Ormat Technologies Inc (ORA) 2010 Q1 法說會逐字稿

Good morning. My name is Wes and I will be your conference operator today. At this time I would like to welcome everyone to the Ormat Technologies first-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions.) Thank you.

I will now turn the conference over to Mr. Robert Fink of KCSA Strategic Communications. Please go ahead, sir.

Thank you, Wes. Hosting the call today are Dita Bronicki, Chief Executive Officer; Yoram Bronicki, President and Chief Operating Officer; Joseph Tenne, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations.

Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the Company's plans, objectives and expectations for future operations and are based on Management's current estimates and projections 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 Company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 8, 2010.

In addition, during this call, statements may be made that include financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission, such as 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 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 remind everyone that a slide presentation accompanies this call, and can be accessed on Ormat's web site at www.ormat.com under Webcast Presentation link as found in the Investor Relations tab.

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

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

For the first quarter of 2010, total revenues were $82.7 million compared to $99.3 million in the first quarter of 2010 -- 9. As you can see on Slide 5, this quarter the Electricity segment had revenues of $66.1 million compared to $62.1 million for the first quarter of 2010 (sic - see Slide 5). The increase in generation is the result of some additional capacity, with North Brawley being the single most significant contributor to the increase, and solid performance from most of our plants, other than Puna.

In the Product segment on the next slide, this quarter and throughout the year we expect revenues and corresponding margins to be down from last year's highs due to a decline in the product backlog. The first-quarter revenues were $16.5 million compared to $37.3 million in the same quarter last year.

Moving to Slide 7, the Company's gross margin was 19% compared to 31.6% in the same period last year. Gross margin for the Electricity segment was 17.5% for the fiscal quarter of 2010 compared to 29.6% in the same quarter last year. The decrease in the gross margin is due to the impact of placing North Brawley in service at partial load, which increased the cost per megawatt hour in the current quarter compared to the first quarter last year. In the Product segment, gross margin was 24.8% compared to 34.9% for the same quarter last year.

Moving now to Slide 8, interest expense, net, for the first quarter of 2010 was $9.7 million compared to $3.3 million in the same period last year. The $6.4 million increase was principally attributable to a $4.2 million decrease in interest capitalized to projects under construction, primarily due to the commencement of operations of North Brawley and an increase in interest expense due to new long-term project finance and corporate debt.

Moving to Slide 9, loss from continuing operations for the first quarter of 2010 was $2 million compared to income from continuing operations of $14.4 million in the same quarter last year. Such decrease in income from continuing operations was principally attributable to the decrease in our gross margins and increase in interest expense.

And on Slide 10, net income for the first quarter was $1.8 million, or $0.04 per share, basic and diluted, compared to net income of $14.5 million, or $0.32 per share, basic and diluted, for the first quarter of 2009.

As shown in Slide 11, adjusted EBITDA for the first quarter of 2010 was $32.1 million, compared to $37.4 million for the same quarter last year. Adjusted EBITDA includes consolidated EBITDA and the Company's share in the interest, taxes, depreciation and amortization related to the Company's unconsolidated investment interest and its 50% interest in the Mammoth complex in California.

Turning now to Slide 12, as of March 31, 2010 the Company had cash and cash equivalents of $43.1 million compared to $46.3 million as of December 31, 2009. This decrease is principally due to our use of $76.5 million of cash resources to fund capital expenditures and $5.5 million to repay long-term debt to third parties. Our total outstanding debt as of the end of the first quarter of 2010 is $653 million and it will be repaid as presented in the accompany slide, number 13.

Moving onto Slide 14, yesterday Ormat's Board of Directors approved the payment of a quarterly dividend of $0.05 per share pursuant 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 May 25, 2010 to shareholders of record as of the close of business on May 18, 2010. The Company expects to pay a dividend of $0.05 per share in the next two quarters.

And now, let me turn the call over to Yoram.

Thank you, Joseph, and good morning, everyone. I'd like to begin with Slide 16 for an update on our operational activity.

