Ormat Technologies Inc (ORA) 2007 Q3 法說會逐字稿

Good morning. My name is Rich and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ormat Technologies Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer period. (OPERATOR INSTRUCTIONS) Thank you.

It is now my pleasure to turn the floor over to your host, Todd Fromer. Sir, you may begin your conference.

Thank you very much. And thank you all for joining us today. This is Todd Fromer, managing partner with KCSA Worldwide, investor relations consultant to Ormat Technologies. At this point, you should have all received the third quarter 2007 earnings press release. If you have not received the release, please refer to the Ormat's corporate website at www.ormat.com. Hosting the call today are Dita Bronicki, Chief Executive Officer; Yoram Bronicki, President and Chief Operating Officer; Joseph Tenne, Ormat's Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations.

Before beginning, we would like to remind you that information provided during this call may contain statements relating to current expectations, estimates, forecasts, and projections about future events that are forward-looking statements 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. For a discussion of such risks and uncertainties, please see risk factors as described in the annual report on the Form 10K filed with the Securities and Exchange Commission on March 12, 2007 and the prospectus supplement filed with the Securities and Exchange Commission on October 23, 2007.

In addition, during this call, statements may be made that include a financial measure 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 may also facilitate management's internal comparison to the Company's historical liquidity.

Before I turn the call over to management, I would like to mention that a slide presentation accompanies this call and can be accessed on Ormat's website www.ormat.com under the events link as found in the investor relations tab. With that said, I would like to now turn the call over to Dita, Yoram, and Joseph who would like to make some formal remarks and review the financials. Following these remarks, management will be glad to answer any questions you may have. Dita, the floor is now yours.

Thank you, Todd. And good morning, everyone, and thank you for joining us today for a discussion of our third quarter results, a record quarter in electricity revenue with continued progress in building the future growth of our business.

Let us begin on slide four which contains the main financial highlights for the quarter. Revenues in the quarter grew to $79.5 million versus $77.8 million in the quarter a year ago. Revenues in our electricity segment increased to $61.4 million and was driven primarily by three factors; an increase of 77,000 megawatt hour in our geothermal and recovered energy project in the United States, additional projects that came on line out of the United States in the year, and higher rates paid under the (inaudible - highly accented language) disagreement.

In the first nine months of 2007 product revenue grew 21.5% higher than in the first nine months of 2006 while the revenue this quarter decreased to $18.1 million compared -- a decrease compared to the same quarter last year. This reflects the nature of the product segments and predictably, the business cycle. We delivered earning growth with net income of $15.8 million or $0.41 per share, a 13.1% increase over the same period last year.

Running through the highlights of the quarter, let's turn to slide number five. The significant development relating to our operation projects, our generating portfolio at the end of the quarter is 382 megawatts. The Amatitlan project in Guatemala commenced commercial operation at the end of the third quarter. Amatitlan is currently generating 18 megawatts of electricity, slightly less than the projected 20 megawatts. We expect to reach the 20 megawatt level or close to it during 2008.

And a few words on our latest project in the Philippines. On September 25 we turned over the owner's fee of the 149 megawatt Leyte project as part of a DOT build operate transfer agreement to pay a fee to these three corporations. This was as planned and we of course didn't incur any financial loss as a result of this transfer; however, going forward, if we do not use the company's generation capacity by 39 megawatts, with the commensurate impact of $3.5 million on equity and income from investments and net income on an annual basis.

Turning to slide six, of the notable events since we last called, the biggest development was the successful completion of an offering of three million shares in a block trade at the price of $45.90 per share which was approved toward the end of October. After deducting underwriting fees, commissions, and expenses, we received approximately $137.4 million in cash from that deal.

Having this added capital on hand will allow us to take advantage of opportunities as they arrive. As I've mentioned in the past, we have a target to add approximately 100 megawatts per year to our generating portfolio which translates into roughly $300 to $400 million in capital need for every 100 megawatts. This capital not only includes funding of the actual plant but it also covers plant associated activities such as exploration, land advancement, and purchasing or leasing equipment such as (inaudible - highly accented language). So to fund our growth in 2009, we must have capital on hand today. And this capital comes from and will continue to come from several sources like (inaudible)from operations and other final things parcels like the monetizing of our production tax credit, traditional points of finance, corporate debt, and from time to time it will also come from the capital (inaudible)of equity.

