mid to high 90s and quarterly average generation will moderate a little bit as ambient temperatures start to increase this spring.

Additionally, you may recall that March is the first month under our Idaho Power, our purchase agreement at both Neal Hot Springs and Raft River where the power price were up on the seasonal basis to 73.5% of the annual average during the spring runoff season, which will reduce remittance. And as you are also aware, the second quarter of the year and that’s primarily in April and May, it is going to be scheduled our annual plant maintenance outages to take advantage of that reduced power river.

For our development projects at San Emidio Phase II, during the first quarter, we presented a development schedule for the Phase II power plant to NV Energy and they have accepted that schedule, and that will allow Phase II to come in under the existing power purchase agreement that had achieved commercial operations by December of 2015. We still have 11 megawatts of sales available under the balance of the 19.9 megawatt commitments in the power purchase agreement.

Permitting the Bureau of Land Management for four wells, which are cited in the South Zone continue through the quarter. These wells are intended to follow-up on and hopefully expand the high temperature results found in well number 61-21 and 45-21. Commercial permeability, those found in wells 61-21 at 302 degrees Fahrenheit and the bottom hole temperature in well 45-21 was 316 degrees Fahrenheit, although it did not have commercial permeability.

These results or the results from these two wells indicate that the South Zone is hotter than the current production field that’s currently producing at around 284 degrees Fahrenheit. It may indicate that we are in the area of resource of the San Emidio geothermal reservoir.

Permits for the plant drilling program are expected late in the first quarter or early second quarter of 2014. So we are waiting for those permits to come in right now. And subsequent to the end of the quarter, we did have a seismic program completed in San Emidio, with some testing in both the North and South Zones provide additional data for targeting these new wells.

We do have a production flow test on well number 61-21 plants for the second quarter of 2014. During 2013, we re-grow these wells to a larger diameter and installed larger diameter slotted liner to improve its productivity. This test will examine both the well’s production growth characteristics and provide important reservoir information on the South Zone.

Remember, we developed numerical model on this geothermal reservoirs as we get more flow test data and measure the pressure responses in the reservoir. Our consulting engineers are able to predict the size of the reservoir and how many megawatts will be able to produce.

At the same time, we are working to end the energy transmission. We have a request in to extend the current San Emidio interconnection agreement so that we can provide the full 19.9 megawatts of transmission, and that’s an ongoing process under FERC control through Nevada Energy.

In Guatemala, we are on sitting today. Of course, you recall in 2013 we drilled well EC-1 as our first phase of development to 5,650 feet, 1,722 meters and found a bottom-hole temperature of 526 degrees Fahrenheit, 274°C with limited permeability in the well.

The temperature, however, exceeded our preliminary estimates for the resource. I’ll remind everybody you need two things for a commercial well, temperature and permeability, and this provided us with great temperature and told us we were close to permeability.

We ran a short flow tests and temperature surveys, analyzed that data and that resulted in a decision to expand our drilling program. So starting in January of this year, temperature gradient drilling program was initiated with a series of 650 foot deep or 200 meter deep well planned for the first quarter of 2014, and thus far 9 temperature gradient wells have been completed. We just completed the last drill on Sunday and those depths range from 650 feet to 1,150 feet or 200 meters to 350 meters.

Temperature surveys are still being done on needed wells because they heat back up after the drilling procedure. We will test them or survey them until we get the collaborated or natural state temperature. This is going to take several weeks to get final temperature profiles on the wells. These are far holes so both the geology and the temperature information is going to be used in the reservoir analysis before the next phase of drilling is planned.

A significant milestone was also achieved in September of 2013, on the Guatemala Ministry of Environment and Natural Resources issued a license to construct and operate a 25 megawatt power plant at the El Ceibillo. This license gives us a green light to move the project forward quickly once we have the reservoir defined.

I would like to note that power markets in Guatemala and Central America remain very active. The trans grid continuing to push for the development of renewable power to replace high cost bunker fuel and for geothermal in particular to provide baseload power to stabilize their hydropower generation which tends to be very seasonal through the year down in Central America.

Guatemala is centrally located, it’s tied to its [main regions] (ph) by regional transmission grids and that provides a much larger market for energy in this region. (indiscernible) we are working (indiscernible) deal is one of the largest energy [grapplers] (ph) in Central America and our meeting this week continues to support our development and is very keen to see us come online with the project.

