Ormat Technologies Inc (ORA) 2016 Q4 法說會逐字稿

Good morning, and welcome to the Ormat Technologies Fourth Quarter and Full-year 2016 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Rob Fink of Hayden IR. Please go ahead.

Thank you, Amy. Hosting the call today are Isaac Angel, Chief Executive officer; Doron Blachar, 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 operation, and are based on management's current estimates and projections, future results, or trends. Actual future results may differ materially from those projected as a result of certain risk factors and uncertainties. For a discussion of such risks and uncertainties, please see risk factors as described in Ormat Technologies Annual Report on Form 10-K filed with the SEC.

In addition, during the call, we will present non-GAAP financial measures such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management's reasons for presenting such information is set forth in the press release that was issued last night, as well as in the slides posted on our website. Because these measures are not calculated in accordance with US GAAP, they should not be considered in isolation from the financial statement prepared in accordance with GAAP.

Before I turn the call over to management, I would like to remind everyone that a slide presentation accompanying this call may be accessed on the Company's website at ormat.com under the events and presentations link that's found in the Investor Relations tab.

With all that said, I'd now like to turn the call over to Isaac Angel. Isaac, the call is yours.

Thank you very much, Rob, and good morning, everyone. Thank you for joining us today for the presentation of our fourth quarter and full-year 2016 results and our outlook for 2017.

Starting with Slide 4, 2016 was an excellent year for Ormat as we delivered another year of record revenue and adjusted EBITDA, with double-digit growth and strong execution on all our key metrics. Our Electricity segment performed as expected, as we continued to adjust capacity to maximize efficiency and bring new phases online. In addition, our Product segment delivered another strong year, and we continued to enhance our products backlog. Global demand for advanced geothermal energy remains robust, and Ormat continues to expand its presence in the market through strong execution, solid financial results, resources and industrial leadership.

During the fourth quarter, we entered into a series of financial transactions to leverage and monetize our portfolio, including four key transactions which provided over $200 million in low-cost capital, which will be used to accelerate our growth. Also in the fourth quarter, we announced our entry into the growing energy storage and distributed generation markets, with the agreement we signed to acquire Viridity Energy's assets and businesses. This acquisition is expected to close in early March, and we expect it to provide us with a rapid entry into these fast growing markets.

I will elaborate on the progress we made in our plan for the future after Doron reviews the financial results. Doron?

Thank you, Isaac, and good morning, everyone. Starting with revenues on Slide 6, for the full-year 2016 total revenues were $662.6 million, up 11.4%, compared to $594.6 million in 2015. This increase was attributable to both our Electricity and Product segments, in which revenues increased by 16.1% and 3.5%, respectively compared to the corresponding period in 2015.

Moving to Slide 7, full-year 2016 revenues on our Electricity segment were $436.3 million, compared to $375.9 million for the full-year of 2015. This increase was primarily attributable to the commencement of operation of the second phase of the McGinness Hills and Don Campbell power plants in Nevada in February 2015 and September 2015, as well as the commencement of operations of our Plant 4 at the Olkaria III complex in Kenya in January 2016. The increase was also driven by higher energy rates under the Heber 1 PPA commencing in December 2015 and consolidation of our Bouillante power plant, effective July 5, 2016. Shortly after the closing of Bouillante acquisition, we were able to increase its capacity from 10 megawatts to 15 megawatts.

Moving to Slide 8, full-year revenues for our Product segment was $226.3 million, compared to $218.7 million for the full-year of 2015, representing an increase of 3.5%. This increase was primarily due to higher revenue recognition from the approximately $100 million contract with Cerro Pabellon project in Chile, and approximately $260 million contract of Sarulla project in Indonesia.

