Tag Archives: business

South Jersey Industries’ (SJI) CEO Mike Renna on Q1 2016 Results – Earnings Call Transcript

South Jersey Industries, Inc. (NYSE: SJI ) Q1 2016 Earnings Conference Call May 06, 2016 11:00 AM ET Executives Ann Anthony – Treasurer Marissa Travaline – IR Mike Renna – CEO Steve Clark – CFO Greg Nuzzo – SVP South Jersey Energy Solutions Analysts Michael Gaugler – Janney Montgomery Scott Dan Fidell – U.S. Capital Advisors Andrew Gay – Motion Group Chris Ellinghaus – Williams Capital Group Operator Good day, ladies and gentlemen, and welcome to the First Quarter 2016 South Jersey Industries Earnings Conference Call. My name is Sheila, and I will be your operator for today. At this time, all participants are in a listen only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded. I would like to turn the conference over to Ann Anthony, Treasurer. Please proceed. Ann Anthony Thank you, Sheila. Good morning and thank you for joining us as we present South Jersey Industries’ first quarter results for fiscal year ‘16, as well as an update on our business. Joining me on the call today are Mike Renna, President and CEO of SJI, along with Steve Clark, our CFO, and Marissa Travaline, our Director of Investor Relations. We also have several additional members of our senior management team available to help address questions following our prepared comments. Our earnings release was issued to the media this morning and is also available on our Web site at www.SJindustries.com. The release and the associated 10-Q provide an in-depth review of earnings on both a GAAP and non-GAAP basis using our non-GAAP measure of economic earnings. Reconciliations of economic earnings to the comparable GAAP measures appear in both documents. Let me note that throughout today’s call we will be making references to future expectations, plans and opportunities for SJI. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Company’s Form 10-K and 10-Q on file with the SEC. Also, as a reminder, our 2015 per share numbers have been adjusted to reflect the impacts of the stock split that occurred in May of 2015. With that said, I will now turn the call over to our CFO, Steve Clark, to present SJI’s first quarter 2016 results. Steve Clark Thank you, Ann, and good morning everyone. Thank you for joining us. To begin, our first quarter 2016, economic earnings totaled $57 million as compared with $58.9 million in 2015. Economic earnings per share for Q1 2016 were $0.80 as compared with $0.86 for the prior-year period. Strong utility growth, combined with a more than 50% jump in the contribution from our commodity businesses within South Jersey Energy Group, drove economic earnings for the quarter. And with the Revel and Energenic restructuring transactions behind us, the operational contributions from our energy services business has improved considerably. What is noteworthy about the recent quarter’s performance is the fact that it was achieved with nearly $8.5 million less in investment tax credits for ITCs than in the first quarter of 2015. This reduction is consistent with our strategy of substantially reducing investment in solar development, which we discussed on our year-end call in February. With that said, now I’ll review the performance of each of our business lines. South Jersey Gas’ net income of $44.4 million for the first quarter exceeded prior-year results of $42.6 million as a result of strong customer growth and the benefits from infrastructure investments made to reinforce system safety and reliability. There is no difference between SJG’s GAAP net income and economic earnings. In the first quarter, the efforts of our business development team added almost 1,800 new customers in our utility. This helped to bring our current customer count to 375,585 as of the end of the first quarter. For the 12 months ending 3/31/2016, our customer base grew by 1.8%. Conversions have driven the majority of that growth by a margin of roughly 2:1, but new construction has also picked up over the last year. We are encouraged by the signs of life in that market. We anticipate that relative energy prices, combined with our aggressive marketing efforts, will help fuel long-term customer growth. Regulated infrastructure investments made by SJG through two key programs, the accelerated infrastructure replacement and storm hardening and reliability programs, provided incremental net income of $1.9 million for the quarter. First quarter 2016 investments under these two programs totaled $21.3 million. The AIRP, which replaces aging bare steel and cast iron gas mains throughout our system, and the SHARP, which replaces low-pressure gas mains along the Barrier Islands with high-pressure mains, helped to reinforce and better protect our system. We anticipate infrastructure investments totaling $66 million for the full year in 2016. And we expect those investments to add $4.8 million in incremental net income for the year. Turning to another major infrastructure initiative, I don’t have much new to report on the proposed pipeline that provides natural gas to the former BL England electric generating station. As you may recall, we received final approval from the New Jersey Board of Public Utilities in December, allowing the project to proceed. Briefings are due on the appeals in June and oral arguments are scheduled for September. We remain optimistic that we will be able to move forward on this project late this year. In March, South Jersey Gas participated in the official ribbon cutting for a compressed natural gas station in Paulsboro, New Jersey represents a joint project with Wawa, a leading gas station and convenience store chain operating in six states spanning from Florida to Pennsylvania. With seven CNG stations currently open to the public in our service territory and five more planned by SJG in the next year, we look forward to helping mainstream this technology, allowing greater numbers of drivers to realize the cost and emission benefits this fuel alternative can provide. Turning to SJI midstream’s PennEast pipeline project, the Federal Energy Regulatory Commission released a notice of schedule for environmental review in March, which helped identify another milestone for the Partnership. This document establishes December 16, 2016 for the completion of the Commission’s environmental review of the project. Design, engineering and environmental assessments continue moving forward on the approximately 118-mile FERC-regulated pipeline, which is targeted to be placed in service during the second half of 2018. Now we will move to the non-utility side of our business, which is comprised of two business segments, South Jersey Energy Group and South Jersey Energy Services. For the first quarter our non-utility businesses generated a combined $12.6 million of economic earnings, as compared with $16.3 million in the first quarter of 2015. Once again, what is compelling here is the first-quarter 2016 results were only $3.7 million lower than first-quarter 2015, despite the fact that investment tax credits were $8.5 million lower than they were in the first quarter of 2015. Additionally, we achieved this performance during a quarter where the weather was considerably warmer than in the same period in the prior-year period. Looking at these businesses individually, our commodity, marketing and fuel management activities at South Jersey Energy Group contributed $12.2 million of economic earnings for the first quarter of 2016, as compared with $7.8 million in the first quarter of 2015. Optimization of storage and transportation assets produced significant year-over-year improvements, complement by the performance of three active fuel management contracts. The positives more than offset a $1 million decline in economic earnings from our retail commodity marketing activities due to the very mild winter we just experienced. We anticipate that the remainder of 2016 will benefit from two additional fuel management contracts coming online in the second quarter and from the contributions of several large new retail commodity contracts. Our other non-utility business, South Jersey