Total generation from our US and international plants was about 920,000 megawatt hours, an increase of 4.8%, due to good performance of our existing plants and the positive contribution of North Brawley. As we presented in our Analysts' Day, we have seen considerable improvement in North Brawley and the plant has been averaging 20 megawatts since we declared commercial operation in January.

Since March we have installed permanent solid removed on our injection streams and we are very pleased with its ability to provide better removal efficiency at a fraction of the operating cost that we have seen with the disposal cartridges, and are now moving to implement this solution on the production wells.

As Joseph mentioned, the high operating costs on this plant have an impact on the gross margin of the Electricity segment. We believe that going forward the O&M expenses will be reduced and the margins will improve.

This quarter we saw a progress in the Puna drilling campaign; however the results will be seen only in the second quarter. Last month we connected the new well to the plant and are operating at the 25 megawatt range. We are just starting mechanical cleanups with the older wells and hope to bring the field back to its original productivity before the end of this quarter.

Let us move to Slide 17 for an update on our projects under construction. We have completed the construction of a 5.5 megawatt recovered-energy generation plant that will sell its power to Great River Energy. Commercial operation is waiting for the interconnection to be completed, which we expect to happen before the end of this quarter. In the Jersey Valley project we continued with field development, procurement and fabrication of the generating units. We expect permits to construct to be granted shortly. We are progressing with the drilling in McGinness Hills and the preparation of the required permits to construct, and in Carson Lake we're still waiting for permits to continue drilling.

In the first quarter we completed the acquisition of the Tuscarora project in northeastern Nevada. The project is in advanced stage of development and has one successful well, which was drilled before our acquisition. We continue with field development and expect this project to become operational in 2012.

In East Brawley we still have permitting issues that we need to resolve, in addition to our need to prove that we can clearly handle both the sand and the interference issues before it makes sense to move forward and build the East Brawley power plant.

On Slide 18 you can see the detailed status of the projects under development. In February we signed a letter of intent to amend the existing PPA and expand our 48 megawatt Olkaria complex by up to 52 megawatt. The expansion is to be developed in two phases, the first 36 megawatt to be completed within 3.5 years from finalizing the amendment, and an option to commence the second phase within 4.5 years. The amendment to the existing PPA is subject to applicable governmental approvals and the consent of the lenders that provided the financing to the existing power plant.

Moving to Slide 19, as you know we made important progress in the Sarulla project with an agreement to increase the tariff under the Energy Sale Contract to a levelized power price of $68 per megawatt hour. As the power plant's equipment supplier, these developments will have implication to the Product side of our business after the financial close, which we expect to happen during the first half of 2011.

Slide 20 shows the status of the various leases for geothermal resources that we have started exploration activity in 15 of which.

Slide 21 is a recap on the Product segment. Our current backlog is approximately $77 million, of which approximately $20 million will be effective upon receipt of a down payment.

We'd like now to turn the call to Dita.

Dita Bronicki - Ormat Technologies, Inc. - CEO

Thank you, Yoram. If you turn to Slide 23, as to the outlook for 2010, we are reaffirming our guidance with 2010 Electricity segment revenues to be between $275 million and $285 million. We also expect an additional $9 million of revenue from our share of electricity revenue generated by a subsidiary, which is accounted for under the equity method.

With regard to our Product segment, we continue to expect that our 2010 revenue will be between $75 million and $85 million.

We knew the first half of 2010 would be challenging. As Yoram mentioned, we are proceeding with the construction and development of 284 megawatts expected to be added to our portfolio, out of which between 170 megawatts and 200 megawatts is expected to come on line by the end of 2013. We are also proceeding with the [large] diversified exploration activity that we are involved in.

In Slide 24 you can see the CapEx requirement for 2010 for those growth activities. The funding of this program will come from cash from operations, unused corporate lines of credit and expected proceeds from the refinancing and the cash grant for North Brawley.

