Ormat Technologies Inc (ORA) 2007 Q4 法說會逐字稿

Good morning. My name is Natasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ormat Technologies fourth quarter year-end earnings conference call. (OPERATOR INSTRUCTIONS)

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

Thank you, operator, and thank you all for joining us today. This is Todd Fromer, Managing Partner with KCSA Strategic Communications, Investor Relations Consultant to Ormat Technologies. At this point, you should have all received the fourth quarter 2007 and year-end earnings press release. If you have not received a release, please refer to 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 Levy, 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 10-K 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. The 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, everybody. I would like to begin today by discussing Ormat's growth last year, frame it in the context of what is happening in the geothermal space, and explain how we expect this changing landscape to help fulfill Ormat's growth in the years to come. Following my remarks, Yoram will review operations, provide detail on the projects that are currently under construction and discuss CapEx requirements. Before we open the call for questions, Joseph will take you through the fourth quarter and year-end financials.

Let me start with Slide 3, by focusing specifically on a few important achievements for Ormat. We have a strong performance beginning in the second quarter. Ormat's financial performance saw record revenues of $296 million, an increase of 10% when compared to 2006. We also continued to secure the necessary resources for the 100 megawatt goals we are targeting to the year beyond 2010 and signed new purchase agreement for five projects which made up to 256 megawatts of new growth. Two of these agreements are with Southern California Edison for 80 to 200 megawatts; one was with Nevada Power for 18 to 30 megawatts; and there were five recovered energy power plants for a total of 26 megawatts covered by this purchase agreement.

The 256 megawatts of new growth is very significant for Ormat as it promotes organic growth and will stem from the development of activities that we are currently having underway.

We also received pre-approval for three purchase agreements that were signed in 2006 and early 2007. Also during the year, we added 44 megawatts of new capacity. And just a few days ago, we added 17 megawatts as we declared commercial operation for our Galena III power projects. We expect to add another 10 megawatts in Q1 or early Q2 with Heber South.

The 27 megawatts of Galena III and Heber South were planned for 2007 but were delayed by one quarter due to late delivery from our suppliers of equipment, such pumps and transformers, not to any operational issue. Delays such as this are not unique to Ormat. Rather, they are becoming common to the energy industry that experienced, in addition to constant increases, substantial increase in lead time. During the remainder of the year, we plan to increase our generation portfolio by 101 megawatts.

Now, looking at the bigger picture. When I talk about the geothermal space, I'm really talking about three distinct areas. As you will see on the next slide, the regulatory environment was in the U.S. Senate Board, these are provisions and related development activity that we support within our world and competition in the development of fuel power plants.

Turning to Slide 5 now. The regulatory environment continues to be favorable for new energy growth in the United States and internationally. It is driven by the growing scientific consensus that carbon emissions for fossil fuels claiming total (inaudible) climate change and that if a target of 450 (technical difficulty) million of carbon will not be reached soon, the consequences are going to be very serious as climate warming will not be stopped. Until a coherent climate policy is enacted in the United States, we see in the increased legislative and regulatory activity mainly on the state level.

As an example, there are now 29 states that have enacted an RPF either as a mandatory law or as a (inaudible). In addition, a substantial number of states have either enacted GHG legislation (inaudible) an emission or are considering it. And it is a consensus that federal carbon tax or cap in trade legislation will be forthcoming after the election.

On the demand side, efficiency measures mandated in the last year include a third decision to require the use of equipment like our (inaudible - highly accented language) on pipelines. And there is still a possibility that the PPC will be extended, even though there is no showing for it. Even without the extension of the PPC, the regulatory environment continues to be an important growth driver for us.

[Soon the PPC not really mute] we do have mitigation and options for it. First is the investment tax credit. The way things stand now, the owner of the project must choose between the production tax credit and the 10% investment tax credit. If PPC will not be extended, the option of the 10% ITC, investment tax credit, will still be available in addition to the existing accelerated and depreciation. Second is the power structure. Some of our power purchase agreements were negotiated at a higher energy rate should the PPC not be available at the time the project starts operations.

Looking now internationally, aggressive targets are being declared and implemented. A year ago, Europe declared a target of 20% renewable energy by 2020. A more recent example is New Zealand's target of 90% renewable energy by 2025. Even though this includes large hydro in the target, it is still a very aggressive target.

Another encouraging development is the [Valley] Convention decision to prepare a claim to succeed the (inaudible) protocol term and will establish GHG reduction criteria beyond 2012. The demand for renewable energy continues to be greater than the supply, and the new purchase agreements are a strong reflection of this.