Energy Services, contributed $500,000 to economic earnings in the first quarter of 2016, as compared with $8.6 million for the same period in 2015. Although the variance is very significant, 2005’s sic 2015 results reflect the benefit of $10.2 million of ITC, while the first-quarter 2016 results were achieved with $1.7 million of ITC. Improved year-over-year operating performance at our solar and landfill gas-to-electricity projects came despite lower locational margin pricing, was partially offset by the impact of a very warm winter on our CHP holdings. Disregarding the effect of investment tax credits, operations from this area of the business improved by over $400,000 for the quarter. And with that I’ll turn the call over to Mike. Mike Renna Thanks, Steve. Good morning, everyone. A year ago we introduced a set of four clear strategic objectives, the first of which, to grow economic earnings to at least 150 million by 2020, is the foundation of our plan. I want to emphasize that the 150 million represents earnings from our core business lines in other words, earnings without the benefit of investment tax credits. Effectively, we aim to double operating performance in five years, with 72% to 82% of our economic earnings coming from regulated opportunities, we anticipate, both within our utility and from FERC-regulated projects within our midstream business. We expect that strong customer growth will continue adding to this segment of our business, along with the benefits of infrastructure investment. The contributions Steve highlighted within South Jersey Energy Group from our commodity and fuel supply management business lines are expected to continue growing and replacing the earnings on the scale back of ITC, ultimately contributing close to 20% of economic earnings by 2020. Finally, improved operating performance within our recently reorganized energy production portfolio will provide a contribution of 2% to 4% as we approach 2020. The second tenet of our strategy is to improve the quality of our earnings. As we approach the end of the decade, as I mentioned, 72% of 82% of economic earnings will come from our regulated business lines, and the balance will be derived mainly from contracted assets that reflect a low-risk, fee-based multi-year approach to growth in our wholesale, retail and energy production businesses. This emphasis on regulated and contracted assets is intended to help drive a third key component of our strategy, which is reducing the risk across our portfolio to ensure that we provide not only high quality but also consistent and reliable earnings. And, finally, as we grow, we intend to do so with a stronger, less levered balance sheet. As our investment profile changes and aligns with increased opportunities, around both the utility and regulated projects, we expect to invest more than $600 million over the next two years in our regulated businesses. We plan to fund that growth through a mix of operating cash flow, debt, and equity that will help us maintain a flexible capital structure. We believe this flexibility will allow us to be agile in response to the many growth opportunities in front of us. I am very pleased with the progress we’ve made to date. In addition to strong growth in our utility, we again benefited from improved performance in our wholesale commodity business, improvements driven by the optimization of our storage and transportation assets, and our three active fuel management contracts. We expect to continue this momentum as we begin serving two additional merchant generation facilities in the second quarter and four additional projects, like our recently announced Lordstown Energy Center, lay the groundwork for future growth. The restructuring of our energy project portfolio within South Jersey Energy Services has led to improved operating performance, as we shed our ownership interest in non-core landfill gas to energy assets, while retaining four New Jersey facilities that serve Borgata hotel and casino property in Atlantic City with green electricity under a long term power purchase agreement. And, of course, the write down of our interest in the energy facility at the former Revel Casino last year has put the impacts of that project behind us and allowed us to focus on improving CHP assets, like the facility that has served the Borgata for more than a decade. Looking at the full year, we anticipate strong customer growth, contributions from our AIRP and SHARP programs, as well as our investment in a natural gas liquefier in McKee City, which, when combined with strong performance from our commodity marketing businesses and improved operating performance across our portfolio of energy production assets, will result in double digit growth in our core businesses, meaningful growth in the range of 15% to 18%, which nearly offsets the significant reduction in renewable project investment we’ve already highlighted. It’s important to note that nothing has changed with respect to our 2020 targets. And our plan, as we stated all along, focuses on core operations, in other words, our 2020 target of $150 million never contemplated any contribution from ITC. With the regulated investment opportunities in front of us, and the impact of the recent bonus depreciation extension, we are simply accelerating our plans to scale back investment in renewable projects to focus on executing on our strategy of growth through our core businesses. As we continue to execute on our strategy, and factoring in our intended plans for capital investment and reduced ITC, we are anticipating 2016 economic earnings per share between $1.29 and $1.35. Beyond 2016, as I said earlier, I’m very encouraged by the progress we’ve made to date, and I’m highly confident that we are well positioned to deliver on all four of our 2020 targets. At this time I will turn the call back to the operator for the Q&A portion of our call. Question-and-Answer Session Operator [Operator Instructions] And your first question comes from the line of Michael Gaugler of Janney Montgomery Scott. Please proceed Michael. Michael Gaugler I was wondering if you could provide an update on the potential move to Atlantic City for the headquarters. I know that’s a big chunk of tax credits that you’ve indicated could be available in the past. The reason I’m asking is, simply, in light of the challenges the city if facing right now, perhaps there’s even a better deal to be had. Mike Renna The better deal to be had is a Camden. And we’ve identified Atlantic City as the optimal place for us to expand our business. Quite frankly, not to drag this out, but our current corporate headquarters in Folsom is space constrained. And we happen to sit in an area where we’re both tyne land and deed restricted, so we do not have the ability to expand our footprint here, which is really the catalyst for why we were looking at potentially relocating a significant part of our business. Simply put, for me, I like the idea that, while everybody else is looking to flee the city, we are heading in. I think that with Stockton and South Jersey Gas as the anchors of the Gateway project, it sends a strong signal that Atlantic City’s future is bright. And its future is also, it’s necessary for a diversification of their economy. So, we’re very proud to be a part of it and, yes, there are very significant tax credits and we’ll be realizing them over 10 years. And, quite frankly, I don’t know that Atlantic City, or the state, for that matter, has the money to sweeten the deal at all. Michael Gaugler Okay. Is there a timeline on the move at this moment? Or just exploratory? Mike Renna I’m hoping to get it done before I retire. Things move a little bit slowly in Atlantic City, but we’re hoping to break ground this year, correct, Gina? And we would assume probably 18 to 24 months of construction. So somewhere late 2018. Michael Gaugler Okay. And then just one other I had. You had referenced Mike, midstream opportunities and investments there. And certainly you’ve got a nice one coming up in PennEast. How are you feeling near term about potentially putting a couple more in the portfolio? Are there