Longer term, we will need additional capital that will mainly come from loans under the DOE loan guaranty program. Between 110 megawatts to 150 megawatts of projects under construction and development could be eligible for a DOE loan guaranty. We expect to submit our first DOE Section 1705 loan guaranty application in the next few weeks, assuming we are able to finalize our ongoing term sheet discussion with the potential lender.

The balance of the financing will come from the traditional project finance for the international projects, both solar and geothermal. And we are also considering a corporate high-yield bond offering. We will share with you these plans as they move into the implementation phase.

Our balanced portfolio, with stable cash flow, enables us to move forward with our growth plans and to identify opportunities when they come along. Consistent with our longstanding strategy of growth through organic growth and acquisition, we are currently in discussions regarding a particular acquisition of a small operating facility. We will of course share with you the news on this transaction if and as they materialize.

Let me end my remarks by saying that our long-term fundamentals are firmly intact, as well as our plans to grow our portfolio. I want to thank you for your support, and we'll now open the call for questions. Operator?

(Operator instructions.) Paul Clegg; Jefferies.

Could you just give us a sense of linearity of the improvement in gross margins you expect as North Brawley improves its cost performance during the year?

Actually, to clarify, we don't expect dramatic changes in North Brawley still this year. I'd say our ramp-up plans looks at substantial ramp-up only towards year end, so the effect would be seen later.

Okay. So even from first quarter to second quarter you don't expect a major change?

Not -- we don't expect any substantial changes either in the second quarter or the third quarter on North Brawley itself. Of course, there's seasonality of PPAs that do make changes. First quarters and fourth quarter tend to be weaker, so the impact of Brawley [can] be greater.

I see. And then, Joseph, actually could we get the depreciation number for the quarter, please?

It's $20.5 million, include- -- and amortization. And amortization.

I'm sorry; could you repeat that? Was that 20.5 or 25?

$20.5 million.

Thank you. And then, the acquisition that you're considering, I know you don't want to say too much about it right now, but can you say whether or not it's US or foreign and then what stage of development it's in?

It's an operating power plant in the US. That's about how much we can say about it.

Okay. And then, just a clarification regarding Sarulla, it looks any equipment order you get there will be in multiple phases, as you've said, and I understand from a previous press release could total around $300 million throughout those phases. I just want to make sure I understand the potential timeline. If you get the ESC signed in, I think three months you're talking about, you'd expect financial close really in kind of the third quarter of 2011. And then we would probably expect to hear about an equipment order just after that. Is that the right timeframe to think about this?

Probably it's a little aggressive. If we sign the PPA in three months, which is third quarter, we should assume about a year for closing. And I think Yoram said in his remarks that we expect financial closing about the middle of 2011.

Okay, but beyond -- you would expect then probably a little bit more delay than between the financial close and when you would see an equipment order?

I mean, I think that the equipment order will come [upon] financial close, maybe later. There is a possibility that the limited notice to (inaudible) maybe should a little before financial close, but for planning purposes we would assume it upon financial close.

I see. Okay. Thanks very much.

Lasan Johong; RBC Capital Markets.

Dita, are you starting to see signs of the PPA market opening up in the US?

Opening up? I didn't see it closing up, so -- I think the PPA market is still open and [selling.]

Okay, that's good. Going forward, in the past you had talked about 100 megawatt per year kind of growth profile and it was kind of maybe 80 megawatts in the nearer term. Are we still looking at numbers kind of equivalent? Are you willing to give longer-term guidance?

I think that for quite some time we have tried not to give the 100 megawatt per year number because we realize that delays that we encounter in exploration and then in permitting -- or permitting and exploration have delayed our ability to deliver 100 megawatts per year. If you look at what we plan to have on line by 2013, it is less than 100 megawatts per year. But if you look at the extensive exploration portfolio that we are working on, it may come back as big numbers once we are successful in that exploration. And so -- and we have to also understand that exploration effort is a risky effort.

Okay. Last question from me -- there's a lot of market turmoil because of Greece. Do you see this affecting the project financing market?

You are talking about the financial market?

Yes. The Greece debt situation is doing all kinds of loop-de-loops to the financial markets. Do you see this affecting the project financing market, where you do a lot of your capital raising?