Now to the next slide. 2008 will be the first year where we demonstrate our ability to grow organically by approximately 100 megawatts. We are frequently asked if we can maintain the pace of this growth and if we can exceed it. The answer is yes, but it is dependent on certain challenges that are inherent to the geothermal industry and consist of the geothermal rates of development. A precondition for the development is securing sufficient land position, succeeding in exploration activity, and of course, having the financial capabilities to fund it.

As I mentioned in the previous call, the growth that we want to achieve three to five years from now is being planned and implemented already today. We have worked a few years to prepare for this space of growth, and we will continue to work hard to meet the challenges on the exploration side to maintain it.

For a few years now we have been building a strong foundation that is enhanced by our vertical integration, strong technical capabilities, strong financial conditions and newly added drilling capacity that Yoram will talk about later.

So let's look at the results of our activities to increase our development inventory. Slide 7 and 8 cover our lease agreement in exploration processes. In 2007, we secured agreements for seven new sites, covering approximately 68,900 acres of federal land in Nevada, which on some of them, we started exploration activities already. This is in addition to other lease agreements in Nevada and California that we have signed during the year.

Our development inventory portfolio now consists of 16 sites covering 100,000 acres in Nevada, Idaho, California, Hawaii, Oregon and Texas. Outside of the United States we have development sites in Guatemala and are working to secure rights in other countries. We will continue to participate in BLM auctions and will evaluate opportunities from private landowners to secure development inventory required to our continued growth.

Once the leases are secured, the challenge has been the success of exploration activity in a timely manner. We are continuously increasing our exploration capabilities by adding, in addition to drilling equipment, steel professionals; geologists, reservoir engineers, etc.

Since 2006, we expanded our activities to include exploration and identification of unproven geothermal resources. Sites that have not been explored, and there is no self (inaudible - highly accented language) that will support the commercial project. Once we have acquired leases that we believe have the potential for being a geothermal commercial project, longer and more extensive activities begin in order to validate and then to quantify the size of the potential geothermal (inaudible). This process includes geologic and geophysical status and analysis, chemistry and photo-analysis, drilling of shell or temperature radiant way, digging holes and if successful, exploratory drilling of commercial sized well.

Testing all the wells entirely enable us to predict the size of the power plant that a specific reservoir could support. This whole process can take approximately two to three years, so any number of reasons may not lead to actual development of the resource if they result on the positive.

As Slide 9 shows, our knowledge of resources in regions where we have acquired leases gives us some insight into what we can expect to achieve. We have increased and our deposits are further increasing the number of sites which we can explore entirely. We have started exploration activities in eight sites in Nevada and one in Idaho. I won't name each of the sites. They are included on the accompanying slides. These projects are in various stages of evaluation, permitting and exploration drilling, and it is important to remember that not all of the sites that are under exploration will reach the construction phase.

I would like to single out the North Brawley project, which is our first project that has advanced from exploration activities to project construction. We began our exploration activity in 2006 and had increased these efforts in 2007. We expect the actual project to begin operating in late 2008 for North Brawley and in 2009 or early 2010 for East Brawley, each of them having a 50-megawatt capacity.

The next slide deals with our RSP. Consolidated with our exploration activities and in addition to the new power purchase agreements that we signed during 2007, we responded to several requests for proposals that are still outstanding. We are negotiating three purchase agreements in Nevada and two in California that cover approximately 120 megawatts of proposed capacity.

The last element in securing continued funding for our growth plan, which we will review on Slide 11, is the following. 100 megawatts a year is translated into roughly $350 to $400 million in capital needs beyond the year. We received a net proceed of $188 million from shale (inaudible) in the fourth quarter last year and the first quarter of this year. We successfully closed the OPC tax monetization transaction, the first branch of approximately $72 million was received last year, and we expect to receive a $46 million from the second closing shortly. We also established corporate credit lines of $110 million. None of them is being utilized at this point.

And on Slide 12 I want to discuss is the competition. We face, in the United States, competition which is an opportunity to our Products Segment. In the last three years alone we have seen many new players, many emerging companies, enter the geothermal space. For this we are happy because it is now an open opportunity for Ormat than a challenge. It means that the industry is growing, and geothermal is increasingly being accepted as a valid source of clean, base-load energy.

More important, because we are a vertically integrated Company, we are able to be on both sides of the equation in both in an owner and operator and in an equipment and power plants provider. A good example of this was our announcement on February 13 that we have entered into a limited notice to proceed with Nevada Geothermal to construct a power plant in Nevada. This limited notice to proceed added $20 million to our Products Segment base load. We also supplied the equipment (inaudible - highly accented language) geothermal project, (inaudible - highly accented language) project, which also recently became operational. If more of these smaller players enter the market and begin to grow, this will only increase Ormat's support opportunity in the Products Segment.