At the same time as the three million block shares, we have also completed a unregistered sale of 381,254 shares to the parent Ormat industries, also at the price of $45.90 per share. The proceeds of approximately $17.5 million will be used to repay part of the current portion of the capital note owed to Ormat Industries. The note in the amount $50.7 million will become due on December 3, 2007.

We also arranged for unsecured corporate debt at a credit facility, allowing us to draw up to $60 million over three years. We're now talking about what we did. We need to go -- I would also like to review several lease agreements that we secured during the quarter. We commit to follow our growth plans, including securing lease agreements in developing plans. Over the first few quarters we have been acquiring leases in various areas that are known geothermal resource areas, KGRAs. But this doesn't mean yet that they are proven resource areas. This leaves acquisition activity, continued during the third quarter, every entered new sites are already in our portfolio of leases.

With secured lease agreements for seven new sites, covering approximately 68,900 acres of federal land in Nevada for approximately $8.2 million for a competitive option conducted by the Bureau of Land Management. There is no assurance that all of the leases will lead sufficient if any geothermal resource suitable for commercial projects. Why we believe in the potential of these sites, it can only be confirmed once we complete exploration program in each of those sites. And a typical exploration program for site is approximately $7 to $8 million. And about the auction process. We see increased competition over geothermal lands since the auction process has started in June of this year.

Slide seven. The developments during the quarter. Modest progress was made with respect to the Sarulla project. The Medco-Ormat-Itochu Consortium signed a Heads of Agreement with PLN and Pertamina for the Sarulla geothermal project. The document was signed in a ceremony witnessed by the Republic of Indonesia and the Prime Minister of Japan, the HE of Japan-Indonesia Business Forum. The signature of this Heads of Agreement provides strong political support to the projects and this is the importance of this event.

I will discussed the Highline electricity project for all builds on our last call, the build level occurred during the second quarter and are worth mentioning as we review the highlights of the quarter. Both saw successful recovered energy generation, a business that's continued to grow as the world's energy efficient and environmental friendly power generation affirmative increases.

Moving now to slide eight. In addition to the geothermal resource, offtakers for power we supply also needed to be secured in order to secure future growth. Sales has issued recently a new request for proposal for renewable energy. We plan to participate in the process which could be for one or two PPAs and the proposals are due by mid-November. Also we are negotiating one part of this agreement with southern California Edison based on a proposal that was submitted to Edison 2007 RFP. We will provide more details about this part of this agreement once it is signed.

Turning now to slide nine, let me update you on all of our construction and development activities. We are in various stages of construction of 12 projects with a potential capacity of between 236 and 266 megawatts. Out of which we expect to complete behind 124 to 128 megawatts by the end of 2008 and an additional 113 to 138 megawatts in 2009 and early 2010. For 2008 projects, we are on track with a 17 megawatt Galena 3 project and the ten megawatt Heber South project which are in advanced construction and expected to be completed during the first quarter of 2008. The field for the Olkaria project is fully developed and we are currently in the process of constructing the 35 megawatt power plant which is also going to be completed in 2008. The drilling of Brawley field is in progress and the construction has commenced, another challenge to be completed by the end of 2008. Progress continues in the OREG 2 project where construction has begun on two units. We expect to have the first two of the four units or 11 megawatts of recovered energy generation power plants completed by the end of 2008.

With respect to 2009, we expect two additional recovered energy generation projects, the remaining 11 megawatts of OREG 2, and the four megawatt Peetz project or Highline project in Colorado, now in early stages of construction and are scheduled for completion in the second half of 2009.

In Puna, we are still looking for remaining enhancement program to aid in those two units and to increase the project's output by an estimated eight megawatts. We expect these enhancements will be completed in 2009 on the basis of the new power purchase agreements for this energy that we are still negotiating.

Construction has begun on GDL, a 4.5 megawatt geothermal project in New Zealand in which we have a 49% interest with the ability to acquire the remaining 51% later on. As previously mentioned, an additional 50 megawatt at the Brawley area are likely to come online by the end of 2009 or early 2010 due to the rest of this area is confirmed to support the additional production. We do not have yet the final determination that this is the case.

Also, we continue to actively pursue our exploration activity in Carson Lake and Buffalo Valley. We expect to confirm the resource for the two Nevada projects between 18 and 30 megawatts each which are scheduled for completion by the end of 2009 or the beginning of 2010 and already have power purchase agreements fully approved. There is a third power purchase agreement in Nevada though it's early which is still subject to be a vehicle well and is scheduled for starting of exploration activity within the next few months for completion in 2010.