Moving to Slide 9 for a look at our gross margin, for the full year, gross margin increased from 36.7% in 2015 to 40.9% in 2016. Our Electricity segment gross margin increased to 40% from 35.5%, primarily due to higher efficiency in some of our operating power plants, as well as lower cost of operations in the new power plants that were added to our fleet. In addition, we benefited from higher energy rates under the Heber 1 PPA and high energy rates under the newly acquired Bouillante power plant. In our Product segment, gross margin increased to 42.5%, mainly due to improvements in efficiencies made at our manufacturing facility, as well as the different product mix and margins in the various sales contracts that most of them were completed in 2016. As we indicated previously, gross margin in the Product segment during 2016 were higher than normal, and we expect them to be lower for the full-year 2017.

Moving to Slide 10, operating income for the full-year 2016 was $201.9 million, compared to $164.1 million for 2015, 23.1% increase year-over-year. The increase in operating income was primarily attributable to the increase in our gross margin in both our segments, partially offset by the $11 million one-time settlement expense. Exclusive the one-time expenses, operating income grew 29.7%. Operating income attributable to our Electricity segment for the full-year 2016 was $126.8 million, an increase of 27.7%, compared to 2015. Exclusive of the one-time settlement expenses, Electricity segment operating income grew 38.7% in 2016. Operating income attributable to our Product segment increased by 16.1% in 2016, compared to 2015.

Moving to Slide 11, for the full-year 2016, net income attributable to the Company's shareholders was $93.9 million, compared to $119.6 million in 2015. Net income attributable to the Company's shareholders for the full-year of 2016 included one-time expenses of $5 million related to the prepayment of our bond and $11 million related to one-time settlement expenses. Additionally, net income attributable to the Company's shareholders for the full-year 2015 included $48.7 million tax benefit and the related expenses that were related to a tax law change in Kenya. Net income attributable to the Company's shareholders, excluding these one-time expenses, was $109.9 million, or $2.19 per diluted share for the full-year of 2016, compared to $70.9 million, or $1.44 per diluted share for the full-year 2015. This represents an increase of 55.1% and 52.1%, respectively. Reconciliation of the net income attributable to the Company's shareholders as adjusted and EPS as adjusted are described on the appendix slide.

Now, I would like to go over a few quarterly financial highlights beginning with Slide 12. For the fourth quarter of 2016, total revenues were $166.5 million, compared to $171.1 million in the fourth quarter of 2015. Revenues in the Electricity segment were $114.6 million, an increase of 17.2%, compared to the fourth quarter of last year, mainly due to the additions of new projects to our fleet, as I mentioned before, as well as increase in revenues from our Puna Power Plant in Hawaii, following the successful recovery of the power plant generating capacity. Revenues in the Product segment were $51.9 million, a decrease of 29.2%, compared to $73.3 million in the fourth quarter of 2015. The decrease was primarily due to lower revenue recognition from new projects in Turkey, specifically in the fourth quarter, and due to the timing of revenue recognition and different products.

Turning to Slide 13, operating income for the fourth quarter of 2016 was $51.2 million, up 4.4%, compared to $49.1 million in the fourth quarter of 2015. The increase was primarily attributable to higher gross margin, offset by lower revenues in Product segment. Net income attributable to the Company's shareholders for the fourth quarter of 2016 was $28.2 million, or [$0.50] per diluted share, compared to $23 million, or $0.46 per diluted share in the same quarter last year.

Please turn to Slide 14. For the full-year 2016, adjusted EBITDA increased 11.2% to $323.8 million from $291.3 million for the full-year of 2015. Adjusted EBITDA for fourth quarter of 2016 was $76.9 million, compared to $79.1 million in the same period last year, which represents a decrease of 2.7% mainly related to the Product segment. Reconciliation of the EBITDA and adjusted EBITDA are described on the appendix slide.

Turning to Slide 15 for an update on our financing activities, as Isaac mentioned, during the fourth quarter, we completed four important transactions, significantly improving our access to cost-effective capital and giving us additional resources to execute and accelerate our plans. In December, we signed a $50 million loan facility agreement with DEG to refinance our investment in Plant 4 of the Olkaria III complex located in Kenya. The loan will mature in June 2028 and bear interest at a fixed annual rate of 6.28%.