Our proprietary technology, the Organic Rankine Cycle Unit, is better suited for low and middle-range temperature resources, which is characteristic of the resource that exists throughout many of the regions where these newer players have leased properties. Our technology is less capital intensive on a (inaudible) basis, which many of these emerging players found attractive. And our 40 years of experience in the industry and deep understanding of the geothermal resources give us an edge over the other turbine manufacturers.

So to sum up it all, the regulatories were met, and the foundation-building activities we have engaged over the past few years' position us for continued organic growth beyond 2010. The competition that we see in the U.S. market as well as energy efficiency regulations [federally regs] should benefit our Products Segment in the years ahead.

With that, I would like to turn the call over to Yoram for review of operations in the quarter. Yoram, please.

Thank you, Dita, and good morning everyone. I would like to start with Slide 14. Our U.S. energy production was a record of just short of 2 million megawatt hours, excluding Mammoth, up from just a little under 1.8 million megawatt hour in the year ended December 31, 2006. The increase in megawatt hours is a result of new plants coming online as well as record generation by our California plants during the summer months. As I mentioned last quarter, the success we had in California was based largely on the proactive well-field maintenance that we did in the first quarter of 2007.

Our expectation is to continue to perform significant maintenance in the first and second quarter of the year rather than spread it out over the course of the year. While this will impact these first quarter's results, we believe that the positive impact to later quarters will offset this.

Before I go into the status of our projects, I wanted to clear up some confusion regarding the operating capacity of the Momotombo plant, which a recent news item referred to as running at 30% capacity. While the plant was built by its first owner as a 70-megawatt plant, Ormat always referred to it as a 30-megawatt plant, which is where it's operating now.

Turning to Slide 15. During the year, we commenced commercial operation of Desert Peak II and Galena II in the United States. Internationally, we commenced commercial operation of the 20-megawatt Amatitlan plant, which currently operates at 17 megawatts.

We completed the construction of additional Ormat energy converter units in the Ormesa and Steamboat Hills complexes. All of this added 44 megawatts of new, generating capacity to our portfolio.

On September 25 we turned over ownership of the Leyte project as part of the build-operate-transfer agreement with PNOC Energy Development Cooperation. This reduced the Company's net generation capacity by 39 megawatts.

Following its separation from the Desert Peak I plant, Brady continues to generate 12 megawatts. We're examining several alternatives to restore Brady's generating capacity to 19 megawatts; however, there are no assurances that we will be successful in this endeavor.

Turning now to Slide 16 for a rundown of projects in our Electricity Segment. We are in various stages of construction for eight projects, with the potential capacity of 184 megawatts that we expect to complete by late 2009, early 2010. Breaking these projects down by year, we remain on track to add approximately 128 megawatts in generating capacity by the end of 2008 and expect to close the year with 510 megawatts in our portfolio.

In the first half of 2008, we expect to add 27 megawatts. We have declared commercial operation of the 17 megawatt Galena III project and expect a 10 megawatt Heber South project to follow shortly. The (inaudible) purchase agreement to the 10-megawatt addition to the Heber Complex is still under negotiation with Southern California Power Public Authority and Southern California Edison.

In the second half of the year we expect to add approximately 101 megawatts; 50 megawatts from North Brawley, 35 megawatt from Kenya; 5 megawatt from the GDL project in New Zealand; and 11 megawatt from OREG II. As of now, we have completed drilling of the Kenya project's field. Most of the generating equipment was delivered, and we expect to complete construction by the end of 2008 unless for reasons beyond our control the date is extended -- should the date be extended to political instability in the region.

The unrest following the elections has had a very minor impact on the project so far, and we have not lost any days in operation and experienced only one week of construction stoppage. Things have begun to settle down, and we are back to business as usual.

We are currently construction the 10 megawatt GDL project in New Zealand. Ormat has 49% ownership stake with the option to purchase the remaining 51%. The 11 megawatt OREG II units are currently under construction, and we have an anticipated completion date of late 2008 or early 2009.

In 2009 and early 2010, we expect to add 73 megawatt of generating capacity from both geothermal and recovered energy power plants. We expect the remaining 11 megawatts of OREG II to come online in the late 2009. Also, in 2009 or 2010, we expect the completion of the 4 megawatt [Peak's] project, which we expect a commission in 2009. The 8 megawatt enhancement to the Puna plant in Hawaii where we have already been discussing with Hawaii Electric and Light Company for the sale of the additional power. And we expect a 50 megawatt East Brawley to be essentially complete by the end of 2009.

