Ormat Technologies, Inc.
Q1 2010 Earnings Call Transcript

Published: 7 May 2010

[Operator:]

Good morning. My name is [Watts] 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 question-and-answer session. (Operator instructions) Thank you. I’ll now turn the conference over to Robert Fink of KCSA Strategic Communications. Please go ahead, sir.

[Robert Fink:]

Thank you, Watts. 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 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 these 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 that maybe made that include financial measures defined as non-GAAP financial measures by the Securities and Exchange Commission such as EBITDA. These measure maybe difference 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 website at www.ormat.com under the webcast and presentation link as found in the Investor Relations tab. With that said, I would now like to turn over the call to Joseph for review of the quarter’s financials. Yoram will then update the status of operation and following Dita’s remarks, we will open the call for question. Joseph, the floor is yours.

[Joseph Tenne:]

Thank you, Rob and good morning everybody. We have included certain financial highlights from our company’s statements, preparation and balance sheet in our earnings release and in accompanying slides. I would like now to review the main issues the effective our financial results starting with slide four. For the first quarter of 2010, total revenues were $82.7 million compared to $99.3 million in the first quarter of 2009. As you can see on slide five, this quarter the Electricity segment had revenues of $66.1 million, compared to $62.1 million for the first quarter of 2010. The increase in generation is the results of some additional capacity with North Brawley being the single most significant contributor to the increase and solid performance from most of plans other than Puna. In the Product segment on next slide, this quarter and throughout the year, we expect revenues in corresponding margins to be down from last year’s high 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 seven, 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 increase the cost per megawatt hours 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 eight, interest expense mix 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 $4.2 million decrease in interest capitalize 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 in corporate debt. Moving to slide nine, 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 margin and an increase in interest expense. On slide ten. 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. It’s 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, in 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, 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 event as of the end of first quarter of 2010 is $663 million and it will be repaid as presented in accompanying slide 213. Moving onto slide 14, yesterday, Ormat’s Board of Directors approved the payment of 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. Now, let me turn the call over to Yoram.

[Yoram Bronicki:]

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 in the positive contribution of North Brawley. As we’ve presented in our Analyst 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 removal on our injection streams and we are very pleased with its ability to provide better removal efficiency at the fraction of the operating cost that we have seen with the disposable cartridges. I’ll now move thing to implemented solution on the production wells. As Jose mentioned the high operating costs of this plant have been impact on the gross margin of the Electricity segment. We believe they going forward beyond and expenses will be reduced and the margins will improve. This quarter, we saw a progress in the drilling campaign. However, the results will be seen only in the second quarter. Last month, we connected the new well to the plant in our operating at 25 megawatt range. We are just starting mechanical cleanness 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 show 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 service outline 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 continued drilling. In the first quarter, we completed the acquisition Tuscarora project in northeast Nevada. The Project is in an 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 permitting issues that we need to resolve in addition to our need to prove it we can clearly handover percent to meet our currency issue before it makes sense to move forward and build 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 megawatts. The expansion is to be developed in two phases the first 36 megawatt to be completed within three and half years with finalizing the amendment and then option to commence the second phase within four and half years. The amendment to the existing PPA is subject to applicable governmental approval and the consent of the management 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 self content to leverage our price of $68 per megawatt hour. As a power plants equipment supplier, these developments will have implications to the product side of our business after the financial close, which we expect to happen during the first half 2011. Slide 20 shows the status of the various leases for geothermal resources that we have started expression activity in 15 of this. Slide 21 is a rate case on the product segment our current backlog is approximately $77 million, of which approximately $20 million will be effective upon receipt of the down payment. With that now, I’ve to turn the call to Dita.

[Dita Bronicki:]

Thank you, Yoram. If you turn to slide 23, as to the outlook for 2010, we are reaffirming our guidance with 2010, Electricity segment revenue to be between $275 million and $285 million. We also expect additional $9 million 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 with our 2010 revenues 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 diversified exploration activity the trailing ‘15. 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 operation, annual corporate lines of credit and expected proceeds for the refinancing and the cash grant for North Brawley. Longer term, we will need additional capital that we mainly come from loans, under the DOE loan guarantee program, between 110 megawatts to 150 megawatts for projects under construction and development could be eligible for DOE loan guarantee. We expect to submit our first DOE Section 1705 loan guarantee applications in the next few weeks, assuming we are have able to fund with our ongoing terms of discussion with potential to yield. The balance of the financing will come from the traditional project finance for the international projects both Sarulla Geothermal and we also considering a corporate high yield bundle trend. We will share with you these plans as they move into the implementation side. Our balance portfolio with stable cash flow enabled us to move forward with our growth plans into identify opportunities when the coming along. Consistent with our loan outstanding strategy of growth for organic growth and acquisition, we have currently with discussion regarding relating particular acquisition of a small operating facility. We will of course share review, the news on this transaction, if and as they materialize. Let me end my remarks by saying that our loan terms fundamental drivers are firmly impact as well as our claims to grow our portfolio. I want to thank you for your support and we’ll now open the call for questions, operator.