projects on the drawing boards that look viable? And are you concerned at all about, what we’ve seen in the Northeast in terms of pushback against new midstream assets? Mike Renna A couple of questions. First, yes, we do have a business development group that reports up through Greg Nuzzo, so we’re evaluating different opportunities in the space. I think that there are opportunities for expansion of PennEast potentially down the road, as well. So I’m very bullish on the opportunities that we have in front of us. But again, we are in preliminary stages of development, so it’s a little bit premature to put anything out there other than the fact that yes we are actively looking at opportunities. As far as the Northeast, I think it’s something that’s relatively unique in the United States to this area of the country. Obviously the West Coast has very similar activism but– I’m very encouraged, or very confident, in the project simply because this is a unique project. It is really being driven by demand. Where a lot of the pipelines are being driven by the producers, this is being driven by the market. And the fact that it’s fully subscribe at the BCF, it’s fully subscribed, demonstrates that there is a real need for this product and for this project to go through. So, despite the fact that it’s in the Northeast, and despite the fact that there is a very small but vocal opposition to it, I am highly confident that it will be successful. Operator Your next question comes from the line of Dan Fidell of U.S. Capital Advisors. Please proceed. Daniel Fidell Just a couple of questions from me. First, more of just a clarification question, with the acceleration in the solar wind down, it looks like solar is 13 million or so for the year, targeting, versus 38 last year, how should we be thinking about contributions going forward? You had mentioned 2% to 4% coming from that bucket going forward, but should we assume zero in the next year? Mike Renna In 2017, yes, I would assume zero. I would not expect us, unless something changes dramatically in the market in terms of economics, that we would be making any further investment in renewable energy products. Could there be an opportunity for us to be involved in a CHP project if the conditions were right? Yes. And there’s an investment tax credit attached to CHP projects. But I think as you know, that’s a smaller percentage and that would really probably be the only place we would realize anything from ITC. Daniel Fidell Okay. Great. And just in terms of financing, you had mentioned as part of the 2016 guidance, I think, in the release talking about the finance, you talked about the need for equity and debt as part of the growth funding for the plan. Can you give us maybe a little bit more color of what you’re including in terms of expectations for equity financing into the 2016 guidance number? Mike Renna Dan, I think you’ll appreciate that we’ve got a lot of opportunity in front of us. And the opportunities are in our regulated business lines which is we have discussed before, that is really the foundation of our plan going forward, As I mentioned, we are going to get to 72% to 82% — not that I want to be precise — in terms of contribution from regulated assets. Right now we are just evaluating different financing strategies to support our growth opportunities and we intend on being opportunistic in the timing and the nature with which we meet those needs. Steve Clark And, Dan, this is Steve. When you step back and look at how we’ve laid out our expectations — and we’ve talked in the past about the things that we see in front of us is opportunities to invest in — what a lot of it entails is a lot of our front investment. We are going to put a lot of money in the ground before cash starts flowing from it, so we’ve got to be very cognizant of that as we implement those. Daniel Fidell Okay, great. And then the last question is more about growth opportunities you see in front of you in two tranches. First is, you talk about 600 million or so in investment opportunity,’16 and ’17, and then longer term the 150 million economic earnings per share number by 2020. I don’t know if you can address a sort of each of them maybe in some way sort of on the near term, the 600 million or so, without going into necessarily specifics, or as much as you can, can you kind of bucket that a little bit in terms of big chunks of where that’s — the $600 million will likely flow from? Steve Clark Dan, just to respond to that, as we look at our utility, as an example, I think we’ve got in our forecast about $220 million of CapEx just at South Jersey Gas Company. And I believe next year we’re at that same range or a little bit higher than that next year. So you’ve got $450 million targeted right there. We certainly are looking at, basically the rest of it would be opportunities with regard to our FERC-regulated midstream opportunities. As we look at the kinds of things that we’re doing at the utility, and you take them even out beyond 2017, obviously our focus is on continuing to improve the quality of our system. We’ve had a regulatory environment that has supported folks in New Jersey from making those good decisions to improve and enhance their systems. And that’s exactly what we’re looking to do. When we’re talking about these numbers, it’s really focused on the regulated businesses, and the vast majority of it falls on the utility. Mike Renna Just a follow up on Steve’s, there is no significant planned capital expenditures in our traditional non-utility businesses. And that, I think, echoed in the fact that we’re considerably — or whatever word you want to put on it — reducing our investment appetite in renewable projects this year, and not anticipating any next year. And, again, we don’t have any big development projects in front of us on the CHP side. So, all, if is not all the vast majority, of this spend is in regulated businesses. Daniel Fidell Last question for me and I’ll hop back in queue, just wondering if you’ve got — you mentioned the CapEx spend for ’16 or ’17 but do you have a spend through the 2020 period, a general level of total CapEx that we can peg to? Should we assume sort of a normalized rate that you are guiding here for, 300 million roughly or so annually through the period up to 2020? Steve Clark We’re probably a little heavier now through the middle of the phase, but we’re probably looking at as much as $1.5 billion through that 2020 period. Operator Your next question comes from the line of Andrew Gay of Motion Group. Please proceed Andrew. Andrew Gay In terms of what changed with the guidance from last quarter in terms of the percentages from each segment, did your expectation of overall earnings change, or was it just shifting between the segments? Just trying to understand what drove some of the shift, like the utilities a little less now as a percentage. Steve Clark Primarily just refining things. As we’ve moved forward, it’s just looking at how the winter played out. Obviously, it was a very warm winter so you move a couple things around there. But I don’t think there was anything really significant in the adjustment. Andrew Gay So, then, at the utility, did I hear you right that net income there is up year on year? Steve Clark Yes, that is correct. Andrew Gay And then in terms of the uncollectibles at the utility, you had highlighted them on the fourth quarter call that they were a drag in last year. Do you have any guidance on what that is looking like for this year, just like a year-on-year benefit? Steve Clark We did expect it to be conservatively better this year. We thought we had addressed a lot of the issues last year. We are expecting, and will obviously have to continue along a little bit further into the year, but we are expecting that we will also see benefit out of the fact that we had an extremely warm winter. And while that prevented some of our non-utility businesses from taking advantage of what are typically market opportunities in cold winter periods with a lot of cold weather volatility, within the utility the real benefit is it’s a lower bill for our customers to pay, and it makes