That’s the update. And Dennis, I will turn it over to you.

Dennis Gilles

Great. Thank you, Doug. I appreciate that. For those on the phone here, I want to provide for you a summary of the notable highlights of 2013 and the early part of this year.

As Kerry had talked about, our revenues for the year, we had $27.4 million, compared to $9.8 million for the prior year. Our EBITDA, $14.5 million, compared to a negative $0.5 million for the prior year. We had net income for the year of $4.1 million, compared to a net loss of $4.3 million in the prior year. We ended the year with $232.8 million in total assets. We ended the year with $28.7 million in cash and cash equivalents, and we currently have on hand cash of approximately $14 million, with approximately $22 million in restricted cash related primarily to our project reserves.

We’ve renewed our $50 million shelf registration. And I just want to point out our previous shelf was expiring so this was just a standard renewal to keep it active. Our financing needs for all three operating facilities have been fully addressed. We have finalized the receipt of all funds related to available tax incentives.

We have finalized the ownership interest at our Neal Hot Springs project with our partner, Enbridge. We had a 142% increase in generation from the prior year, with 2013 full year production of 309,687 megawatt hours compared to 127,875 in the prior year.

Our total availabilities across the fleet were substantially up from last quarter with an annual fleet wide average availability of 91.4% and with Raft River yielding 96.5%, San Emidio yielding 94.5% and Neal 83.1%.

On the development side, we are drilling ahead, as Doug mentioned, at Guatemala. We've received our license to construct the project, so that project is in great shape. On the San Emidio project, we have completed drilling of a new well and re-drilling a second well. We've applied for the BLM permit that he noted. We received worked from NV Energy supporting our commercial -- our development schedule for a commercial operation date by the end of 2015.

On M&A front, we're also currently evaluating a number of strategic growth opportunities, but unfortunately nothing specific to report at this time other than to say that our strategy is to both -- to grow both organically and through strategic transactions.

On the guidance front, we're providing guidance for 2014. These figures are forecast-only and again considered forward-looking statements. We've provided guidance for 2014 to assist you in making your own projections. 2013 was a transition year and 2014 is really the first full year with all three units fully commissioned, 2014 results are likely to be more indicative of future year results for these projects.

Our guidance for 2014 is as follows, we anticipate revenues of $27 million to $31 million. We anticipate EBITDA in the $13 million to $16 million range. We anticipate net income of $2.5 million to $5.5 million.

In summary, with our announced cash on our current balance sheet and with our strong cash flows from operations, we have adequate cash on hand to support both our ongoing operation and our early-stage development efforts. We believe we are appropriately compared to be responsive to additional growth opportunities that may become available.

In closing, we have seen significant interest in our stock, particularly this last month. We have experienced large trading volumes with our three months average volume now in access of 1 million shares per day. We have also seen significant movement upward in our stock price.

We are pleased with the level of interest in U.S. Geothermal and we thank you all for that interest. And we are pleased that the market recognizes our strong performance, our success as to date and our opportunities that lie ahead.

And with that, I thank you, and Devon, I'd like to turn it over to you for questions. Operator?

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question comes from the line of Jim McIlree with Chardan Capital. Please proceed with your question.

Jim McIlree - Chardan Capital

Thank you and good morning.

Dennis Gilles

Good morning.

Jim McIlree - Chardan Capital

Can you talk a little bit about the guidance, what operating assumptions you're making that is how much power output and availability that you've assumed in order to get the guidance that you have?

Dennis Gilles

Jim, I'd have to give you that offline, I don't have that at my fingertips, but we do have in order to build the figures that we have there. We've assumed an availability for each of the three plants and we've assumed a level of output corresponding to that based on certain ambient projections, but unfortunately, I didn't bring it in the conference room here today.

Jim McIlree - Chardan Capital

Okay. Well, then just the rationally, would that be that you're assuming kind of the same amount of availability in ambient temperatures or another way to ask it is? But 2013 an unusually good year for you or bad year for you in terms of the operating metrics and such that 2014 would be better or worse?