[Operator:]

(Operator Instructions) Your first question comes from the Paul Clegg of Jefferies.

[Paul Clegg:]

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

[Yoram Bronicki:]

Actually to clarify, we don’t expect dramatic changes in North Brawley, still this year. Our ramp up plans looks at substantial ramp up towards year end. So the effect would be seen later.

[Paul Clegg:]

So even from first quarter to second quarter you don’t expect a major change?

[Joseph Tenne:]

No, we don’t expect any substantial changes neither in the second quarter or third quarter on North Brawley, itself.

[Yoram Bronicki:]

Seasonality of PPA is that do make changes, first quarter and fourth quarter tend to be weaker. So the impact is greater.

[Paul Clegg:]

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

[Joseph Tenne:]

It’s between $20.5 million.

[Paul Clegg:]

Can you repeat that was it $20.5 million or $25 million?

[Joseph Tenne:]

$20.5 million.

[Paul Clegg:]

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?

[Dita Bronicki:]

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

[Paul Clegg:]

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 kind of in 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?

[Dita Bronicki:]

Probably, it’s 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 closure in the middle of 2011.

[Paul Clegg:]

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?

[Dita Bronicki:]

I think the equipment order will come of course financial close is related, there is a possibility that a limited notice to proceed maybe issued a little before financial close, but for planning purposes, we would assume it before financial close.

[Operator:]

Your next question comes from Lasan Johong of RBC Capital Market.

[Lasan Johong:]

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

[Dita Bronicki:]

Opening up, I didn’t see closing up, so I think that the PPA market is still open in service.

[Lasan Johong:]

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?

[Dita Bronicki:]

I think that for quite sometime, we decided not to give the 100 megawatt per year number, because we realized the delays that we encounter in exploration and then in permitting only, permitting and exploration have delayed our ability to deliver 100 megawatt per year. If you look at it, it will be planned to have online by 2013, if it is less than 100 megawatts per year, but if you look at the extensive exploration’s portfolio that we are working on, it may compete a big number, one we are successful in the exploration, and we have also understand that the exploration effort is a risky effort.

[Lasan Johong:]

Last question from me. There’s a lot of market turmoil because of Greece, do you see this affecting the project financing market?

[Dita Bronicki:]

You are talking about the financial market?

[Lasan Johong:]

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 your capital raising?

[Dita Bronicki:]

The project financing, I mean when we look at the financing plans in the foreseeable future, I think the impact of the European market is not going to be substantial for several reasons. I don’t think that daily loan guarantee program will be impacted by the European financing market. Certainly financing of multilateral like the type of financing that we’ve done in Kenya is partially owned from it and what they don’t know is whether the U.S capital market will be impacted right by this and whether the high yield, which is some of our longer term plans not for 2010, but beyond it will be impacted or not, I think it’s too early to say.

[Operator:]

Your next question comes from Michael Lapides of Goldman Sachs.

[Michael Lapides:]

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?

[Dita Bronicki:]

Let me try to simplify it maybe it will be clear. North Brawley is the 60 megawatt power plant. It is operating today 20 megawatt. So by definition, certain costs should be allocated to a revenue coming from a 50 megawatt plant and now allocated to 20 megawatt only, the depreciation, interest financing expenses (Inaudible) some fixed costs in operating the plant. So that’s one part of answer. The other part of the answer is actually (Inaudible) earnings than we were in the first quarter, of course these costs were being higher. We’ve picked them go slightly down in the second quarter, but this is not main reason. The main reason is that low revenue is really high fixed cost related to a 60 megawatt project.

[Operator:]

Your next question comes from Ben Kallo of Baird.

[Ben Kallo:]

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?

[Dita Bronicki:]

Unfortunately, Ben it’s not something that we can identify we’re working with various projects both domestically and internationally, but it’s really hard to tell, when it will be released as a signed contract, but we’re working on various projects both internationally and domestically. I would assume that other than Sarulla, the level of the $80 million, it currently at $90 million per year, $70 million per years. I mean, that’s really, other than Sarulla as far as we can see today.