Slide 17 shows our current projects under development beyond 2009 where we expect -- we anticipate the completion of Buffalo Valley, Carson Lake and Grass Valley, which have a capacity of between 18 and 30 megawatt, depending on the resource. GRE 5.5. megawatt (technical difficulty) facility should be online in 2010. And finally, we expect approximately 43 megawatt of share in Sarulla project to come online between 2010 and 2012.

In December 2007, the Sarulla Consortium completed the execution of the project document and the signed agreement for all the relevant parties. The project is still subject to financial closing by the end of 2008.

I would like to remind everyone that we are one of the equipment suppliers to the project, so this is also an important activity for our Products Segment growth. In addition to the projects listed in the accompanying slide, the recently signed PPA in California, 30 to 100 megawatt, is expected to be completed by 2012.

Our CapEx requirement are explained on Slide 18. Our requirements through 2008 for the construction of the project I mentioned are approximately $345 million. In addition, our operating projects have capital expenditure budgets of approximately $31 million for 2008. And we have budgeted approximately $61 million in CapEx for exploration through 2009, and approximately $70 million budgeted to invest in machinery and equipment through 2008.

Looking now at our Products Segment on the next slide. Before I recap the year, I want to reiterate our enthusiasm regarding the expected large contracts with Nevada Geothermal, for which we received a $20 million limited note to proceed. We are currently finalizing the Blue Mountain contract, which would add an additional $55 million to our backlog. The backlog number did not yet include the value of our scope of supply for the Sarulla project, which is expected to be approximately $250 million over a three-year period, starting with the financial closing for the project.

In addition to the Blue Mountain limited notice to proceed, we have secured several orders which brought our backlog, as of February 26, to $64.2 million in which include $5.7 million agreement for an OEC for a new REG plant to be installed in Martinsburg, West Virginia.

Turning to Slide 21, with respect to our development activity, we established a new drilling company, GeoDrill LLC, allowing us to efficiently control drilling costs, quality and schedule. We acquired to drilling rigs last year and intend to acquire one additional rig. We will then own a total of four rigs that will support and expedite our exploration and drilling activities. Also, we are working on an enhanced geothermal project that is very involved, and if successful, will be a longer term opportunity.

We are undertaking this experimental development in cooperation with several other entities. This project is being developed at the site of our Desert Peak II plant in Nevada. If all goes as planned, we expect that the Desert Peak II site will be the first site producing power into the U.S. from enhanced geothermal system support. We are very excited about this project and several other untried activities that we are exploring and we look forward to updating you all on our progress in the years to come.

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

Thank you, Yoram, and good morning. Beginning with Slide 23. For the year ended December 31, 2007, total revenues were $296 million, a 10% increase from revenues of $268.9 million in the year ended December 31, 2006.

On to Slide 24. In our Electricity segment, total revenues for the year ended December 31, 2007 were $216 million, with a 10.5% increase over total revenues of $195.5 million for the year ended December 31, 2006. This increase is primarily attributable to $17.1 million of additional revenues generated as a result of an increase in our generating capacity from new power plants placed in service. The enhancement of existing power plants and an increase in energy rate in our [standard number 4] power purchase agreements in California, and $3.4 million of additional revenues resulting from our international power plants.

The next slide shows that total cost of revenues attributable to our Electricity Segment for the year ended December 31, 2007 was $148.7 million, as compared with $124.4 million for the year ended December 31, 2006, which represented a 19.5% increase in total cost of revenues for such segment. This increase is primarily due to costs relating to new and enhanced project placing service and increased labor and material costs in existing plants and cost of $2 million related to a scheduled overhaul in the [Eagle One] project. Such overhaul is performed once every four to five years, and that was an event of Q1.

And in our Products Segment on Slide 26, total revenues for the year ended December 31, 2007 were $80 million, 8.8% increase over total revenues of $73.5 million in the year ended December 31, 2006. The increase in our Products Segment is mainly attributable to increased revenue of our recovered energy generation project.

Total of cost of revenues that are attributable to our Products Segment of the year ended December 31, 2007 were $68 million, as compared with $51.2 million for the year ended December 31, 2006, which represented a 32.8% increase in total cost of revenues related to such segments. This increase is attributable to the increase in our Products Segment revenues, a different product mix and increasing labor material construction and transportation costs, which affected our margins in this segment.