In December 2016, we announced that we entered into a partnership transaction with a financial investor that allows us to efficiently monetize the federal tax incentives relating to five geothermal power plants located in eastern Nevada, the investor purchased membership interest in the [Projects Company] for an initial purchase price of $62.1 million, and for which it will pay additional expected instalments totaling up to $21 million through 2022. Ormat Nevada's share of this initial cash proceeds is $55.2 million.

Also in December, we completed the follow-on equity transaction with Northleaf Capital Partners. Northleaf purchased a 36.75% equity interest in the second phase of the Don Campbell power plant for the purchase price of $44.2 million. This price represents a total transaction value of approximately $120 million, or an approximate 11.5 multiple on the second phase of Don Campbell 2016 estimated EBITDA and adjusted EBITDA.

In November, we successfully issued and sold $92.5 million, or 4.03% senior secured notes due in 2033. The notes were issued in private placement transaction and repurchased in total by MEAG, the asset manager of Munich Re. We issued the Senior Secured Notes to refinance the costs of development and construction of the first phase of Don Campbell power plant in Nevada, which we initially financed using equity funding. This power plant is part of the ORPD portfolio which is jointly owned with Northleaf Capital Partners. Ormat shares of the proceeds, net of transaction fees and funding of a debt service reserve account, were approximately $55 million.

Turning to Slide 16, cash and cash equivalents as of December 31, 2016 was $230.2 million. The accompanying slides breakdown the use of cash for the full year. As you can see, we generated $159.3 million in cash from operating activities. Our long-term debt as of December 31, 2016 was $938.8 million net of deferred financing costs and its payments schedule is presented on Slide 17 of the presentation.

The average cost of debt for the Company is 5%, down from 5.9% in the previous year. This reduction is mainly due to the financing activities I discussed before and due to the prepayment of $250 million high-cost corporate bond, with 7% coupon that were due on August 2017, an issuance of $204 million bond with an average interest rate of 4.2%, as well as $6.8 million repurchase of our high-cost OFC senior secured bonds. On February 28, 2017, Ormat's Board of Directors approved payment of a quarterly dividend of $0.17 per share for the fourth quarter. The dividend will be paid on March 29, 2017 to shareholders of record as of closing of business on March 15, 2017. In addition, the Company expects to pay quarterly dividends of $0.08 per share in the next three quarters.

That concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac?

Thank you very much, Doron. Starting with Slide 19 for an update on operations, during 2016, we have added 44 megawatts and increased our fleet to 713 megawatts by bringing new power plants online, integrating an acquired power plant, and expanding existing plants.

Additionally, as you can see on Slide 20, we adjusted the generating capacity of our existing power plants based on their performances. We increased the generating capacity over McGinness Hills complex from 82 megawatts to 86 megawatts, taking advantage of our higher performing resource. While the generating capacity of the Ormesa complex was reduced from 42 megawatts to 40 megawatts in 2016, mainly due to lower performance of the resource. The power generation in our power plants increased by 11.6% from 4.8 million megawatt hours at the end of 2015 to 5.4 million megawatt hours at the end of 2016, mainly due to commencement of commercial operation of the second phase of the McGinness Hills and Don Campbell power plants in the Nevada, and the commencement of operations of our Power Plant 4 at Olkaria III complex in Kenya. Another factor is the contribution of the recently acquired power plant in Guadeloupe which, as Doron mentioned, we were able to rapidly increase its capacity to 15 megawatts.

Moving on to Slide 21, during the fourth quarter, we executed a new PPA to deliver electricity from our Ormesa complex beginning November 30, 2017. The 25-year PPA with SCPPA will replace on its current 30-year [SO4] PPA with Southern California Edison. The current contract has a variable energy rate tied primarily to volatile natural gas prices and will expire on 29 November 29, 2017. Under the terms of the PPA, an energy from Ormesa complex will be sold to SCPPA at a rate of $77.25 per megawatt hour with no annual escalation. We expect to see an improvement in Ormesa's EBITDA of approximately $8.5 million in 2018, compared to Ormesa's 2016 EBITDA.