[Ben Kallo:]

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?

[Yoram Bronicki:]

We expect it shortly in a matter of weeks.

[Ben Kallo:]

So within the next time we talk to you probably on those for Q2 earnings?

[Yoram Bronicki:]

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

[Ben Kallo:]

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?

[Yoram Bronicki:]

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’ll have the permits on East Brawley, but to make sure that the disclosure is clarities there are two independent issues, the technical issue and the planning issue and we wanted to make sure that we talk about both, but I mean you saw the presentation in the Analyst Day, the results from Brawley are very encouraging.

[Ben Kallo:]

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?

[Yoram Bronicki:]

I think Puna is a little ahead of schedule, but this is very early, we’ve been making 25 megawatts out of the time 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 process we do that’s another wildcard in Puna. As for Brawley, hard to tell we think we have a reasonable estimate due to chances we’ll beat it, there is a chance that new challenges will come up. So I don’t think this will change dramatically.

[Ben Kallo:]

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?

[Yoram Bronicki:]

In late slate 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.

[Operator:]

Your next question comes from the line of Dan Mannes with Avondale.

[Dan Mannes:]

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?

[Yoram Bronicki:]

Yes.

[Dan Mannes:]

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?

[Yoram Bronicki:]

Correct.

[Dan Mannes:]

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?

[Yoram Bronicki:]

Actually, I mean it is correct, that this is when we expect the deliveries, but it’s on 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 some palming of third quarter maybe a little are sooner that, but our expectation is not to see much impact of that before the fourth quarter.

[Dan Mannes:]

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 -- ?

[Yoram Bronicki:]

Where does the $9.5 million number come from?

[Dan Mannes:]

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.

[Smadar Lavi:]

Dan approximately 3.5 was depreciation.

[Dan Mannes:]

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?

[Dita Bronicki:]

We were in the final process of getting the (Inaudible) approval for their leave application, we expect to submit the application in few weeks.

[Dan Mannes:]

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

[Dita Bronicki:]

No the way one shot to submit an application, if you decide to submit it before you incur the real capital costs you are waiving that right to be granted additional capital costs. Our analysis has shown that sort of a money benefit of an early receipt of the grant, outflow the additional grant that we may forego.

[Dan Mannes:]

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?

[Dita Bronicki:]

Our 1703 program didn’t move forward, because it was in East Brawley, and East Brawley is not moving. So it’s not the process in the DOE we included the process. 1705 we are finalizing now our submission. So we don’t take to attend the experience how long it will take, we feel that it’s quite a bureaucratic process.

[Dan Mannes:]

I was going to say, I’m not sure that anyone else really knows you there, but I assume this relates to Jersey Valley?

[Dita Bronicki:]

So it is really the remix.

[Operator:]

Your next question comes from Steve Milunovich of Merrill Lynch.

[Steve Milunovich:]

Are there any liabilities associated with the Blue Mountain project?

[Dita Bronicki:]

Blue Mountain project is back on line in full operations since February 24 or 25 as far as we know.

[Steve Milunovich:]

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

[Yoram Bronicki:]

Yes, it is.

[Steve Milunovich:]

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?

[Yoram Bronicki:]

There is a theoretically an advantage in working in an area it has already served. You have transmissions so the issue of transmission, permitting core transmission, if there is an existing plant becomes a non-issue 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.

[Steve Milunovich:]

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

[Yoram Bronicki:]

No, no change.

[Operator:]

Your next question comes from Dilip Warrier of Thomas Weisel Partners.

[Dilip Warrier:]

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%?

[Yoram Bronicki:]

Yes.

[Dilip Warrier:]

Okay. Thank you. And then, on Sarulla, I think you mentioned instead of $300 million it's about the 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.

[Dita Bronicki:]

The numbers that we are still using are quite old numbers that we put out three years ago when the project was only announced and this is their product segment. There is a question of who is going to do the construction, whether we are going to use a (Inaudible) [quality contractor], so (Inaudible) does the supply which is we’ll see [US being in a core team] but its numbers which are not updated and we will update them closer to when we know that the project is really moving into the financing phase. And it maybe also some construction facility or a lot of construction facility.

[Operator:]

Your next question comes from John Segrich of Gabelli.

[John Segrich:]

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?

[Dita Bronicki:]

In the Product segment?

[John Segrich:]

Yes.