it easier for them to pay. We think that’s a net positive to us so we’re expecting a significantly better situation from a receivable collection standpoint this year than we were last year. Andrew Gay Okay. And the 15% to 18% core business growth that you had mentioned, I apologize, I missed what you exactly said there, is that 15% to 18% expectation for this year? Steve Clark Yes. Andrew Gay Okay, for this year. And then, just lastly, I know that you want to be you want to be somewhat sensitive to discuss the amount of equity and timing, but just in terms of the 2020 goal, 150 million goal for net income, any sense of the share count that we should be assuming out there once you get the cash flows and the upfront CapEx and everything is all taken into account? Steve Clark I think probably the biggest issue there is going to be timing of cash flows. But our view on this is that there is going to be, from a significant investment there’s going to be a significant amount of cash that comes rolling in. Ultimately the issue is that you would have expected, as you look out at a 2020 program that we are talking about, and with a lot of the investment that we are talking about, any of the real capital needs and that would also fall in the category of equity capital you expect that to be much heavier at the beginning of the period than it would at the end. And clearly at the end we wouldn’t expect any real equity requirements at the end of that period. Andrew Gay Okay. And just lastly from me, has anything changed in terms of why you’re talking about equity upfront? Given the contracted regulated nature of a lot of the cash flows that will come online, there could have been a thought to let the credit metrics slip a little in the front years because you will get the benefit of those cash flows in the back years. Are you getting pressure from rating agencies? Or this was the plan all along and there hasn’t been a change? Just if you could give a little color on that thought process. Mike Renna It’s been the plan all along. A key component of our plan was to strengthen our balance sheet. We believe it’s the prudent thing to do. But, again, we’ve got tremendous amount of investment opportunity in front of us. As we look at all of these different opportunities, we’re making decisions — discrete decisions — on how best to finance these opportunities. And doing so mindful of — again, we talked about strengthening the balance sheet and minimal dilution, so those are all part of how we are factoring in our decisions. Operator The next question comes from the line of [Steven Ambrosi] (ph) of Castleton Investment Management. Please proceed Steve. Unidentified Analyst Most of my questions have been asked. Just quickly, do you guys have plans in the five-year look-forward to do another general rate case in New Jersey? And can you talk about timing on that and when that would be? Mike Renna We do have plans. When you experience the kind of CapEx that we’re planning on in the utility, it is certainly something that you make plans for. As far as timing goes, no, we have not refined the timing in New Jersey. There are a lot of factors that go into it, particularly off your gubernatorial cycle or election in New Jersey. So, we tend to look at everything from — obviously, business needs are paramount but at the same time we try to factor in some of the social type of impacts. Unidentified Analyst Okay. There was a lot going on before — the BL England comment, what was the comment you made on that in the script? Can you just talk about where that is, where the process is there? Steve Clark Sure. We got approved back in December. It went through a long process to go through the Pinelands. And the Pinelands had taken action to move forward on it, and it required a final approval, in essence, by the Board of Public Utilities. That happened back in December. There were a number of, in essence, appeals that were filed by different groups who were opposing the pipeline for a variety of different reasons. Those are being addressed right now. The expectation, I think I indicated that briefs were due in June, and that the expectation is that the arguments would be heard in September. So, the thought always was, once that got approved that we would have to go through the appeal process. We don’t think the appeals have any merit and we are expecting this thing to continue moving on. Hopefully we’ll be moving forward with it again by the end of the year. Unidentified Analyst What are they appealing on the basis of? Steve Clark There’s a variety of approaches they’re taking. [Audio gap] Some of it had to do with the fact that the BPU was approving it. It had to do with the way that thing was approved. There are certainly people who — well, let’s get right down to brass tacks — one of the processes here as we are dealing with all of the argument again fracking and against fossil fuels and the like, part of the plan is delay. If you can’t kill it, if you delay really, what the process here is, is that they’re going to throw a lot of stuff against the wall and if it creates a delay that’s great. Steven Ambrosi Okay. That’s all I had. Thanks very much, guys. Operator Your next question comes from the line of Chris Ellinghaus of Williams Capital Group. Please proceed. Chris Ellinghaus A couple of questions. One, can you give us some color on where variance in ITC recognition this year might come from? Stephen Clark Chris, when you say the variance, are you talking about the first-quarter variance? Chris Ellinghaus No, in terms of you said up to $13 million. What could make it be less? Mike Renna It’s a couple things. If we don’t have investment opportunities that meet our internal rates, certainly that would be one driver. We’re not going to invest in a sub optimal decision simply because we’ve got an ITC number out there. Second, if we have stronger than anticipated or expected performance in any one of our other business lines that would, again, be a more attractive use of our capital and generate a higher return on our capital. That would be, really, the other thing. Off the top of my head I can’t really think of anything else besides just better investment opportunities. Chris Ellinghaus Okay. Steve, can you give us any elaboration on what you did for equity in the first quarter? Stephen Clark We brought in $9 million, I believe it was, in equity in the first quarter. I’m sorry, I take that back. I’m sorry. It was $5.5 million, but through our DRIP, I think as of April 1, we got another $4 million. So, it was $9 million total as of April 1. What will show up in the quarter numbers is $5.5 million. Chris Ellinghaus Okay. And, Mike, as far as that 15% to 18% number that you quoted us for this year, how are you defining, just so I’m clear, what are you calling core? Is that simply ex ITCs or is that really a different definition? Mike Renna It is ex ITCs and ex any one-time events. So, it really is just the operating profits from Gas Company, Energy Group, and Energy Solutions Chris Ellinghaus Okay. Great. That’s clear. Steve, or anybody, can you just walk us through the supply management contracts and when you expect the un-operating ones to begin? Stephen Clark Sure. Let me introduce you to Greg Nuzzo. This is his maiden voyage on an earnings call. But he is best equipped to give you an update on our fuel supply business. Greg Nuzzo We have three operating contracts now currently contributing, and we have two more coming online this year. There will be five in total that will contribute to 2016. Chris Ellinghaus Both of those are Panda’s? Greg Nuzzo The two additional our Panda’s, Moxie and Liberty, yes. Chris Ellinghaus And the Ohio contract, when does that begin? Greg Nuzzo That’s the Lordstown deal that will begin in 2018. Chris Ellinghaus Is that the most detailed as far as timing goes that you have? Greg Nuzzo In terms of timing for that particular deal? I think in total we have nine that we have under contract. We have two more coming online in 2017, and two additional ones coming on in 2018. Chris Ellinghaus Okay. Great. Thanks for the color, guys. Operator [Operator Instructions] I would now like to turn the call over to Mike for closing remarks. Mike Renna Thanks. Before we wrap up, as always feel free to contact Marissa Travaline, our Director of Investor Relations, our Ann Anthony, our Treasurer, if any follow up questions arise. Marissa can be reached at 609-561-9000, extension 4227, or by email at mtravaline@sjindustries.com. Ann can be reached at extension 4143, or by email at aanthony@sjindustries.com. Again, thank you for joining us today and for your continued interest and investment in SJI. Operator Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Spark Energy’s (SPKE) CEO Nathan Kroeker on Q1 2016 Results – Earnings Call Transcript