Turning to Slide 22 for an update on our backlog, we continue to strength our backlog, which as of February 27, 2017 stands on $251 million and includes recent project wins in Turkey that have a significant share in our current backlog. As we have previously disclosed, we expect these new contracts in Turkey to result in overall lower margins for our Product segment compared to previous years.

Moving on to Slide 23, for an update on our business strategy, since 2015, we have begun to implement a number of elements in our multi-year strategic plan as the first element is increasing efficiencies. Turning to Slide 24, we made significant improvements as reflected in our financial results. In Slide 25, you can see the significant and sustainable improvements in Electricity segment margins. Also in the Product segment, the improvement in cost, technology and delivery lead time enabled us to be more competitive and increase our backlog. Regardless of all the significant progress we have done so far, we are continuing our efforts to improve efficiencies across our entire value chain.

The second element of our business plan is organic growth and M&A. Please turn to Slide 26. We plan to add 215 megawatts to 225 megawatts by the end of 2019 by bringing new power plants online and expanding existing plants. In Sarulla, Indonesia, the first phase with 110 megawatt capacity is currently under testing and expected to commence operation in March 2017. To remind you, Ormat share in this power plant is 14 megawatts. For the second phase, power plant engineering and procurement has been substantially completed, site construction is in progress, and all of the major generating units, including those to be supplied by Ormat were delivered. For the third phase, engineering, procurement and construction work at the site are in progress and manufacturing of equipment to be supplied by Ormat is underway as planned. Drilling for the second and third phases is still going on and the project has achieved today, based on preliminary estimates, approximately 80% of the required production capacity and over 85% of the required injection capacity.

In January 2016, we announced that we commenced construction of the 35 megawatt Platanares geothermal project in Honduras. This project, which we expect to reach commercial operation by the end of 2017, will sell its power mainly under 30-year PPA with the national utility of Honduras. We expect the project to generate average annual revenues of approximately $33 million.

We also initiated construction of Tungsten project in Nevada. We expect Tungsten to generate 24 megawatts when it comes online at the end of 2017. Dixie Meadows is at earlier stage, drilling is ongoing and this project is expected to generate approximately 15 megawatts to 20 megawatts by the end of 2018. We believe that both Dixie and Tungsten may qualify for the production tax credit.

In Kenya, we started the construction of a 10 megawatts enhancement that will increase Olkaria III complex to 150 megawatts during 2018. In Guadeloupe, we are planning to increase the capacity of Bouillante by an additional 5 megawatts to 10 megawatts that will be added by the end of 2018, or early 2019.

Another exciting progress is done in McGinness Hills complex in Nevada, where we are developing a third phase to be added to the current 86 megawatt complex. We expect the third phase to be 45 megawatts. We started drilling activities and we are in advanced stage of securing a PPA with a California off-taker. We believe our phased development approach will enable us to benefit from economies of scale for the construction and operation of the complex. On completion, McGinness Hills complex will be our largest complex in the US, with a generating capacity 120 megawatts.

The projects I just described as well as additional projects under various stages of development are expected to support our expansion by the end of 2019. Additionally, our M&A team continues to monitor the market and provocatively search for acquisition opportunities that will be accretive to Ormat.

Moving to Slide 27, besides the investment in new projects, we are continuing our exploration and business development activities to support the future growth. We have a substantial land positions across 35 prospects in the US, Guatemala, New Zealand, Honduras, Indonesia, Guadeloupe, and Ethiopia. During 2016, we enhanced our land position and added eight new prospects in Nevada and Utah in the US. We also enhanced our international position with three new prospects in Indonesia, Guadeloupe, and Honduras. These prospects will support our long-term organic growth in the geothermal market. Our teams continue to make significant efforts to topline growth opportunities, expand our geographical reach, and accelerate our growth goals.

Turning to Slide 28, the third element of our business plan is to expand into new technologies. In 2016, we started to build a foundation to enter the rapidly growing energy storage market. We established a storage group with a dedicated VP, business development managers, and engineers that will lead this expansion. In the beginning of the year, we signed an agreement to jointly build, own and operate the Rabbit Hill Energy Storage Project located in Georgetown, Texas, which moves the Company, for the first time, into the energy storage arena. The project completion is delayed. Towards the end of the year, we entered into a definitive agreement to acquire substantially all of the businesses and assets of Viridity Energy, Inc.