Moving to the next slide. For the year ended December 31, 2007, the Company's gross margin was 26.8%, compared to 34.7% for the year ended December 31, 2006. Gross margin for the Electricity Segment was 31.1% for the year ended December 31, 2007, compared to 36.4% for the year ended December 31, 2006. In the Products Segment, gross margin for the year ended December 31, 2007 was 14.9%, compared to 30.3% for the year ended December 31, 2006.

For the three last quarters, the gross margin for the Products Segment was in line with estimations we provided in the second quarter's earning call. We expect the gross margins in the first half of 2008 to be similar to the gross margin in 2007. But in the second half of 2008, we expect to return to the 2005 levels.

Now to Slide 28. Net income for the year ended December 31, 2007 was $27.4 million, or $0.70 per share diluted, as compared to $34.4 million, or $0.99 per share diluted, for the year ended December 31, 2006. There were 38.9 million weighted average number of shares used in computation of diluted earnings per share in the year ended December 31, 2007, and 34.7 million shares in the year ended December 31, 2006. The increasing number of shares results from the stock offering we have in December 2006 and October 2007.

And net income for the year ended December 31, 2007 includes top base compensation expense of $3.2 million, or $0.08 per share diluted, as compared with $1.5 million, or $0.04 per share diluted in the year ended December 31, 2006. Decreasing net income was principally attributable to an $18.5 million decrease in operating income, a $2 million of pretax -- of unrealized, other than temporary loss related to certain auction rate securities, the pretax is effect is $1.2 or $0.03 per share diluted. This was offset by decreasing interest expense of $4 million, a decrease in income tax provision of $4.6 million, an increase in minority interest income of $4.7 million as a result of the OPC tax money provision reduction that we concluded in June 2007.

Now I would like to go over a few quarterly financial highlights, beginning with Slide 29. For the fourth quarter of 2007, total revenues were $70.6 million as compared to $66.7 million for the same period in 2006, an increase of 6%. Electricity Segment's revenue for the quarter were $55.5 million, an increase of 19.2% as compared to $46.6 million during the same period in 2006. The Products Segment revenues for the quarter were $15.1 million, a decrease of 24.8%, as compared to $2.1 million for the same period in 2006.

On Slide 30, net income for the quarter ended December 31, 2007 was $8.9 or $0.22 per share diluted. Net income for the fourth quarter of 2006 was $4.2 million or $0.12 per share diluted. And in the quarter ended December 31, 2007 and 2006 -- in 2006 there were 40.9 million and 36.2 million weighted average shares respectively, used in computation of diluted earnings per share. And the decrease is a result from the stock offering we had in October 2007.

Net income for the quarter ended December 31, 2007 includes stock-based compensation expense of $1 million or $0.02 per share diluted as compared with $0.5 million, or $0.01 per share diluted for the quarter ended December 31, 2006. In addition, as I mentioned before, net income for the quarter includes $1.2 million or $0.03 per share diluted of after tax unrealized a temporary loss related to certain auction rate securities.

As shown in the following slide, adjusted EBITDA for the year ended December 31, 2007 was $107.2 million as compared with $119.8 million for the year ended December 31, 2006. And for the quarter ended December 31, 2007 was $25.2 million, as compared to $22.5 million for the quarter ended December 31, 2006.

Adjusted EBITDA includes operating income and depreciation and amortization totaling $14.6 million and $16 million for the year's ended December 31, 2007 and 2006 respectively, and $2 million and $4.4 million for the quarter ended December 31, 2007 and 2006 respectively. Related to the Company's unconsolidated investment interest of 50% in the Mammoth project in California, and 80% in the Leyte project in the Philippines.

To the next slide. As of December 31, 2007, the Company have cash equivalents in the marketable securities of $60.7 million, compared to $116.7 million as of December 31, 2006. This decrease is principally due to our use during 2007 of $216.4 million of cash resources to fund capital expenditure and $131.8 million to repay long-term debt to our parent and to third parties. This includes a $50.7 million of capital note repaid to our parent on December 3, 2007.

The increase in our cash resources was partially offset by $137.2 million net proceeds from the sale of shares in October 2007; the $17.5 million net proceeds from our sale of 381,254 shares to our parent; the $62.2 million (sic - press release) net proceeds from the OPC tax monetization transaction; and $56.5 million derived from operating activities in the year ended December 31, 2007.

The decrease in the Company's cash equivalents and short-term marketable securities is also partially due to the deterioration in the market for auction rate securities. Although the auction rate securities that the Company holds continue to pay current interest based on valuation models and an analysis of other-than-temporary impairment factors, the Company has recorded a pretax impairment tax of $2.0 million in the first quarter of 2007. In addition, the Company ahs recorded an unrealized pre-tax loss of approximately $800,000 in order to -- in other comprehensive loss as a result of the auction rate securities whose decline in fair value deemed temporary. The portion of the Company's auction rate securities associated with the failed interest rate reset auctions has been included in long-term assets in the consolidated balance sheet as of December 31, 2007.