Spark Energy (NASDAQ: SPKE ) Q1 2016 Earnings Conference Call May 05, 2016 11:00 AM ET Executives Andy Davis – Head, Investor Relations Nathan Kroeker – President and Chief Executive Officer Georganne Hodges – Chief Financial Officer Analysts Mike Gyure – Janney Montgomery Scott Dan Fidell – U.S. Capital Advisors Operator Good morning, ladies and gentlemen. Welcome to the Spark Energy, Inc. First Quarter 2016 earnings conference call. My name is Andrew, and I will be your operator for today. As a reminder, this conference is being recorded for replay purposes, and this call will be posted on Spark Energy, Inc.’s website. I would now like to turn the conference over to Mr. Andy Davis, Head of Investor Relations for Spark Energy, Inc. Please go ahead. Andy Davis Good morning and welcome to Spark Energy, Inc.’s first quarter 2016 earnings call. This morning’s call is being broadcast live over the phone and via webcast, which can be located under events and presentations in the Investor Relations section of our website at www.sparkenergy.com. With us today from management is our President and CEO, Nathan Kroeker; our CFO, Georganne Hodges; and our Executive Vice President of Retail, Jason Garrett. Please note that today’s discussion may contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Management may make forward-looking statements concerning future expectations, projections of our operations, economic performance, and financial condition. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we give no assurance that such expectations will be realized. We urge everyone to review the Safe Harbor statement provided in yesterday’s earnings release as well as the risk factors contained in our SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During this morning’s call, we will refer to both GAAP and non-GAAP financial measures of the company’s operating and financial results. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to yesterday’s earnings release. With that, I’ll now turn the call over to Nathan Kroeker, our President and Chief Executive Officer. Nathan Kroeker Thank you, Andy. I’d like to welcome our shareholders and analysts to Spark’s first quarter 2016 conference call. We’ve had a phenomenal quarter and we’ve got some exciting news on the M&A front I want to talk about. And then I will turn he call over to our CFO, Georganne Hodges, to provide some detail on those financial results. We will then conclude with questions from our analysts. Yesterday we announced two significant acquisitions that will nearly double the size of our business to approximately 750,000 RCE. Combined, these two deals will provide us with access to two new states and 24 new markets and approximately $30 million in annual adjusted EBITDA. I will discuss the two transactions in more detail after I talk about the first quarter, which was a record setting one. We earned $21 million in adjusted EBITDA and $40 million in retail gross margin as we continue to see expanded unit margins in both electricity and natural gas driven by the current soft commodity environment. In addition, we saw increased volumes in our electricity segment primarily as a result of CenStar and Oasis acquisition in July of last year. As we previously signaled, our RCE count for the quarter remain flat at 415,000. Our attrition improved to 4.3% for the quarter and continues to trend favorably as we are seeing the benefits of our focus on sales quality. This improvement in attrition combined with our higher quality customer adds allowed us to replenish our attrition at a significantly lower cost than in the past. As you saw last night, Spark announced the dropdown acquisition of Major Energy from our parent National Gas & Electric. Major Energy is a retail energy business with approximately 210,000 RCE serving electricity and natural gas customers in eight states. This acquisition adds 15 new utilities to Spark’s current footprint. Major has a very strong management team that has built a very efficient and profitable business and Spark look forward to working with them to share ideas and grow this business. The purchase price is estimated to be $75 million with $40 million payable to NG&E in Spark stock at closing, $5 million in assumed liabilities and an estimated $30 million in earn-outs that are subject to a variety of performance metrics over the next three years. This transaction is back-to-back with NG&E’s acquisition of Major, including the earn-out mechanism that de-risks the transaction by lowering the total purchase price and protecting the EBITDA multiple in the event certain performance metrics are not met. Also announced yesterday, Spark has entered into a purchase and sale agreement for the acquisition of all retail business operations of Provider Power LLC representing approximately 125,000 electricity RCEs in Maine and New Hampshire both of which are new states to Spark and include nine new utilities. The purchase price is $28 million plus a potential $4 million earn-out that is subject to performance metrics for the first year. While the Provider transaction was a direct purchase from the third-party sellers, Spark is working closely with its founder in financing the purchase price payable at closing through the issuance of 900,000 primary shares to Retail Co. LLC for a total of $18 million in cash. While our record first quarter results and anticipated midyear closing of two significant acquisitions, renders our earnings guidance somewhat outdated at this point. I will simply say that we are highly confident in achieving our initial 2016 guidance range of $44 million to $48 million. We are currently reevaluating our guidance to reflect the positive changes we’ve discussed. As previously announced, our first quarter dividend of $0.3625 per share will be paid on June 14. And as we’ve stated in the past, we expect to pay this quarterly dividend on a go-forward basis. Thanks for your attention. And with that, I will now turn the call over to Georganne for her financial review. Georganne? Georganne Hodges Thanks, Nathan, and good morning, everyone. The first quarter was indeed a record setting one for us. We are very proud of our results as well as the two M&A transactions that we signed during the quarter. Our adjusted EBITDA surpassed $21 million compared to $10 million last year, as both of our mid-2015 acquisitions continue to contribute above our expectation. Our gas and power unit margins expanded during the quarter, as we continue to optimize our supply cost in this low commodity price environment. And although the weather continue to be mild, our power volume increased of almost 60% year-over-year combined with the strong margins we just talked about lead to a record growth margin of $40 million for the first quarter. On the customer acquisition side, we maintained a flat customer portfolio of 415,000 RCEs on $2.3 million of spend. This optimized spend result was achieved through our declining attrition rate of 4.3% combined with our improved commission structure with our vendors, which is volume based. G&A expenses were up 2.7 year-over-year, increased customer billing and care cost on our 35% larger portfolio are the primary driver of that but we also had to increase our CenStar earn out due to CenStar’s strong performance. That earn out winds up at the end of June this year. The increased costs were offset by bad debt that has returned to normal levels of less than 1% of our revenue