Turning to Slide 29, Viridity is an important strategic acquisition. As many of you know, the demand response energy storage sectors -- and energy storage sectors represent an attractive and growing sectors of the energy market. And Viridity will give us a solid and established presence in this market, including expertise, brand recognition, a loyal customer base and, more importantly, proprietary software and solutions platform that optimize energy management, demand response and energy storage. We intend to use Viridity as a platform to accelerate long-term growth and to expand our market presence. Initial consideration for the acquisition is $35 million to be paid at closing, which is expected early March. Additional contingent consideration will be payable in two installments upon the achievement of certain performance milestones measured at the end of fiscal years 2017 and 2020. We are proceeding with our efforts to unlock significant new value in the energy storage markets and generate, in the longer term, incremental revenue and operating income. Additionally, we continue to monitor opportunities in the Solar PV market that will meet our business plan requirements.

Turning to Slide 30 for a discussion of our capital plans, our estimated capital needs for 2017 includes approximately $165 million for construction of new projects and enhancements to our existing power plants. In addition, we estimate approximately $90 million for the development of new projects, maintenance CapEx for our operating power plants, exploration activities, and enhancement of our manufacturing facility. In the aggregate, we estimate our total capital expenditures for 2017 to be approximately $255 million. In addition, we expect $66 million for debt repayments.

Turning now to regulatory environment on Slide 31, it is unclear to Ormat and to the industry as a whole, how the new administration will impact renewable energy initiatives in the US. However, we are confident that the state-level activity and interest from countries around the world remains robust. A number of new builds were introduced in the last few weeks in an effort to stimulate the renewable energy sector in Nevada and California. In Nevada, a proposed bill titled AB 206 would replace the current RPS targets of 25% by 2020 to 50% by 2030 and 80% by 2040. California is also stepping up to increase its already aggressive target to a 100% renewable by 2045, which is up from 50% by 2030. And earlier in September, Los Angeles approved a 100% clean energy mandate. These fresh examples emphasize the strong support for renewables in the state-level in the US. Outside of the US, in November, the Paris Agreement entered into force, marking the first time that governments have agreed legally binding limits the global temperature rise. We will continue to monitor the political environment domestically and globally, and work with industry groups that focus on advancing renewable energy and geothermal initiatives domestically and around the world.

Please turn to Slide 32 for a discussion of our 2017 guidance. For the full-year 2017, we expect total revenues between $680 million and $700 million, with Electricity segment revenues between $460 million and $470 million, and Product segment revenues between $220 million and $230 million. We expect 2017 adjusted EBITDA between $340 million and $350 million for the full year. We expect annual adjusted EBITDA attributable to minority interest to be approximately $23 million. In the Product segment, we expect the first half and especially the first quarter of 2017 to be loaded both in revenues and profitability due to the final delivery of projects.

In summary, 2016 was another successful year by all measures. We have improved our balance sheet, opened new opportunities to monetize our assets, grown our portfolio, and improved operational efficiency. We have a strong pipeline, with a balanced portfolio of operational and third-party projects around the world. I am confident that Ormat is well positioned for continued success in 2017 and beyond.

This concludes our prepared remarks. Now I'd like to open the call for questions. Operator, will you please.

(Operator Instructions) Paul Coster, JPMorgan.

So, Isaac, first of all on the first half loading on the project revenues, can you just elaborate a little bit? I missed the detail there.

Okay. What I was -- what I'm meaning is that we expect that the first half and especially the first quarter of this year will be loaded on the [product end] comparing to the second half, and you already have our guidance for the full year.

Gross margin outlook at this point and EBITDA outlook, you basically hit your targets. Should we, at this point, really be focused on growth more than margin expansion?