The project financing -- I mean, when we look at the financing plans in the future, I think that the impact of the European market on this is not going to be substantial for several reasons. I don't think that the DOE loan guaranty program will be impacted by the European financial market. Certainly financing of the multilaterals, like the type of financing that we have done in Kenya, is [not] immune from it. And the -- what I don't know is whether the US capital market will be impacted by this and whether the high-end bond, which is some of our longer-term plans, not for 2010, but beyond, will be impacted or not. I think it's too early to say.

Great. Thank you.

Great. Thank you.

Michael Lapides; Goldman Sachs.

Hi, Dita. I hate to ask a question that I know you've addressed, but I have to admit I'm a bit confused. Can you walk us through why the cost structure for now at North Brawley is dramatically different than many of your other plants? And when or if you expect that cost structure to normalize compared to the cost structure of your other facilities?

Okay. Let me try to simplify it and maybe it will be clearer. North Brawley is a 50 megawatt power plant. It is operating today at 20 megawatts. So by definition, certain costs that should be allocated to a 50 megawatt -- to revenues coming from a 50 megawatt plant are now allocated to 20 megawatts only, including depreciation, [interest financing] expenses, (technical difficulty), some fixed costs in operating the plant. So that's one part of the answer.

The other part of the answer is the actual (inaudible) costs paid to deal with the solids in the fourth quarter and the first quarter of course this quarter has been higher. We expect them to go slightly down in the second quarter, but this doesn't -- this is not the main reason. The main reason is the lower revenue against the very high fixed costs related to a 50-megawatt project.

Got it. Okay. Thanks, Dita. Much appreciated.

Ben Kallo; Baird.

First, on the Product outline outside of Sarulla for 2011, can you kind of give us any type of color around what your estimates for the pipeline is in 2011, projects you're tracking both domestically and internationally?

Unfortunately, Ben, it's not something that we can identify. We are working on various projects, both domestically and internationally. But it's really hard to predict when it will be released as a contract, as a signed contract. But we are working on various projects, both internationally and domestically. I would assume that other than Sarulla, the level of the $80 million per year, $90 million per year, $70 million per year -- I mean, that's really, other than Sarulla, as far as we can see today.

Okay. And then for Jersey Valley you said you were waiting on some construction permits and then we had it being completed by the end of 2010. When do you think you'll have those construction permits?

We expect it shortly, in a matter of weeks.

Okay, so within -- the next time we talk you'll probably have those for Q2 earnings?

Yes, we'd certainly expect that, yes. Should be turning ground into concrete by then.

Okay. And then, for East Brawley, do I understand correctly that until you get the North Brawley under control you're not going to move forward, despite even if you get the permits there?

We think -- I mean, realistically I think, based on what we have done in the recent quarter in North Brawley, I think that we will have the technical solution before we will have the permit on East Brawley. But for -- to make sure that the disclosure is clear, these are two independent issues, the technical issue and the permitting issue. And we wanted to make sure that we talked about both. But I mean, you saw the presentation and the [hours] today, the results from Brawley are very encouraging.

Good. And then, as far as your guidance goes, the revenue guidance for your Electricity segment, do you assume 20 megawatts of production for North Brawley? And then what about for Puna? And is there any upside there if you can ramp this faster?

I think Puna is a little ahead of schedule from -- but it's -- this is very early. We've been making 25 megawatts out of the plant in the last few days after connecting the new well. So there's a little bit of an upside that could be there, of course, depending on what oil prices would do. That's another wildcard in Puna. As for Brawley, hard to tell. We think that we have a reasonable estimate. There's a chance that we'll beat it. There's a chance that new challenges will come up. So I don't think that this will change dramatically.

Okay. And then, I might have missed it in the presentation, but could you give us an update on the expansion at Puna, where you stand with the PPA?

We're in late drafting stages; haven't signed it yet. We certainly hope to be able to sign it soon and complete the expansion, but it's not done yet.

Okay. Thank you.