Changing to slide ten, our CapEx requirement for 2008 for the construction of the projects that I mentioned in the prior slide are approximately $317 million. Approximately $50 million will be invested during 2007 and the rest will be invested in 2008. In addition, our operating projects have cut an expenditure budget of approximately $32 million for the rest of 2007 and 2008 and we also plan to invest $27 million in machinery and equipment. We intend to acquire two additional (inaudible)to support and expedite exploration and building activity. These are in addition to the two (inaudible)that were delivered to us earlier this year and are in full operation. We have budgeted approximately $70 million in CapEx for exploration for 2009.

As you can see on slide 11, nine sites are scheduled for exploration activity. This is intended to provide indication and better understanding on the availability of geothermal resource. As mentioned, we do not this exploration activity will lead to commercial operation at each of these sites but believe the result of the exploration activity will provide sufficient resource to secure our role in the years to come.

Before I turn this call over Yoram for review of operations in the quarter, I would like to mention that Yoram has taken over the role of President of Ormat Technologies from me. Yoram has been Chief Operating Officer since the IPO in 2004 and has many more years working with Ormat Industries. He knows Ormat Technologies, the Company and its people and as important, he shares our vision for the future. With this, I will turn the call over to Yoram.

Thank, Dita. Good morning, everyone. We'd like to begin with slide 13. For the quarter, our U.S. energy production was a little over 500,000 megawatt hours which is up from close too 424,000 megawatt hours in the same period last year. This figure includes our 50% share of the Mammoth project. Our California power plant hit a record generation number during this quarter which was largely the result of actions that we have taken in the fourth quarter of 2006 and the first quarter of this year, specifically the installation of upgraded equipment and a new maintenance philosophy.

Based upon the success that we had with the Ormesa and Heber projects, we expect to continue to perform proactive well field maintenance in the first quarter instead of a schedule that is spread out over the course of the year. While this will impact first quarter results, the first quarter of '08, we believe that the positive impact to the later quarters is more beneficial. While we did experience [eshas] that are typical to the operation of a geothermal project, the aggregate of our plants continued to produce electricity at very high availability and production numbers. Repair work at the Momotombo project which we told you about on a previous call was completed and it is now back to its full capacity. And as Dita mentioned earlier, Amatitlan is in commercial operation and is operating at about 18 megawatts of net power.

On a more general level, we have continued to make progress in implementing our strategy of preparing the organization for growth in what we see as a very turbulent industrial sector that offers many challenges to growing companies today.

I will turn the call now to our CFO, Joseph Tenne. Joseph?

Thank you, Yoram, and good morning, everyone. I would like to begin with slide 15. For the quarter ended September 30, 2007, total revenues was $79.5 million, an increase of 2.1% from revenues of $77.8 million for the same quarter of 2006. Total cost of revenue was $50.5 million compared to $45.5 million in the third quarter of 2006, an increase of 11%.

Turning now to slide 16, total electricity revenues for the quarter -- the third quarter of 2007 increased 8.9% to $61.4 million from $56.4 million in the previous year. For the quarter, revenues were impacted positively as a result of an increase in our generation capacity and energy generation over -- to over 500,000 megawatts with record generation capacity from our California plants, high energy rates in the Ormesa and Heber One and Two project and the new amendments to the standard number four contract with Edison. $1.4 million from the Amatitlan project in Guatemala which started generating electricity in March 2007 and has recently reached an 18 megawatt level. This increase was partially offset by a reduction in sales from the Brady project of 19 megawatts and increasing revenues from our Momotombo project in Nicaragua by $2.5 million due to a failure of turbine which were not produced by us.

The cost of electricity signature revenues for the quarter, was $35.5 million, up 9.7% from the $32.3 million in the same quarter last year. The increasing cost of electricity signature revenues resulted mainly from an increase of $1.8 million in our cost of revenues in the Momotombo project in Nicaragua, mainly due to the failure of the turbine, an increase of $2 million in costs related to new and enhanced project placement service and an increase of $400,000 in cost of revenues attributable to the Amatitlan project in Guatemala.