On the next slide. Our total outstanding debt as of December 31, 2007 is $380.3 million and will be repaid as follows -- $55.8 million in 2008, $43.5 million in 2009, $76 million in 2010, and the rest $235 million in 2011 and thereafter.

Finally, if you turn to the next slide you will see that on February 26, 2008, Ormat's Board of Directors approved the payment of a quarterly dividend of $0.05 per share be sent to the Company's 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 March 27, 2008 to shareholders of record as of the close of business on March 14, 2008. The Company expects to pay a dividend of $0.05 per share in the next three quarters.

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

Thank you, Joseph. Let's turn now to the final slide for our revenue guidance for 2008. We expect our Electricity Segment revenues to be $245 million. We also expect an additional $9 million of revenue from our share of electricity revenue generated by our subsidiary, which is accounted for under the equity methods. With respect to our Products Segment, we currently expect that our 2008 revenue will be between $70 million and $80 million.

Before we open the call to questions I would like to thank you all for your continued support of Ormat. We believe significant goals over the next few years in the more than 100 megawatt will be beyond 2010 are achievable and can be reached in a way that meets the interests of our shareholders.

We have a clear strategy, and we are devoting considerable time and resources to the development of new projects, new technologies and acquiring (inaudible). Opportunities as a result of worldwide regulatory changes continue to grow, and we expect that this environment will continue to prepare it (inaudible - highly accented language). We look forward to reporting to you on our progress in the coming year.

With that, I would now open the call for questions. Operator, please.

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

I had a question. First, congratulations on getting Galena III online. But should we expect that tax monetization to close at the end of this quarter? Is that what you're playing? And then for the other two projects that you expect to come online, Brawley and then also Heber South, are you planning on having tax monetization deals for both of those projects as well?

For the second phase of the OPC tax monetization, it may be before the end of this quarter. We might (inaudible) between March and April, that's the expectation. Brawley, most likely, yes, another tax monetization just to date certainly the most lucrative way to finance the geothermal project. Heber South I don't think so. I don't think so because it is part of the whole (inaudible) transaction, and it may be too complicated, number one. Number two, we do need some credit for ourselves as well.

Okay, great. And then on the product side of the business, could you talk about internationally what you see as the best opportunities outside of the Sarulla project, I guess? And then if there's any delay in the Sarulla project, could you talk about that? But then as far reason goes, I know you mentioned New Zealand a little bit and then China also in your presentation.

New Zealand is a potential for additional business because, number one, it is a very strong geothermal country geologically, and number two, they have a very aggressive renewable energy policy. So yes, New Zealand can bring additional business in the short, intermediate term.

China I'm less optimistic. We don't seem to make really headline in China. In Sarulla, the current expectation is for financial closing within a year or approximately a year, but we have been wrong before. Note how much time things take there, so we may be wrong again. That's the best I can say about it.

Okay, great. Thank you. And you mentioned competition coming from the other project developers out there, but could you talk about the comparative landscape as far as equipment suppliers out there? Are you seeing anyone coming to the business here that worries you? How does that look?

On the equipment supplier side we don't see any major change. There are some attempts from small equipment suppliers to go into the organic ranking cycle, but none of them presents a (inaudible) that we are concerned about.

Okay. And then my last question, you guys are developing several projects internationally. Have you -- what do you think about monetizing any type of credits that are available under the Kyoto Plan? Are you looking at that? How does that all play out? Any type of carbon offset credits?

The projects where monetizing carbon credits is underway. The [Zunil and Amatitlan] in Guatemala. We are not collecting it yet, but it's an opportunity in the final approval stages. And we will probably do the same with Olkaria in Kenya.

Okay, great. Thank you so much, and I'll jump back into the queue here.

Thank you.

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

On a good quarter and a great year. I had a couple of questions. I'm looking at Slides 10 and 11, so I'm really on the development pipeline, which is critical for the Company. Handful of questions; I'll just kind of throw them right out. First, when we look at the list of projects in Nevada on Page 10, is there any way at this early stage to get roughly an average size in terms of megawatt installed capacity for each of these type of items? And if so, do they differ substantially.

That's one. The other, on the PPAs -- this is Page 11 -- on the three PPAs being negotiated in Nevada and the two being negotiated in California, are these for plants that you've already announced and already under construction or would these be for new plans that haven't been announced yet and are not under construction?