Dennis Gilles

What we saw was particularly on our Neal project as the year unfolded. The availability of the plant increased dramatically quarter-on-quarter. So by fourth quarter as Doug noted, we were up into the 90%. By fourth quarter of the year, all of our units are performing in the low to mid to upper 90s. So our projections for 2014 are assuming availabilities in the 90 plus percent level as opposed to the lesser percent that we saw in 2013.

So, on the availability front that’s what we saw. 2013 was an abnormally hot year in the Pacific Northwest, and we are not assuming that same level of ambient impact in our projections for 2014. We’re projecting a year that would be a more of a normal year as opposed to an extreme year like we saw in 2013.

Jim McIlree - Chardan Capital

Great. That’s helpful. Thank you. And the wells that you are drilling at San Emidio, those are not expected to have any impact on the 2014 results. Is that correct?

Doug Glaspey

They will be capitalized.

Dennis Gilles

They will be capitalized and they would not be expected to impact the results, no.

Jim McIlree - Chardan Capital

Okay. Great. And the things at Guatemala, Guatemala is not going to have impact on the 2014.

Dennis Gilles

Guatemala is capitalized as well and is not expected to impact the EBITDA or net income for 2014.

Jim McIlree - Chardan Capital

Okay. Very good. Thanks a lot. I’ll get back in line.

Dennis Gilles

I mean, obviously, it would impact our cash.

Jim McIlree - Chardan Capital

Right. Understood. I was speaking more on the operational side on that kind of questions. Thank you.

Dennis Gilles

Great. Thank you, Jim. Operator?


Thank you. (Operator Instructions) Our next question comes from the line of Jared Alexander with Canaccord Genuity. Please proceed with your question.

Jared Alexander - Canaccord Genuity

All right. Thank you. Good morning and congratulations on the great quarter. I was just wondering, maybe we could turn to San Emidio II first. So it sounds like everything is going very well there. I’m just a little unclear on whether you’ve made definitive decision to actually construct this project or you are still evaluating the economics in the Post-Treasury Grant World?

Dennis Gilles

Well, we’re very pleased with the results of the resource there. We’re still evaluating, what the production level of the wells are likely to be, so that we can build that into our economics. So really the final decision to move forward on the project is tied to economics and we’re not at a point to definitively say that that is a certainty.

Jared Alexander - Canaccord Genuity

Okay. Great. Thanks for that. Maybe just following up on that, if I recall correctly, I think it was like a sunset clause in the PPA of January 2015, is that correct? So, when would you need to make that go/no-go decision, Dennis to make everything work?

Dennis Gilles

The sunset was actually May 2015, Jared and we have approached NV Energy. The way the sunset provision in their worked was, I’ve said the unit needed to be installed by May of 2015. We provided to NV Energy a development schedule that shows the unit installed on its foundation. But then ultimately COD before the end of the year and NV Energy supported that schedule. So right now, we’re utilizing that response to say that what we have to have is that unit on line by the end of 2015 in order to be in compliance with our PPA and have it qualify under the PPA.

Jared Alexander - Canaccord Genuity

Okay. Great. Thanks for that. And then maybe just a similar question on Guatemala, I believe there was a sunset on the MOU I think it was also 2015?

Dennis Gilles

You are correct. The sunset on that PPA front -- MOU for the PPA is end of 2015. And Doug is down there in Guatemala right now and had discussions with the power broker that we have the MOU with. They are very supportive of the project. We don’t have a better date for you right now. We’re still striving for that and really is all, contingent upon how our drilling results go but we’re very optimistic. But we are not at a point of projecting a date beyond that at this time.

Jared Alexander - Canaccord Genuity

Okay. Great. Thanks. And then just one final question, given the significant improvement in the share price, I’m wondering if you can comment on whether, there is any reason you will be contemplating to raise equity this year?

Doug Glaspey

I think depending upon how our growth plans go with San Emidio and Guatemala, and depending on how some of our strategic acquisitions that we are looking at play out, that could potentially results in equity raise. But at this point in time we don’t have any immediate plans for equity raise.

Jared Alexander - Canaccord Genuity

Okay. Great. Thank you very much. Those are my questions.

Doug Glaspey

Sure. Thanks. Thank you, Jared.