Out of our product segments on slide 17, total revenues for the third quarter of 2007 were $18.1 million, a 15.8% decline from total revenues of $21.4 million in the same period last year. The increase in our product segment revenue is mainly attributable to the timing of revenue recognition in the quarter with the percentage of completion method for each of our determined and covered energy regeneration projects. As mentioned by Dita, the nine months period ended September 30, 2007. Revenue increased by 21.5% as compared to the same period last year.

Cost of product segment revenue was $15 million, up 14.4% from $13.2 million in the same quarter last year. The increasing cost of product segment revenue resulted from a different product mix as well as an increase in labor, materials, construction, and transportation costs which effected our margins in these segments.

Now let's move to slide 18. Combined gross margin was 36.5% in the quarter ended September 30, 2007 compared to 41.6% in the same period of 2006. Gross margin electricity segment was 42.3% for the quarter compared to 42.7% in the third quarter of 2006. For the segments gross margin was 16.7% in the third quarter of 2007, compared to 38.7% in the same period last year.

Moving to slide 19, net income for the quarter was $15.8 million or $0.41 per share of common stock, basic and diluted, as compared to a net income of $13.9 million or $0.39 per share of common stock, basic and diluted, for the quarter ended September 30, 2006. The number of shares used in computational earnings per share for the third quarter of 2007 was $38.1 million basic shares and $38.3 diluted weighted average shares. Those are $35.6 million basic and diluted weighted average shares during the third quarter of 2006.

On slide 20, adjusted EBITDA for the quarter ended September 30, 2007 was $38 million as compared with $39.7 million for the quarter ended September 30, 2006. Adjusted EBITDA includes consolidated EBITDA and the Company's share in the operating income and depreciation and amortization, totaling $3.1 million and $2.7 for the quarter ended September 30, 2007 and 2006 respectively, related to the Company's unconsolidated invest interest in the Leyte project in the Philippines which was (inaudible)off on September 25, 2007 and its 50% interest in the projects in California.

Turning to slide 21, as of September 30, 2007, the Company has cash, cash equivalents, and marketable securities of $29 million, compared to $116.7 million as of December 31, 2006. This decrease is principally due to the funding of capital expenditure in the amount of $145 million, the repayment of long-term debt to our parent and third parties in the amount of $48 million, dividend distribution of $6.5 million, and this was offset by $69.2 million net proceeds from the OPC transaction that we mentioned last quarter, and $43.5 million of cash flows from operating activities.

Moving to slide 22, our total outstanding debt as of September 30, 2007 is $464.2 million and it will be repaid as follows. $83.9 million in the fourth quarter of 2007, $65.8 million in 2008, and the rest through 2020.

Let's move to slide 23. On November 6, 2007, Ormat's Board of Directors approved the payment of a corporate dividend of $0.05 per share under our dividend policy which targets an annual payout ratio of at least 20% of the Company's net income subject to board approval. The dividend will be paid on December 12, 2007 to shares of record as of the close of business on November 28, 2007.

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

Thank you, Joseph. If you turn to slide 24, I'll update our revenue guidance. We maintain our guidance for 2007 and expect about 2007 electricity segment revenues to be approximately $214 million. We also expect an additional $18 million of revenue from our share of electricity revenue generated by Momotombo and the Leyte which we've owned for nearly nine months here in 2007. And those two projects are accounted for under the equity method. With regard to our product segment, we currently expect that our 2007 revenue will be on the high side of the guidance previously provided which is between $70 and $72 million.

With that I will now open the call for questions.

(OPERATOR INSTRUCTIONS) Your first question comes from Ben Kallo of Pacific Growth Equities.

Hi, Dita.

Hi, Ben.

Good morning. We wish you could be at the conference today.

I'm sorry. I would like to be there.

We're happy to have [Ohad] here. My first question's about the technology. I had a question about both the EGS and the work you're doing on that and then also if you could talk about depleted oil and natural gas and what you think is going to happen there?

Yoram, you want to take this questions?

Sure. The question on EGS?

Yes, sir.

I'm sorry, but what would you like know? What we're doing on EGS?

Yes. What are you guys working on in EGS and how do you see that going forward?