as well as the expected savings on our MSA with Retailco that we talked to you about last quarter. In April, our strong rental results allowed us to completely pay off our working capital loan and begin to build cash. In conjunction with the acquisition that we just announced, we are in the process of increasing the size of our working capital facility from $60 million to between $90 million to $100 million to accommodate those acquisitions and we’re hoping to have that rapped up by the end of the month. That is all that I have, so back to Nathan. Nathan Kroeker Thanks, Georganne. As you can see, we’ve had a great start to the year in terms of profitability, sales quality, and attrition improvement, and we are very pleased with the way CenStar and Oasis continue to perform. We do have our work cut out as we move towards closing and integrating our two new acquisitions in the third quarter and hopefully by this time next quarter, we will be giving you an early indication of how they are performing. With that, we’ll now open up the line for questions from our analysts. Operator? Question-and-Answer Session Operator [Operator Instructions] We have one question from the line of Mike Gyure from Janney. Your line is open. Mike Gyure Yes. Good morning. Can you guys talk a little about the metrics you’re using for the acquisitions? I guess big picture when I look at it looking at the purchase price I guess all-in if you include all the earn outs and everything and your EBITDA, it seems like a pretty low multiple which obviously is a good thing but I guess I’m surprised or am I missing anything when I’m taking a look at that? Georganne Hodges Mike, that’s a good question. And the way we look at it is, we are issuing 2 million shares for major 900,000 shares for provider. So 2.9 million shares call it $60 million and we’re buying $30 million of annual EBITDA. So upfront, we are only looking at a two multiple. When you add in the earn outs that are in both transactions, that total purchase price goes up to our estimated $107 million, so that gets you to about 3.5 multiple. In terms of other metrics of these businesses, I mean the earn outs are tied to EBITDA and customer count in the case of major and some gross margin target and customer count in the case of provider. So I feel like we’ve really projected ourselves around that EBITDA multiple range with the way we’ve structured the deal. Mike Gyure Great. And then maybe a quick follow-up. I guess when you look at the potential for $30 million of EBITDA, I guess what you’re thinking of using that EBITDA to do more acquisitions or what you’re thinking for? How you’re going to use that cash flow once these things close ultimately? Georganne Hodges So both transactions have earn-outs in final payments on them, indicates providers for a year in the case of major through three years. So we anticipate funding those additional payments out of the operating cash flows of those businesses. Any additional cash flow that is available will be used for either organic acquisitions or to fund future M&A transactions whether they would be direct purchases or dropdown transaction. Mike Gyure Great. Thanks very much. Georganne Hodges Thanks. Operator [Operator Instructions] We have a question from the line of Dan Fidell from U.S. Capital Advisors. Your line is open. Dan Fidell Good morning guys and congrats on couple of great acquisitions here it looks like and good prices paid certainly. Just one very quick question from me just on major energy, can you – I know they’re across eight states, can you give us some sense maybe not specifically but some sense on customer concentration across those eight states? Are they more lumpy in a few states rather than others? Nathan Kroeker They are all up in the northeast and their markets that we’re very familiar with all of their customers are in ISOs that we currently have operations in. So when we talk about adding 15 new markets, there are new utility service territories that directly overlap or are adjacent to utility and service territory that we already operate in. So we really look at it is being a great complement to our existing footprint. Dan Fidell Sure. Just wondering in terms of the eight states they are about evenly divided in terms of customers or – of all the states there are couple that are just in terms of concentration, are there a few that are lumpier than others just generally? Nathan Kroeker I would say there is not a big concentration in any one market. They are distributed across markets just like we are. Dan Fidell Very good. Okay. That’s all I have. Thanks very much and congrats again. Nathan Kroeker Thank you. Operator Thank you. [Operator Instructions] And it looks like no other questions that we have in the queue at this time. So I would like to turn the call back over to management for closing remarks. Nathan Kroeker Thanks again for participating in today’s call and we look forward to talking to many of you again soon. Operator Ladies and gentlemen, thank you again for your participation in today’s conference. This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Ormat Technologies’ (ORA) CEO Isaac Angel on Q1 2016 Results – Earnings Call Transcript

Ormat Technologies, Inc. (NYSE: ORA ) Q1 2016 Earnings Conference Call May 05, 2016 09:00 AM ET Executives Rob Fink – Managing Director, Hayden Investor Relations Isaac Angel – Chief Executive Officer Doron Blachar – Chief Financial Officer Analysts Paul Coster – JPMorgan Operator Good morning, and welcome to the Ormat Technologies, Incorporated First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Rob Fink. Please go ahead. Rob Fink Thank you, operator. 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, projections, 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 Ormat’s 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 reason 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 U.S. 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 the slide presentation accompanying this call may be accessed on the Company’s website, at ormat.com, under the Events & Presentations link that’s found on the Investor Relations tab. With all that said, I would now like to turn the call over to Isaac. Isaac, the call is yours. Isaac Angel Thank you, Rob, and good morning, everyone. Thank you for joining us today for the presentation of our first quarter 2016 results and our outlook for the remainder of the year. Starting with slide 4, the first quarter was a great start to the year for Ormat. We executed well, delivering strong revenue and profitability, and our focus on improving our operational and manufacturing efficiency is the main driver for margin expansion and improved results. Both our product segment and electricity segment delivered improved results year after year. Our electricity segment delivered a 20% increase, reaching $108 million, due to higher electricity generation and new expansions coming on line. Our product segment grew 44%, to $44 million, benefiting from several large contracts signed in the previous years. Overall, total revenue grew 26%, to $152 million, which demonstrates strong growth as we overcome the impact of lower commodity prices which continues to affect a portion of our revenue in our electricity segment. In addition, we achieved high gross margin levels in both segments of our business, supporting significant increases in our overall profitability. This performance is due primarily to two factors: first, our balanced business model being vertically integrated; and second, our methodical efforts to improve operational efficiency. We have been focused on efficiency and operational excellence in every aspect of our business, and that effort is reflected in our numbers. I will elaborate on the progress being made and our plans for the future after Doron reviews the financial results. Doron? Doron Blachar Thank you, Isaac, and good morning, everyone. Let me start by providing an overview of our financial results for the three months ended March 31, 2016. Starting with slide 6, for the first quarter of 2016 total revenue increased 26.1%, to $151.6 million, compared