[Dita Bronicki:]

The product segment has two factors which impacts the gross margins 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 exist between compounded contracts, some contracts to start with has a high gross margins and some have the lower gross margin. And it has to do with the timing, the quotation or issue. It has to do with competitive market the time the quotation or the issue. So its not the same, it has to do with commodity price changes as we look into it. Another explanation is that 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 they are deliveries ad the work done for projects for [our stakes] is high. And you don’t see in the volume number, but it that impacting the absorption of the fixed cost. 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.

[John Segrich:]

If you look at the costs that have come on for North Brawley, you said there was about $2.5 million of depreciation for 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?

[Dita Bronicki:]

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

[Operator:]

Your next question comes from Brian Yerger of AERCA Advisors.

[Brian Yerger:]

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?

[Dita Bronicki:]

No, Q1 of 2011 was more realistic.

[Operator:]

Your next question comes from JinMing Liu of Ardour Capital.

[JinMing Liu:]

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?

[Dita Bronicki:]

We can only speak from delivery, we have been able to sign the fiscal PPA this year as it is related to do acquisitions. So our feelings on PPA market is positive.

[Operator:]

Your next question comes from Carter Driscoll of Capstone Investments.

[Carter Driscoll:]

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 your resolution would take until the final reward is done?

[Dita Bronicki:]

You are talking about the product segment.

[Carter Driscoll:]

Yes.

[Dita Bronicki:]

We will probably, it’s really bidding on products at a range of say, below 2 megawatts to 5 megawatt I’m not sure exactly where that number is, because when it is not economical the chances of segment, we make the feel maybe small and we want to manage the efforts that we are putting into it, other than that we are not selecting.

[Carter Driscoll:]

Okay. But five is roughly the cutoff?

[Yoram Bronicki:]

Depends on 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 the equipment that covers all ranges.

[Carter Driscoll:]

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 a limit to the number of projects that you could address? Or could you scale up your sales effort, engineering effort to address as many projects as you could potentially supply on the equipment side?

[Yoram Bronicki:]

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

[Carter Driscoll:]

And 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.

[Yoram Bronicki:]

From our perspective?

[Carter Driscoll:]

Yes.

[Yoram Bronicki:]

From our perspective, it’s when a customer is interested in, I mean, first, starts for asking for quotes and then he is willing to move into definite negotiations, this is our threshold. But I would say that and so we can answer this 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 are willing to provide the funding and that’s typically what I hear today as it typically the request is to have somewhere between 70 through 100% of the production proven or as they call it behind pipe, which requires, I mean that requires substantial work onsite.

[Operator:]

Your next question comes from Justin Cable of Global Hunter.

[Justin Cable:]

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?

[Yoram Bronicki:]

India?

[Justin Cable:]

Of the New Zealand subsidiary.

[Yoram Bronicki:]

What’s the question, sorry.

[Justin Cable:]

What it is related to?

[Yoram Bronicki:]

Its sale of the problems in New Zeeland the former shareholders has an option to acquire it and they exercise it.

[Justin Cable:]

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

[Joseph Tenne:]

Yes, the amount of capitalized interest would increase during the year end when we invest more in the new project there on the construction, so it might go down during the year.

[Operator:]

Our next question comes from Lasan Johong of RBC Capital Markets.

[Lasan Johong:]

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?

[Yoram Bronicki:]

Yes, it will be a different contract.

[Operator:]

Your next question comes from Ben Kallo of Baird.

[Ben Kallo:]

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

[Yoram Bronicki:]

It’s early stage.

[Ben Kallo:]

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

[Dita Bronicki:]

It’s early stage of negotiation, Ben, this is not just we can say.

[Operator:]

Your next question comes from Peter Christiansen of Merrill Lynch.

[Peter Christiansen:]

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

[Dita Bronicki:]

The release of the equipment is the…

[Peter Christiansen:]

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

[Dita Bronicki:]

43 megawatts is 8.75% of the total projects.

[Peter Christiansen:]

Okay. So it’s not a particular well.

[Operator:]

(Operator Instructions) And your next question comes from the line of John Segrich with Gabelli.

[John Segrich:]

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?

[Dita Bronicki:]

We don’t have this information handy. I’m sorry.

[John Segrich:]

Not even the revenue.

[Dita Bronicki:]

It’s about 80%, but through (Inaudible).

[Smadar Lavi:]

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

[Operator:]

And now at this time I’m showing no further questions.

[Dita Bronicki:]

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

[Operator:]

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