I think there are quite a number of challenges in EGS and a lot of them relate -- I mean, the more you want to gain, the more difficult it is to do so and by that I mean if you truly have only hot rock, no water at all, and you're trying to both inject the water from an outside source and recover it, this is a big challenge and I'm not sure there's a lot of progress that was done there yet; however, there are cases where what you may only look for is the enhancement which is that you have some permeability, there is some water, but the flows are not as great. You've found temperature but not enough water to move it to the surface and so on. And this -- there we're basically trying the kinetics of increasing the fractures, trying to get more water out or more water in. And our Desert Peak field was chosen to be the testing facility for that because there is a noticeable temperature there. It's just hard to get the productivity of water and this is what we're trying there. We have a few test wells that we are experimenting with and the hope is that we will be able to get more water out of the well.

So is Desert Peak the primary place that you're working on developing the EGS?

Yes. The advantage of Desert Peak is that this is a field that is -- is probably -- how should I say it? It was somewhat disappointing through traditional production kinetics. But we know that there is heat. And we also have generating equipment with some generating capacity nearby. And so it's almost -- for us it's almost a first place to try and get something meaningful out of EGS because then beyond the R&D money, there is something useful that we can do with any additional hot water that we get.

Right. Now how about depleted oil and gas flows?

I think that on depleted oil and gas wells there's a challenge which is how much hot water could you actually product and what kinds of facilities this could support. And this is not to say that this is not an area for future activity but today it may have not so much technical challenges as much as it is economical challenges. We do have the equipment. I think that there are no technological barriers there but to turn this today into a segment contributor on a revenue side would be difficult because they tend to be deep wells so pumping costs or pumping power is significant and on the other hand you have a fairly small flow rate and therefore it can support small facilities that are scattered across a large plot of land. So technology is probably here already but I'm not sure that we know how to make a significant amount of profit from that.

Okay. Thank you. My next question has to do with the pipeline. I'm just wondering what type of activities you guys are doing down in Imperial Valley. It kind of relates to my next question which is pricing in California and how you see that, increasing hopefully and if you could just elaborate more on that, on the work you're doing in Imperial Valley?

The Brawley project is in the Imperial Valley. We are talking about development, right, Ben?

Yes. Maybe a better gauge would be the amount of land you have down there at least, in addition to that? So is that the Brawley project? Is that pretty much the major project down there or do you have additional projects that you'll work on down there?

We have another project -- the power purchase agreement that we are negotiating with Edison that I mentioned during my remarks is a project in the Imperial Valley but we will -- this is based on land position that we have on top of the Brawley project and those are actually the two locations which are imminent or available for imminent development in the Imperial Valley.

Okay. So the power -

We also have land for future development in Amatitlan property. This is in 50% ownership consolidation.

Okay. So the power purchase agreement that in your slide show you said you were working on with SoCal -- is that -- what project does that correspond to?

It doesn't have a name yet. It's a site -- an additional site. It's not any of the existing sites. It's an additional site that we have land position in California.

Great. So it's not on that pipeline slide? It will be the next round?

Sorry?

On your pipeline slide of all your projects. It's not listed there yet?

No. Not yet. Not.

Okay. Very good. Now my final question has to do with bottlenecks in the industry. What do you see as the major -- we've talked to folks that say drills are the major bottleneck and then geologists and or equipment. So what have you guys seen as a bottleneck for the industry? And maybe outside of yourselves too as some of the smaller players -- what do you see as their bottlenecks?

I can't speak for others. I can barely speak for myself so how can I speak for others? I think that the bottleneck is probably existing. You see a certain bottleneck and then you find a different one. Currently we have identified the exploration equipment as a bottleneck because we just want to increase our activity in that area in order to secure a growth beyond the productivity that we have done before. This is why we have decided -- we've acquired one exploration rig which is operation since about four or six weeks and we are in the process of looking for additional exploration rigs to be able to double up the activity that we are doing in exploration. And certainly once this is going to be available we will see that we need to add additional people. So it's -- bottleneck by nature, you de-bottle one bottleneck and you get to the next one.

So I guess will the next bottleneck be -- and maybe you can elaborate more on your manufacturing capacity of actual equipment and power plants. Is that going to be a bottleneck that we look out three years from now as some of these projects come online and start ordering product from you?

I think that we can -- by good planning we can make sure that this will not become a bottleneck. And the good thing about the manufacturing is that we have the experience and the expertise to subcontract a lot in the -- the potential of subcontracting is unlimited. Unlimited in the quantities that we are talking about, not really unlimited, but in the quantities that we are talking about, it's unlimited. And in parallel, if there is a certain technology that we do not want to subcontract, that we want to keep in-house we are simply increasing our capabilities. We have acquired quite a number of sophisticated machine tools in the last 15 months just to be ready for the additional goals.