Dan Mannes; Avondale.

I just want to clarify on Puna. I think you answered this pretty well in the last question, but so effectively, assuming the recent drilling's successful, you've got 25 megawatts for about two-thirds of this quarter and then at some point in the third quarter you ramp up to the historical, closer to 30? Is that about the right way to think about it?

Yes.

Okay. And there's no necessary impact between the current sort of fixes at Puna and the current process on the expansion in the PPA negotiations. Those are unrelated?

Correct.

Got it. And then on North Brawley, the 20 megawatts -- and again, I hate to sort of beat this up. So your cost structure's going to stay the same through the year at $9.5 million ballpark. But the 20 megawatts we shouldn't expect a material step-up in that until Q4? Is that because that's when you're going to have delivery and installation of the permanent fix on the balance of the wells?

Actually, it's -- I mean, it is correct that this is when we expect the deliveries. But it's also we need more injection wells, which we currently have, but we need to connect them. And just the timing of connecting the injection wells to the plant would put us in the -- sometime in the third quarter, maybe a little sooner than that. But our expectation is not to see much impact of that before the fourth quarter.

And then, on the $9.5 million, can you give any indication how much of that is D&A relative to sort of cash costs? Is it half and half or -- ?

Where does the $9.5 million number come from?

I think that was in your presentation on page -- I think you guys noted a $9.5 million increase related to North Brawley on page 5. And I was just wondering how much of that is cash versus D&A.

Dan, approximately $2.5 million was depreciation.

Really? Okay. Wow. Got it. And then, lastly on the financing front, any -- well, actually first, on the ITC for North Brawley, any change or indication on potential timing for locking that down, given that the plant's not running?

Well, we expect to -- we're in the final process of getting the (inaudible) for the application. We expect to submit the application in a few weeks.

Will you be able to do sort of a re-up in early '11 I guess, given the incremental capital you'd be spending for the separation stuff?

No. The way the rules work is that you have one shot to submit an application. If you decide to submit it before you incur the real capital costs you are waiving the right to be granted additional capital costs. Our analyses have shown that the [cost-of-money] benefit of an early receipt of the grant out-load the additional grant that we may forego.

Makes sense. And then lastly, any update on the process on the loan guarantees? I know you've been going through the 1703 process for a while. Can you give any color on maybe how that stands and when you might be able to give us some more color? Or is that more defined by the timing on the underlying projects?

The 1703 approval didn't move forward because it was in East Brawley and East Brawley's not moving. So it's not the process in the DOE; it's really the project. 1705 we are finalizing now our submission, so we don't have first-hand experience how long it will take. We hear that it's quite a bureaucratic process.

I was going to say, I'm not sure that anyone else really knows either. But I assume this relates to Jersey Valley or -- ?

Right, it's the Jersey Valley agreement.

Got it. Thank you.

Steve Milunovich; Merrill Lynch.

Are there any liabilities associated with the Blue Mountain project?

Blue Mountain project is back on line in full operation since February 24 or 5 as far as we know.

Okay, so nothing there to worry about. And then, you said something about the $20 million in noneffective Products backlog. Is that in the $77 million backlog that you quoted or not?

Yes, it is.

It is in the $77 million. Okay, that's great. And could you maybe update us on your thoughts on solar? And if you were to do solar projects along with geothermal, would that help the permitting process?

There's a theoretically an advantage in working in an area that is already served where you have transmissions so the issue of transmission, permitting for transmission, if there is an existing plant, becomes a nonissue if you add more solar. But in general, geothermal takes very little space. The disturbance from geothermal is, per megawatt of capacity, is dramatically lower than that of solar. And so, in principle, the delays about more land use, increasing land use and so on, are still there and it's a different application. So little bit of synergy, but not great.

And I know you gave an update recently at the analyst meeting, but any change in permitting speed that you've noticed?

No. No change.

Okay. Thank you.

Dilip Warrier; Thomas Weisel Partners.