Thank you. Our next question comes from the line of Chip Richardson with Wedbush Securities. Please proceed with your question.

Chip Richardson - Wedbush Securities

Thank you. Congratulations on a very good year.

Dennis Gilles

Thank you.

Chip Richardson - Wedbush Securities

I am very proud for the ability of the company to deliver the power that you projected. My main question is, there has been talk overtime of looking for a joint venture partner to substantially pay for the development of the plant down in Guatemala? Are there any negotiations going with that and how is that going and what is the, do you feel the likelihood of Enbridge continuing to be a partner on future projects?

Dennis Gilles

Two parts to that question, the first, relating to Guatemala, down in Guatemala, we have a number of interested parties, both in country and out of country interested in being involve in that project and they would actually like to execute agreements sooner rather than later.

Our interest is in de-risking the project first, so that we are able to lower their expectations as far as what their yield from the project is going to be. So, we don’t have any definitive agreement signed but that’s intentionally not by, not due to lack of interest.

The second part of that with regards to Enbridge, Enbridge is definitely expressed a strong interest in participating with us on future geothermal projects. I will say there is an exception to that when it comes to Guatemala. They are not interested in investing down in Central America or South. They are interested in investing up here in the U.S. and Canada.

Chip Richardson - Wedbush Securities

Thank you very much and thanks again for the wonderful results.

Dennis Gilles

Great. Thank you, Chip.


Thank you. Our next question comes from the line of [Chris Lemos] (ph), a private investor. Please proceed with your question.

Unidentified Analyst

[My question has been answered] (ph). Thank you.


Thank you. Our next question is a follow-up question from the line of Jim McIlree with Chardan Capital. Please proceed with your question.

Jim McIlree - Chardan Capital

Yeah. Thanks again. I think in the commentary you said that you have an additional 11 megawatt under the agreement at San Emidio?

Dennis Gilles


Jim McIlree - Chardan Capital

And my question is, are the wells that you are drilling right now, would -- is it possible that they would get you to that 11 or would you need to do more to get there?

Dennis Gilles

Well, the answer to that, you don’t, unfortunately, with geothermal is not a defined amount that you get per well, until you drill the well, we really know what the permeability of that well is and the level of production of the well.

So the answer could be, I mean, theoretically, we may only need two of the additional four wells that we are planning right now. We may need all four of the wells. We may need three. I don’t, until we drill, Jim, we really don’t know. But we have plans and permits that have been applied for and plan to drill up to four wells down there right now.

Jim McIlree - Chardan Capital

Okay. Great. Thank you.

Dennis Gilles

Sure. Thanks.


(Operator Instructions)

Dennis Gilles

And Operator, while you are re-pulling, if I could go ahead and respond. We had two questions that we received electronically, via email, while the call is now ongoing and let me speak to both of those.

One of them pertains to a press release that was recently issued by the County of Vale for a lease that we have acquired in that County, that is a, we have not issued a press release relating to our development on that property but the county kind of preemptively announced a list that we’ve entered into with them. We do have plans to pursue a development opportunity that we feel is very attractive. You will see a press release coming out once we have solidified our entire lease position there. So this was just a preemptive press release to a property acquisition, a lease acquisition that we’ve taken on the near the town of Vale in Southeastern Oregon.

The other email that we received asking a question pertains to the property adjacent to our Raft River project, here with the press release issued by a company called Agua Caliente to develop a $150-million geothermal project immediately adjacent to our project at Raft River.

I’m not going to speculate as to what that company’s plans are. We do know that they have drilled three wells so far. So wells are a good distance from our plant and we don’t see those wells negatively impacting the production of our plant, should they put those wells into service. Beyond that, I don’t know what their future plans are and I’m not going to speculate as to what their plans are.

And with that, Operator, I’ll turn it back to you for questions.


There are no questions. Would you like to make any closing comments?

Dennis Gilles

Well, then I would like to thank everybody for joining today’s call. It’s an exciting time for us here in the company. I hope you share in that same level of excitement as you watch the level of activity with regards to our stock and the stock trading. Also, we hope you share that same level of excitement and enthusiasm as you watch our company continue to grow with the opportunities that lie ahead.

With that, I want to thank you all again today and look forward to a great 2014. Thanks operator.


This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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