But there's no -- on the horizon there's no manufacturing capacity expansion?

There is. We are doing it all the time. To measure through the expected need, if we had to prepare ourselves for 30 megawatts of growth three years ago to 100 megawatts of growth today, this means some expansion of our production capacity and a big expansion of our subcontracting capabilities. And we will continue to do this.

Okay. Very good. Thank you for your time, Dita. And thank you, Yoram.

Thank you.

Thank you. Your next question comes from Michael Lapides of Goldman Sachs.

Hi, Dita. Hi, Yoram. Congratulations on a great quarter and a great first nine months of the year. Question. I want to come back to the power price question that was asked earlier on the call. Can you talk to us just what you're seeing at a macro level for power pricing of renewable resources in both Nevada and California going forward?

Michael, it's easier to answer for California because there it is a structured process. It's more difficult to answer it about Nevada because it is -- first of all, it is confidential and second, it is not (inaudible - highly accented language). California, I'm sure you know, has this market price reference they publish each year and we've seen an increase in the market price reference for the 2007 solicitation which is slightly higher or higher than the prices that we had a year ago. I believe that we see about $0.01 per kilowatt hour from what we have seen a year ago and then -- what I can say is that this will increase costs. I'm not sure that it really increases the margin because cost has increased also. But at least it maintains the margins and that's good. In Nevada, the reason that they fractured the arrangement but I believe that in the -- they -- part of this agreement that will be entered in Nevada will also reflect some increased costs.

One question just coming back to California a little bit. The reference price that the commission publishes, the pricing, if I understand correctly, it actually can come in beneath that reference price based on how the competitive bidding process works -- is that correct? Or am I misunderstanding that?

No. That's so. When you submit -- the way I understand it, when you submit your proposal, if you are below this price you will get the price that you quoted. If you are above that price and you insist on getting that price, your only way to get the purchase agreement is if you get a special approval. You can apply for special approval and get it. If you are at the MPR, then you can negotiate a purchase agreement without any special approval.

And in Nevada I know that it's not a formal process and it's not a publicly disclosed one. But are the prices at a macro level at a premium too or a discount to what the forward market price of electricity -- the market clearing price of electricity is in Nevada. And if so, is it dramatic or is it only slight?

Slightly at a premium. A slight premium.

To the forward market price?

Yes.

Okay. Thank you.

But the forward market price is really also so depending it was a look at it.

Of course. I'm just trying to get macro understanding of how pricing of renewables is moving around. Thank you very much. Much appreciated.

Thank you.

Thank you. Your next question comes from Dan Mannes of Avondale Partners.

Good morning.

Good morning, Dan.

A couple quick questions. Switching gears to the product sale segment, I didn't see anything in the queue. Did you give an update on the backlog number? It looks like other than the cement plant a little earlier this year, it looks like it's been a little bit since you've seen any new orders in that segment.

You're absolutely right. We are a little low on our backlog. We have all those under negotiation and we expect to positively conclude new contracts but at this point in time we are low.

And then to expand on that, is one of the issues you're seeing the fact that the production tax credit in the U.S. hasn't been extended beyond 2008? Is that slowing some of the interest? I say that because I guess historically most of your orders were really either in the rig business or international. So I guess I'm wondering if there's been a slow down there as well.

I don't think it's a slowdown. I think it's a timing and in the same way as the revenue recognitions in the product segment, as we say, fluctuations in its timing. Also booking of new orders has its fluctuations, has its timing because we are talking about projects. It's not a continuous product or a continuous -- consumed product. The project is released or the project is not released and this makes the timing - this creates unpredictability of our margins from the product segment.

Understood. That's actually the next place I was going to go. And not focusing so much on this year but given the backlog you're currently sitting on and your understanding of the profitability of the contracts you're still sitting on, should we expect to see a movement back towards historical margin levels in the fourth quarter or is it going to take into next year to sort of work off some of those maybe not as advantageous contracts?

Let me repeat what we said I think in the last call and maybe in the prior call. The lower amounts that we are seeing today were expected to be seen to the end of the year not because of volume in the product segment -- the volume is good, but because of the increased costs compared today to the business that we had and the product order that we had. And this was expected to answer for the end of the year and we don't have any change in that view. What will happen next year, we'll probably be able to update you better on our next quarterly call, but if there's going to be a delay in new orders, there is also going to be a delay in revenue or commission of those orders and this may create the lower amounts to continue also into 2008.