to $120.2 million in the first quarter of 2015. Moving to slide 7, revenues in the electricity segment increased 19.9%, to $107.9 million, in the first quarter of 2016, up from $90 million in the first quarter of last year. Slide 8, revenues in the product segment were $43.7 million, an increase of 44.4%, compared to $30.3 million in the first quarter of 2015. Moving to slide 9, gross margin in the first quarter of 2016 increased to 42.1%, from 36.6% in the first quarter of 2015. Our electricity segment gross margin increased to 41%, due largely to new expansions coming on line, improved efficiency at the plant level, and also the transition to a new fixed-rate PPA for our Heber 1 power plant. Part of the increase in gross margin this quarter is driven by timing of operating expenses. We expect a lighter second quarter in the electricity segment with higher expenses that will result in lower margins, on average, in the rest of the year. Our product segment generated 45% gross margin, a particularly strong level for this segment of our business. It was mainly due to the different product mix and different margins in the various sales contracts, improvements made at our manufacturing facility which enables us to shorten lead time, as well as reduction in commodity prices that reduced the cost of raw material in subcontracting. We expect our gross margin in the product segment during 2016 to be higher than normal. The margin should normalize in 2017. Turning to slide 10, operating income for the first quarter of 2016 increased to $50.5 million, compared to $29.9 million in the first quarter of 2015, representing 69.3% increase. Operating income attributable to our electricity segment was $34.8 million, compared to $24 million in the first quarter of 2015, representing a 45.2% increase. Operating income of the product segment was $15.8 million, compared to $5.9 million in the first quarter of 2015, representing 168% increase. Moving to slide 11, net income attributable to the company’s stockholders for the first quarter of 2016 was $29.3 million, or $0.59 per diluted share, compared to $10 million, or $0.21 per diluted share, in the first quarter of 2015. Let me spend a moment speaking on our hedging strategy that is designed to mitigate the impact of changes in commodity prices. We continued to make progress in reducing our exposure to these fluctuations. In December of 2015, the Heber 1 contract was switched to a fixed-rate price, which mitigate our exposure and reduce the portfolio exposed to natural gas prices to approximately 90 megawatts and less than 10% of 2016 expected electricity revenue. Recently, we reduced our economic exposure to fluctuation in the price of oil and natural gas until the end of 2016, by entering into a derivative transaction. We recognized a net loss for this transaction of $0.1 million in the first quarter of 2016, which is recorded within foreign currency translation and transaction gains or losses, compared to a net gain of $0.3 million in the first quarter of 2015 that was recognized in the electricity segment revenue. Please turn to slide 12, adjusted EBITDA. Adjusted EBITDA for the first quarter of 2016 was $80.2 million, compared to $65.3 million in the same period last year, which represents a 22.8% increase. Reconciliation of the EBITDA and adjusted EBITDA is described on the appendix slide. Turning to slide 13, cash and cash equivalents as of March 31, 2016, were $148.5 million. We generated $27 million in cash from operating activities and invested $31 million in CapEx. The accompanying slide breaks down the use of cash during the quarter. Our long-term debt as of March 31, 2016, and the payment schedules are presented on slide 14 of the presentation. The average cost of debt for the company stands at 5.9%. On May 4, 2016, Ormat’s Board of Directors approved payment of a quarterly dividend of $0.07 per share for the first quarter. The dividend will be paid on May 24, 2016, to shareholders of record as of closing of business on May 18, 2016. In addition, the Company expects to pay a quarterly dividend of $0.07 per share in the next two quarters. This concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac? Isaac Angel Thank you very much, Doron. Starting with slide 16, for an update on operations. In the first quarter, we delivered strong results that demonstrate that we are making solid progress on our multiyear strategic plan. Moving to slide 17, we continue to make improvement in all aspects of our value chain. Specifically, we are focused on reducing manufacturing lead time, improving procurement to lower our material cost, and improving management control. This process translates into a significant improvement in gross margin and adjusted EBITDA margins. Turning to slide 18, another goal was to expand our electricity generation, both organically and inorganically. Electricity generation during the quarter was 1.4 million megawatt hours, an increase of 16.4% compared to the last year. This increase was due to commencement of the second phase of Don Campbell and McGinness Hills, power plants in 2015, as well as Plant 4 of the Olkaria III complex in Kenya which come on line in January this year. Beyond expansion, we continue to make plant-level adjustments designed to optimize our electricity generations. These adjustments include the elimination of older and less efficient components and modifying output based on the underlying resource. The goal is to improve profitability, and we are making meaningful process here, as well. In addition, we are also working to monetize the Don Campbell plant and further strengthen our balance sheet as part of our joint venture with Northleaf Capital Partners. Currently, we are conducting the required power generation tests under the agreement to determine the final terms for closing. Following the closing, Ormat Nevada will contribute Don Campbell 2 to ORPD, and Northleaf will buy their interest share. We expect to close this in the second quarter of 2016. Turning to slide 19, another part of our expansion strategy involves targeted acquisitions. We recently signed definitive agreements to acquire gradually 85% of a geothermal plant in the island of Guadalupe. We expect to close this acquisition during the second quarter. This acquisition will be immediately accretive to Ormat CPS. Turning to slide 20, for an update on projects under construction. We plan to add 160 to 190 megawatts by the end of 2018 by bringing new plants on line, expanding existing plants, as well as adding capacity from the recent acquisitions. The expansion plan includes the Platanares geothermal project in Honduras, which is currently under construction, and we expect to reach commercial operation by the end of 2017. We also initiated development efforts in two projects in Nevada. Tungsten Mountain and Dixie Meadows are each expected to generate 25 to 35 megawatts once they come online in 2017 or 2018. While the drilling activity is ongoing in both projects, we are making progress towards securing PPAs. We believe that these projects may qualify for the production tax credit. In Sarulla, Indonesia, engineering and procurement for the first and second phases has been substantially completed, but it’s still in progress for the third phase. Construction for the first phase is in progress, with major activities related to mechanical and electrical equipment installation. The infrastructure work for the second phase is in progress. Major equipment, including Ormat’s OECs and Toshiba’s steam turbines, for the first phase has arrived at the site and currently installed. The drilling of production and injection wells is also in progress for all three phases. The project is still experiencing delays, mainly in field development of the second phase and third phases and cost overruns. With respect to Ormat’s role as a supplier, all contractual milestones under the supply agreement were achieved and main shipment of the second phase is on its way to the site. Manufacturing of third phase equipment is progressing as planned. The consortium expects that the first phase of operations to commence towards the end of 2016, and the remaining two phases of operations are scheduled to commence within the 18 months thereafter. 