Well, the first question is a hard one to answer, Michael. There isn't an average size that we can allocate to a site. Because if you look at our investing portfolio, you have sites with 20 megawatts, and you have sites that, over the time, we have been able to develop 24 megawatts, like the Steamboat Complex case now; or even higher when we are talking about the California cases. And what I try to emphasize, and I want to emphasize this again, some may turn out to be zero, so it's very hard to answer. Do I recommend to take an average of 30 megawatts? Maybe. I mean, that's about as much as I can guess at this point.

As to the PPAs in California, some are for sites which have been announced. We are negotiating a power purchase agreement and increasing the power purchase agreement for Heber South. So this one has been announced, and we are negotiating a power purchase agreement for (inaudible), and the others have not yet been announced.

Okay. So these are projects. The other -- I guess the other three, these would be projects that are in your pipeline that you've got a known resource that you've already drilled for and found the resource that could fit a project needed by a local utility.

Not quite. We are in the process of exploring but not -- the exploration is not completed yet.

Okay. Last question. When you're just trying to think about financing needs, not just '08 but '08, '09, and capital structure, can you talk about whether you think you have a need for equity issuances to finance your growth in '08 and '09 and what type of balance sheet structure are you looking to maintain over the next two years?

Our balance sheet currently is very underleveraged as it is clear from looking at it. Some of it is a tool for additional leverage which exists on the balance sheet and which would be right to do. And the other is the little [optical] because the way we finance tax monetization is changing the way the balance sheet looks. Because instead of taking debt, we have taken a structure which replaces debt and it doesn't show on the balance sheet. But we do have an ability to increase our leverage, and we certainly plan to do it.

We certainly plan to do an additional tax monetization, as I mentioned to the prior question. And depending on the pace of growth, we may or may not go back to the capital markets.

Okay. Thank you. Much appreciated.

Thank you. (OPERATOR INSTRUCTIONS) Your next question comes from Dan Mannes of Avondale Partners.

A couple of quick follow-up questions. First, focusing on the guidance you guys issued. When you look at your power guidance, are you including any of the revenues from either Akaria III or Brawley in that, or is that assuming they actually don't come online until the end of the year?

Only assume that it will not come online until the of the year. Akaria we may have one month still.

Okay. And then a similar question on the product side. When you look at that, I mean, obviously you're including the backlog and I guess it's the $20 million from Blue Mountain. Does that include anything from the broader Blue Mountain contract or anything from Sarulla to the extent you can get anything by year-end?

The backlog, no. Backlog is what we [have from].

No, the revenue. The $70 million to $80 million of revenue.

Revenues are a little above the backlog, yes.

So you are assuming -- well, some of the -- I mean, Blue Mountain probably won't be completed until the end of '09, so to the extent you got the full contract for which you're negotiating, you would realize more than just the $20 million this year, and that's baked into your revenue numbers, I guess is what I'm asking.

[I don't say] that the $20 million will realize over this year and next year, but once we enter into the full contract, we'll realize additional revenue from the full contract, yes.

Okay. So I guess what I -- just to go back. Then the revenue guidance that you've given does not assume that you receive the full contract for Blue Mountain.

The revenue guidance assumes that we will receive the full contract of Blue Mountain, but because recognized revenue is on a percentage of completion, we will recognize only a portion of it in '08 and the majority of it in '09. It also does not assume any revenue from the Sarulla project.

Okay. And you had said you hoped that at some point this year you'd have financial close, and at that point you could potentially start receiving revenue. Is that correct?

On Blue Mountain?

No, no, no, on Sarulla.

Sarulla we don't expect closing this year. It's going to be in '09.

Okay. And then I guess the next thing would be I don't know if you can give any color on expected margins on either of those two, especially on the product sale side given that we've seen some improvement in margin this year, but clearly not to the levels we've seen historically.

I think you should take the estimated -- I think Joe said that in the last two quarters of the year we are going to come back to the 2005 level in the Products Segment.

And then any color on power? I mean, what we saw in Q2, 3 and 4, obviously season adjusted because of Q3. Is that indicative of what we should be looking for next year on the power side?

I think so. With the adjustment for the summer months, obviously, it's a three-quarter period as opposed to a four-quarter period, yes.

Understood. And then the last question, and I know this was brought up by a prior caller, as it relates to competition on the product side, obviously UTC is out in the market as a very small product, but also, I mean, [Danelle], it looks like, is building binary plants using an in-house design. Do you see that as a competitive threat, or is that just sort of one of the rare party in this business who actually has the balance sheet to support the internal design? Do you see that as a threat for other people or most of the smaller buyers, really, you need your turnkey design and construction abilities?