Sorry, another question on North Brawley here. So obviously it's going to be a drag on margins this year. All else being equal, assuming it's back on line, or I guess it's on line at the end of the year, would you expect Electricity gross margins to regain sort of their historical levels of 29 to 30%?

Yes.

Okay. Thank you. And then, on Sarulla, I think you mentioned instead of $300 million it's about (technical difficulty) million in revenue over five years. But you also talked about potentially negotiating for additional balance of supply kind of equipment. I was wondering if you could quantify what the additional scope could be.

The numbers that we are still using are quite old numbers that we put out a few years ago when the project was only announced and this is the [product] statement. There is a question of who is going to do the construction, whether we are going to do the construction or whether we are going to use a [subcontracting] contractor. So if (inaudible) does the supply, which is what (inaudible) has been quoting, but it's not official, not updated. And we will update them closer to when we know that the project is really moving into the financing stage. And it may be also some construction activity or a lot of construction activity.

Very good. Thank you.

John Segrich; Gabelli.

Just two questions, if I could. One, as you look at the second quarter, is there going to be any additional D&A coming on for North Brawley or was that $2.5 million the full amount that's going to impact the P&L on a quarterly basis?

And then secondly, can you talk a little bit about your project margins? I'm just trying to understand how with a roughly 50% sequential decline in revenue you're able to show margins that are increasing. Is that because you use percentage accounting there? Or what really drives the underlying margin on a quarter-to-quarter basis on volume?

In the Product segment?

Yes.

The Product segment has two -- two factors which impact the gross margin. One is volume. If you have bigger volume, everything else being equal, your margin increase because fixed costs are divided over a bigger activity. But the other is the variation which exists between contract and contract. Some contracts to start with have a higher gross margin and some have a lower gross margin. And it has to do with the timing, the quotation or issue. It has to do with the competitive market at the time the quotation was issued. So it's not the same. It has to do with the commodity price changes as we are looking into it.

Another explanation is that the [some balancing] for the fixed cost of construction is the manufacturing for ourselves. It may be a quarter where the sales to third party are low but the deliveries and the work done for projects for [ourselves] is high. And you don't see it in the volume numbers but it is impacting the absorption of the fixed costs. So that's the explanation why it is not something that is really predictable.

The first question I didn't understand. Can you repeat it?

Just if you look at the costs that have come on for North Brawley, you said there was about $2.5 million of depreciation in the quarter. Is that the total amount of depreciation that we should be thinking about each quarter or does that number go up in the second quarter because you didn't really recognize a full quarter of having the plant online?

Yes, the plant was placed in service in mid-January, so the first quarter we had two weeks less than what is we're going to go forward, probably.

Okay.

Bryan Yerger; AERCA Advisors.

Most of my questions have been answered, but I'll just go back to North Brawley real quick. What I'm hearing is you're looking at maybe maximum production of around 50 megawatts. Is that -- are you confident that that's going to be done by Q1 of 2011 or are we looking at Q4 of this year?

No. Q1 of 2011 is more realistic.

More realistic, okay. That's all I had. Thank you.

JinMing Liu; Ardour Capital.

Can you share with us some of your view on the PPA market? Because I know some other form of renewable energies are currently facing some challenges in signing PPA, mainly just due to a lower price. What's your view for the PPA market for the next, say, two or three years?

Well, we can only speak from delivery. We have been able to sign (inaudible) PPA this year as soon as we were able to do the acquisition. So our feelings on the PPA market is positive.

Okay. That's all I had. Thanks.

Carter Driscoll; Catskill Investments.

Wanted to just take a step back and rehash kind of the Product segment to help us better understand. Is there a minimum size of a plant that you would attempt to bid on? I mean, there are numerous smaller projects out there. Do you have a threshold at which it doesn't become economic for you to become part of the bidding process or the number of competitors ramps up at, say, a 50 megawatt project? Could you help us understand that, plus the timing of when you would start to engage in the bidding process and how long the resolution would take until the final award is done?

You're talking about the Product segment?

Yes.