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 2018. Besides the investment in new projects, we are continuing our exploration and business development activities to support future growth. On slide 21, let me briefly discuss the recent agreement with Alevo. On March 30, 2016, Ormat signed an agreement with a subsidiary of Alevo Group S.A., a leading provider of energy storage systems, to jointly build, own, and operate the Rabbit Hill Energy Storage Project, which is located in Georgetown, Texas. The storage market is one of the most developing, growing, and exciting areas in the energy industry today, and this agreement moves us for the first time into the energy storage arena. We view this market as key to our long-term growth plan, as it helps us to further diversify revenues and support our position as a leader in the renewable energy industry. Under the terms of the agreement, Ormat will own and fund the majority of the Rabbit Hill Energy Storage Project and will provide engineering, construction services, and balance of plant equipment. Alevo will provide its innovative GridBank inorganic lithium ion energy storage system in conjunction with the power conversion systems. In addition, Alevo will provide ongoing management, operations, and maintenance services for the life of the project. We do not expect this first entry into the storage market to generate material revenues for Ormat. However, we do believe this collaboration will allow us to make significant progress towards our expansion in this field. We continue to actively explore opportunities in this area and remain focused on building relationships and collaboration with established technology providers. We believe that such collaboration can leverage our experience, relationships, and project management, and other capabilities. If you could please turn to slide 22, you would see that our CapEx requirement for the balance of 2016 stands at approximately $245 million. We plan to invest a total of approximately $75 million in capital expenditures on new projects under construction and enhancements. And additional approximately $170 million are budgeted for exploration activities, development of new projects, investment in new activities that reflects expenditure under the new strategic plan, and maintenance CapEx for operating projects. In addition, $51 million will be required for debt repayment. Turning to slide 23, for an update on our product segment. Our backlog as of May 4, 2016, stands at approximately $214 million. Moving to slide 24, for a regulatory update. We shared with you the tremendous efforts Ormat’s team is investing in order to accelerate growth of the electricity segment to increase its portion in the future. In addition to shortening the manufacturing construction lead time, we are also investing efforts to shorten the development process. One of the hurdles in the geothermal development is obtaining key permitting in order to test prospect viability. We have been supporting and lobbying the geothermal components of Senator Dean Heller’s Geothermal Exploration Opportunity Act to simplify geothermal exploration review process in the future. Under the Energy Policy Modernization Act of 2015, which passed the U.S. Senate on April 2016, an agreement was reached to approve 29 amendments, including Senator Heller’s Public Land Renewable Energy Development Act, which streamlines permitting for renewable energy projects on federal land. If the bill will pass the House unchanged, it will be significant achievement in improving ability to assess potential geothermal resources faster than before and, by that, to accelerate the development process. Turning to slide 25, for 2016 guidance. We are reiterating our 2016 full-year guidance. For the year, we expect total revenue to be between $620 million and $640 million. We expect revenue in our electricity segment to be between $410 million and $420 million. For the product segment, we expect revenues to be between $210 million and $220 million. We expect 2016 adjusted EBITDA to be between $300 million and $310 million. I’m very pleased with our performance. The first quarter represents a strong start to what we believe will be another great year for Ormat. And that concludes our remarks for today, and I thank you very much for continued support. Operator? Question-and-Answer Session Operator [Operator Instructions]. The first question comes from Paul Coster from JPMorgan. Please go ahead. Paul Coster Yes, thanks, few quick questions. First up, you’ve made tremendous progress in the electricity segment in terms of improving the yield of the existing assets. How far are we, though, from sort of the point of diminishing returns in terms of that focus? Isaac Angel Hi, Paul. Thanks very much. What was the last part of your question? Paul Coster I’m just wondering have you got to the point of having realized the efficiencies at this point, do you still have further opportunities ahead? Isaac Angel Paul, as we explained last year, this is going to be a very long journey, and we barely touched only part of the efficiencies that we have planned. We’re working on a [indiscernible] basis, and we still have a long way to go until we will actually finish all the efficiencies that we are planning to do. Paul Coster Okay. The backlog is continuing to come down. Is there anything being added in to backlog? Or, are we just simply depleting it as a result of the Sarulla project? Isaac Angel First of all, you realize that the $256 million Sarulla project is a very large project and, obviously, it affects the backlog. On the other hand, as I said last conference call, we are making a tremendous effort, and we are in the middle of a journey to increase our electricity segment which will continue to grow faster than in the past. But if we are looking forward, I would not be worried about the backlog. And there is also another thing that you should take into consideration. We decreased seriously our delivery time, for something like from 20 months to less than 12 months, which means that projects that we are signing which used to be for the year after, now they are kicking in within the next 12 months, which makes a difference in the calculation of the backlog. Paul Coster So, in other words, you’re expecting backlog to plateau soon and maybe even start rebuilding? Does that sound – is it possible that would happen within the 2016 timeline? Isaac Angel I’m writing this down, Paul, and I hope it’s going to happen. Paul Coster Okay. My last question is oil and gas prices have actually ticked up a bit recently. Is there any way in which you might start to capture the benefit of a positive inflection in prices before the point at which you move as many of these projects as possible to a fixed rate? Isaac Angel We still have about one-third of our exposure in oil and two-thirds in natural gas, which is barely moving. On the one-third which is going up, it is not something that’s going to change in the near future, which is our Puna power plant, and we hope we are going to catch the increase. And maybe Doron would like to add here something. Doron Blachar Hi, Paul. We took a different approach to the hedging due to the very, very low prices at the beginning of the year. So, we actually are able to enjoy some of the increase in the oil prices, not all of it, but some of it. And on the gas, if the gas prices are relatively stable to the beginning of the year, there isn’t much change. But as prices goes up, it gives a potentially better performance next year with the higher prices on the oil and natural gas prices. Paul Coster Very good. Thank you so much. Isaac Angel Thank you Paul. Operator [Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Isaac Angel for any closing remarks. Paul Coster Okay. Thanks a lot operator. Thank you very much for your continued support during the year, and we are very optimistic, management here in Ormat. And see you next conference call. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!