We are expanding our margins for the third year in a row. We don't revise that. The pace of the growth will not be kept going forward as we already hit a serious gross margin on the Electricity segment, which I expected still to grow but in a lower pace. On the Product segment, on the other hand, I expect the gross margins to be lower due to a completely different mix of countries and products that we will be selling in 2017 and 2018 on the expected $251 million of backlog.

And then just one last question, which is, as you know, there's been a bit of noise around some potential strategic interest in the Company, and I think you've issued a press release. Have you received any direct interest from a strategic? And if so, can you provide us with some color there?

Paul, as we said in our press release, the interest was directed to two of our shareholders, which were indicated in the press release. There is nothing here that was directed to the Company for Company sale or asset sales of the Company. If there will be a third-party transaction between interested strategic company buying the shares of our shareholders, it doesn't have much to do with the Company, we will continue to work as we did in 2016, 2017 and going on.

Thanks. Congratulations on an excellent year.

Noah Kaye, Oppenheimer.

May I come back to the question Paul was raising on the margin trajectory? You commented to expect lower gross margins in Product, you talked about the overall trajectory. But if I take the midpoint of guidance, I guess 50% EBITDA margin for -- adjusted EBITDA margin for the whole Company in 2017, that would be 110 bps expansion year-over-year, so I guess my question is, how should we think about underlying margin performance trend in the two segments? And where are you seeing the margin expansion at this point?

On the margin side, you're right. As I answered to Paul before, we expect Electricity margins to go up due to few factors. The first one, as we did, we started our efficiency plan throughout all our assets in the states and around the world about two years ago, 2.5 years ago. We still have a way to go, which will increase our profitability in our existing assets.

The second part, our new coming power plants are obviously coming with a higher profitability, due to the fact that we are talking about more advanced technology, less O&M expenses, and more experience.

And the third part is, we have few power plants, which are not domestic, which are increasing, and they are carrying higher profitability.

So overall, we expect Electricity segment to take the profitability numbers up, but on the other hand, as I said before, on the Product segment, we are expecting lower gross margins in 2017 and 2018 annually comparing to 2016 and 2015. If you recall, about three years ago, Product segments were around 25% to 30%.

Great. So we have structurally underlying improvement in the margin expansion for Electricity segment. So then to get to that Product segment, maybe you can comment -- you've got a very strong backlog. Can you comment into the activity levels that you're seeing in the market as far as your expectations to replenish that backlog?

Okay. You're right. Our backlog today is higher than expected at the end of last year, but this is due to two facts. The first one is, we experienced somehow competition on our Product segments in few countries, which made us go back and make serious efficiencies in our production facilities, [purchasing facility], and engineering, which basically enabled us to compete, but at the same time, it also obviously took the margins to a lower level that they were effected from our Sarulla and Cerro Pabellon project. Our expectation is that, going forward, the growth of our Product segment will be more flat than the growth in our Electricity segment. If you recall, in our strategic session, we already declared that our expectation going forward is to try to change the mix between the Electricity segment and the Product segment with something used to be around 60/40 to something 80/20, obviously 80 being the Electricity. I think this pretty much covers the question, and Doron has an add-on here.

Yes, Noah. I'd just like to add -- as Isaac mentioned earlier, the first half in Q1 are going to be loaded with revenues as well as profitability. So, although we see that on a full-year 2017 Product margins would be lower than the full-year of 2016, the first half and especially the first quarter we expect still to see relatively high margins.

And to your point, your expectations are for a 30% increase in the capacity of the backlog give or take by the year-end 2019. So clearly that is where market growth is. And maybe if I could just ask one last question and it's around the Viridity pending acquisition, Isaac, can you maybe sketch the broad outlines of your expectation for that business? You mentioned some continuing consideration related to milestones. It's an open question, if you can speak to those milestones that would be great. Maybe just give us a sense of how you view the opportunity with this platform, thinking about the potential brownfield energy storage in your footprint of your own geothermal base and the potential overlap between Viridity and high demand management business in your existing core operations. Thanks.