Maybe Yoram wants to comment on it. You want to comment on it?

Yeah, I think first my understanding is that Danelle is not using an in-house design. They're using a -- as far as we understand, are using an alternative binary unit similar to the design that gave us some trouble in some of our facilities. And I think the answer that I have to this is really there is what you get from the Ormat equipment is you get the benefit of 40 years of development, and specifically, over 20 years of geothermal development.

And this is just like buying a car. There are many compact or midsize vehicles, and some vendors are better than others, and it's not because there's something dramatically different. It's just a quality of the product. And I think if somebody wants to buy equipment he always has a choice of using one or another. What we can say is Ormat, in that case, we're not very concerned. What you get from our equipment is really the benefit of continuous development and a very good track record on lifecycle cost.

Absolutely. I guess the only thing I want to add there was do you see other vendors who were willing to do turnkey construction as well as guarantee performance, which obviously is not there to support project financing, especially for the smaller guys. That's one thing we hadn't seen any competitors doing. So you still view that as a competitive advantage as well?

I think that certainly for some clients it is an advantage, but clients differ, of course. There are other factors to look at like supply, like delivery time, like the operating cost in the future. All of this has to go into the mix. And I think that Ormat provides a very good package when you look at all of this, including guarantees.

Okay. And then just final question on the PPA pricing. Obviously, you're negotiating several. Are you seeing any -- I mean, when we've talked about this on prior calls, given the increase in capital costs, you were seeing higher rates on the PPAs. Are you continuing to see the ability to push through higher pricing on PPAs, for instance, for plants that are going to come online in '09 and '10 or is that plateauing out a bit?

We all think certainly the price increase commensurate with the cost increase. We do.

And is that regionally specific? I mean, I'm really pointing at California, obviously, but are you finding sort of more price and power for you guys in California where obviously construction costs are higher?

The market (inaudible) is public information in California, and if you compare last year's to this year's, you'll see the trend.

Great. Thank you very much.

Thank you. Your next question is a follow-up from Ben Kallo of Pacific Growth Equities.

I just had one quick follow-up for Yoram. You mentioned in the presentation the maintenance costs that you expected in Q1 and possibly Q2 to prepare you for the summer months. Could you expand on that and maybe talk about -- I don't know if you want to go to the project level, but the different projects that you're going to have to do maintenance on in those quarters?

Sure. I think the biggest item is really well field work in our Imperial Valley projects where we operate roughly 70 production wells. And on those production wells, most of them are pumped. The pump is an expensive piece of equipment and replacement of the pump is also an expensive activity. And there is really a question of philosophy on how do you run this equipment. Do you run it to failure or do you replace it based on statistical history of how long it should last?

And our decision -- and this is where last year was the first year that we had decided to basically replace the pumps based on time of use rather than deterioration in performance so we're not caught flatfooted in the summer months with three or four wells that are down when we really want to have all of the available generation. So many things on the above-surface side on the plant side is done on a predictive and scheduled maintenance level. But on the down hole where it's so far they're not very efficient tools to do that prediction. On the down hole side we basically changed our philosophy.

I think -- and there's a lot of money in that type of well field work, and this is why it's so significant or that it should be so significant in the first four or five months of the year.

And so when you're doing that well field work do you need to bring the whole site down? And if so, what type of capacity are we talking here that you're going to bring down and for how long?

No. I mean, if it's -- I mean, it's basically done one well at a time, so if it's done on a preemptive level and we can do it one well at a time, you can't notice it in the performance. However, if we are caught in the peak season with a number of wells, three or four wells that went down and that we can only address one at a time or two at a time, then this has very significant generation loss, and we don't want this to happen.

Okay. And last -- in the first quarter of last year we also had some turbine problems. Is there anything outstanding out there where you have some old turbines where we're getting kind of close to the lifespan of them?

Well, you know, the reality is in terms of revenues it wasn't turbine problems. It was five-year scheduled outage of half of the Heber Complex. It has -- it was $2 million to $3 million in loss revenues because it's time was up. It'll happen again four years from now; not this year. And I think that this was the biggest contributor. Again, it makes the most sense to do this in the winter months when rates are low, and we just have to do it every five years.

The equipment issues on Steamboat were not as -- were mostly in Steamboat, they were not as dramatic. They just lasted long. And I think as we reported from our second quarter call and onwards, that situation is stable now.

Great. Thank you for all of the information.

Thank you. There are no further questions. At this time I'd like to turn the floor over to management for closing remarks.

Thank you all for your participation, for your support and let's hope for a very good year in 2008. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.