We would probably avoid bidding on projects in the range of, say, below two megawatts or five megawatts. I'm not sure exactly where that number is because when it is not economic or economical the chances of it maturing into a PO may be small and we want to manage the effort that we are putting into it. But other than that we are not selective.

Okay. But five is roughly the cutoff?

Depends on the market. Europe has higher energy prices, so much smaller plants could be viable. The US, North America, is more difficult in that sense. But as Dita said, our threshold is really based on our assessment of the viability of the prospect more than anything else. We have equipment that covers all ranges.

And then, just following up with that a little bit, if say the Product segment, you saw a lot more robust activity over the next year or two, is there some type of threshold or limit to the number of projects that you could address? Or is that -- could you scale up your sales effort, engineering effort to address as many projects as you could potentially supply on the equipment side?

There's always a limit of course, but we don't see -- the levels of activity that we do see is not one that is challenging our ability to manage, so we would be very happy to see more activity done by other developers. And if you look closely at the North American market, there is a lot of talk, but the actual work that allows [to release project] has not been done.

And then just lastly, when does that, the discussion, really heat up in terms of supplying the above-ground equipment? I mean, does the entire well field need to be developed? Do you just need to see a successful well being drilled? Help us understand when it really begins to hit your radar screen in terms of being potential revenue for you.

From our perspective?

Yes.

From our perspective it's when there's -- when a customer is interested in -- I mean, it starts from asking for a quote and then is willing to move into definite negotiations. That's our -- this is our threshold. But I would say that -- and so we can answer this a little bit in an indirect way. I think that if the customer cannot self-finance the project, then it's the financing entities that put the bigger limitations on when they're willing to provide the funding. And that's typically -- what I hear today is that typically the request is to have somewhere between 70 to 100% of the production proven or, as they call it, behind pipe. Which requires -- I mean, that requires substantial work on the site.

That's very helpful. I appreciate that. Thanks. That's all I have.

Justin Cable; Global Hunter.

Just a couple questions in terms of for our modeling. One, the gain on sale during the quarter, I can't recall if you explained what that was from?

The sale of -- ?

Gain on sale.

For the subsidiary?

Of the New Zealand subsidiary?

Yes. What's the question? Sorry.

What it's related to.

It's sale of the power plant in New Zealand. The former shareholders had an option to acquire it and they exercised it.

Okay. The interest expense of $9.7 million, should we consider this to be the new base line run rate going forward?

More or less, yes. And it might -- the amount of capitalized interest would increase during the year when we invest more in the new projects under construction. So it might go down during the year.

Okay, great. Thank you.

Lasan Johong; RBC Capital Markets.

On the new Puna project, are we going to have oil-indexed contracts again? Or is it going to be a different type of contract? Hello?

Yes. It will be a different contract.

Okay, that's good. Thank you.

Ben Kallo; Baird.

Just a follow-up, on the potential acquisition, what stage are you at in that acquisition?

It's early stage.

So just initial talks about a potential acquisition or have you actually entered into some type of negotiations?

It's early stage of negotiations, Ben. As much as we can say.

Okay.

Peter Christiansen; Merrill Lynch.

In what phase of the Sarulla construction does your stake take place?

In the release of the equipment is the --

I'm talking about your project specifically, the 43 megawatts.

No, forty -- it's not 43 megawatts. It's 12.75% of the total project.

Oh, okay. So it's not a particular well?

No.

Okay, okay. Thank you.

(Operator instructions.) John Segrich; Gabelli.

Just another quick housekeeping question. Could you give the split of revenues? How much was international and also if you have the megawatts generated, or megawatt hours generated from international?

We don't have that information handy. I'm sorry.

Not even the revenue?

It's about 80% but we --

Dita, it's approximately $47.6 million for the US and $18.5 million for the international projects in the revenue.

Okay. Thank you very much.

And at this time I'm showing no further questions.

So we thank you all for listening to us and look forward to speaking to you again next quarter.

And ladies and gentlemen, that concludes the Ormat Technologies first-quarter earnings conference call. We appreciate your time. You may now disconnect.