Okay. And last question. This is more for Yoram. The bridge fix you guys used on the steamboat turbine -- can you talk a little bit about how that's performing and sort of where you are in that fix, so to speak?

It's been working great which means it can break any time now. And there's actually a technical reason for that. But we were also able to accumulate additional spare parts of a temporary nature and our plans are still to replace the equipment itself with our own technology end of Q2, I think, end of Q2, beginning of Q3 of '08. So -- actually nothing special to report on that other than very hard work of the guys in the field.

I guess that's a good thing if there's nothing to report. And actually one last thing on that segment. You guys I guess put our preliminary CapEx guidance for the balance of this year and next year. It looked like a little bit of an up tick on CapEx on the existing projects. Is that -- I assume one of the reasons is that includes the turbine replacement on steamboat?

Yes. It's part of it.

Great. Thank you very much.

(OPERATOR INSTRUCTIONS) Your next question comes from [Brian Yerger] of [Joseph and Lamont].

Good afternoon, everyone.

Good afternoon.

I just had a quick question on the proposals from Sierra and Nevada power. Do they identify specific megawatts or does that remain confidential during RFP process?

I'm not -- you mean how many megawatts they're willing to buy?

They're looking for. Yes.

I don't think they've disclosed it.

Okay. So that remains confidential during the process?

I don't know if it's confidential or if they are willing to say, whatever makes sense for them to say. That's the answer.

Okay. On the margins for the electricity segment you spoke about continuing proactive maintenance. Is that just going to be first quarter of '08 or is that going to be a constant thing that's going to impact margins going forward throughout the year?

Obviously it's always good to be proactive in maintenance but what it means is that it's heavily -- if we look, of course we're only three quarters or a little more than that into the year but if we look at our costs on maintenance that we're not significantly different from what we have budgeted. The only thing was that they were heavily skewed towards the winter. And so a lot of this came in the first two quarters and of course on the first quarter you can -- it's much more visible. And that's our plan for 2008 and probably, unless we learn something different, that would be our plan going forward in -- and this is mostly true for the Imperial Valley where we have a huge number of aging wells and of course a very strong incentive to have very high productivity numbers in the summer.

Okay. So this is going to be an ongoing first quarter thing for quite a while then?

Yes. Unless we discover something different and what I can say is that we are looking at kinetics that would have more of a predictable or predictive element into them. More predictive than preemptive element in them and identify the condition of the wells. But so far we do not have that technique developed and we need to do this unless we discover something different, for the next three years, this is what we expect to see.

Okay. Thanks a lot.

Thank you. Your final question comes from Ella Freed of Prisma.

Good afternoon, everybody. I would like to ask two questions, please. First, how sensitive are you to the currency volatility?

The answer is it depends on the product segment. If we have all bills in non-dollar countries, today we do not have many orders which are in a non-dollar country, so the sensitivity is limited to the label cost of delivery.

You are -- weren't you hurt by the EURO rates?

We don't have much activity in Europe.

Another question is about the increase in the electricity, increase of operational margins in electricity segment. Do you believe the level can be drastically changed in the next year or do you think it will remain more or less on this level? I mean the yearly level. Not this quarter level.

We try not to give guidance on margin unless there is something very unusual that we need to explain. Our margins this quarter came back to be in line with our normal margins and that's what we expect going forward.

Okay. And the last question is about the level of depreciation and amortization in the next year. Should we expect an increase in this level or it is more or less the same level as 2007?

Absolutely we should expect an increase. Our quarterly plans investment increases and it will have a commensurate influence in the depreciation and amortization. Definitely.

I mean more than the growth level or the same? Is the drastic change in the first or second quarter?

I'm not following.

The change in estimate you mean?

Yes.

We made the change in the first quarter and it didn't have a big impact anyways. It was $0.01 per share for the quarter and that's it. From now on we are depreciating the plans usually over -- and that's what we said in the queue.

Okay. Thank you very much.

Thank you. I would now like to turn the floor back over to management for any closing remarks.

Thank you, all, for the good questions, for the continued support in the Company and let's continue to lead the green business environment together. Thank you very much.

Thank you. This concludes today's Ormat Technologies Third Quarter Earnings Conference Call. You may now disconnect.