Okay. Obviously, it's a very, very long answer to your question. I will try to be very short. Basically, as indicated in our strategic plan, storage for us will be an additional segment looking to the future. And first, we started to utilize our existing assets and abilities within the Company in order to enter the market, but we realized that we are lacking some parts of technology which will be added onto Viridity and not necessarily only through Viridity but maybe through additional acquisitions that we will do at the same arena. At the end of the day, the numbers for this particular segment for 2017 and the outlook for 2018 are relatively low to Ormat's revenues and profits. But as the segment itself, or the market itself, both before the meter and after the meter, are expected to grow exponentially within the upcoming five years. If we look at our outlook five or more years in the future, we are -- we think the growth in this segment will be much, much higher than the growth in our traditional segments, which our product, as I already talked about, in Electricity. So, it is only an incubation of a phase that will grow exponentially. I'm very optimistic about the growth in the storage arena. And as I said before, we will be concentrating in solutions in both sides of the meter. We are not going into the battery market.

(Operator Instructions) Gerry Sweeney, ROTH Capital.

A question on the US market in terms of how the PPA discussions are going. You highlighted 11 new projects, eight in the US, so there is definitely a little bit of focus as to how this market is developing not only, I guess, from the federal government side, but obviously the states are pushing it, but just curious as to see how PPA negotiations are going in terms of pricing versus your expectations?

Gerry, it's a very good question, which lots of people in the industry would like to have the answer to, including us. We don't know and nobody actually knows where the federal markets are going as you put it. But on the other hand, we still expect we're between 215 megawatts and 225 megawatts by the end of 2019, which means we are optimistic. As you said, there is a push at the state level. We are negotiating, as I mentioned in my script, a California PPA as we speak. We are seeing more upcoming demand or more than demand from few more states. So overall, even though the future is a bit blur, we are optimistic on the immediate (inaudible).

Would you characterize the pricing on the PPA negotiations as in line versus 12 months to 18 months ago versus today or up, down, anyway you can comment on that?

Gerry, we all know that the PPA prices are scrolling down in the last five years. But there is a certain stability during the last 12 months and I'm expecting that the new PPAs to be pretty much in line with what we have.

On the Electricity side, you discussed making process improvements to the fleets. What inning are you in that process? I mean, are you -- I think 12 months ago, you said you were still very early, but today versus where you have to go, how much -- how many more plans do you have to go through and what's the timeline on completion?

You know what? I don't want to give you an accurate number and I don't to be a hold on. But if you give or take, I think, we are beyond the first half and we are already to second half, but not necessarily the efficiencies on the second half by numbers will be as an efficiency in the first half, because they'll forget that first we started with a low hanging fruit.

Got it. Understood. And then one quick, if I may. I mean, you've bumped up some of the power plants a little quicker than anticipated that probably haven't been in some of your slide decks like McGinness. I think, ones from the [1970s], the 83 megawatts to 86 megawatts. Do you have any a little tweaks, other bunch of tweaks in terms of improving power plants in your model for 2017 and 2018?

We are working on a few of them. Yes, we might still surprise you with a few ones, but I think that in the last two years, we are modifying the numbers on timely basis. So, yes, we still have a few to go.

Okay, perfect. I appreciate it. Congrats on a great year, and thank you for your time.

Ella Fried, Bank Leumi.

Well, congratulations on a very impressive quarter and year. On the last question that I think concerns most Israeli investors, if the acquisition of the controlling takes place, what are the chances that the Company will be de-listed from Israel, [some part of] Israeli market? I know that you are not answering on behalf of the controlling stake, but you have some faint idea about the interested party?

Ella, first of all, as you said, I cannot really comment on behalf of the shareholders if they will hold share, but from the Company point of view, we don't have any plans to de-list from Tel Aviv. We have very good Israeli investors, we like the Israeli market, we just issued the bond in Israel not long ago, and we are staying over there.

This concludes our question-and-answer session. I would like to turn the conference back over to Isaac Angel for closing remarks.

First of all, I'd like to thank you for your support during the year -- years and for your support in the future. Regardless the events that are taking place, the Company is continuing as a battleship forward and we have a very -- we are optimistic about 2017, 2018, and going forward. And thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.