Tag Archives: cash

MORL: Twice The Risk For Not A Lot Of Fun

Summary MORL is an exchange traded note offered by UBS benchmarked to 2x the Market Vectors Global Mortgage REITs Index. The Market Vectors® Global Mortgage REITs Index is a float-adjusted, market capitalization weighted index designed to measure the performance of publicly-traded mortgage REITs. The index covers 90% the of mortgage REITs. Even though the MORL currently yields an attractive 26% distribution, it has lost significant value since inception, and last year in particular. When we meet with prospective clients, one of the questions we ask is how they have chosen their existing investments, in particular for their retirement accounts. Quite often, especially with do-it-yourself type investors, we will get two answers that make our ears cringe; 1. choosing the funds that have gained the most in the prior year, and 2. choosing the investments that yield the highest dividend or distribution. For anyone who was looking for distributable yield in the past few years, they have most likely come across many leveraged products, including the UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN (NYSEARCA: MORL ) which is currently yielding a mind-blowing 26%. Anyone who had invested in this ETN experienced a noticeable disappointment, and absolutely not the under-promise, over-deliver Starbucks (NASDAQ: SBUX ) experience many learned about and love. Let’s dig in. What is the UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN? MORL is an ETN issued by UBS linked to the monthly compounded 2x leveraged performance of the Market Vectors ® Global Mortgage REITs Index (the “Index”), reduced by the accrued fees. It pays a variable monthly coupon linked to two times the cash distributions, if any, on the index constituents. About the Underlying Index The Market Vectors ® Global Mortgage REITs Index (the “Index”) is a float-adjusted, market capitalization-weighted index designed to measure the performance of publicly traded mortgage REITs. The Index provides 90% coverage of the investable mortgage REIT universe based on strict size and liquidity requirements. The Index is a price return index (i.e., the reinvestment of dividends is not reflected in the Index; rather, any cash distributions on the Index constituents, less any withholding taxes, are reflected in the variable monthly coupon that may be paid to investors of the ETN). The Index was created on August 4, 2011 and has no performance history prior to that date. The UBS ETN was launched on 10/16/2012 with an initial $25.00 per share price. The ETN has an annual expense ratio of .40%. Note: VanEck, the creator of the index also sponsors their own ETF ( Market Vectors Mortgage REIT Income ETF) following this index, trading under the ticker symbol (NYSEARCA: MORT ). It is an ETF that does not employ any leverage. Performance The premise of this product is certainly intriguing, with twice the income of an asset class that is supposed to be safer than typical equities. During times of financial stability, this works out quite well. Unfortunately, mortgage REITs like BDCs and closed-end funds get thrown out with the bathwater during sell-offs and market corrections, without regards that the underlying assets may be sound and stable. Let me explain. The problem with any pooled, daily tradable investment is liquidity. That liquidity is a benefit when you know you are able to redeem your investments any time during market hours. Unfortunately, that very same liquidity and mark-to-market accounting create issues where the underlying assets may be less liquid, such as REITs and BDCs. Liquidity is what creates the need to look at both, the market price, as well as the underlying NAV of the investment. During times of financial instability, the market price per share may be significantly below the actual underlying assets. So how has it performed so far? An issue with looking at investments that have recently launched is that unless the strategy is simply bad, or the active manager is an amateur, it was tough to lose money over the last 5 years in the market. Both MORL and MORT have launched in 2012 and 2011, respectively, so let’s start there to evaluate the performance. I first ran a Morningstar hypothetical test with a $10,000 investment in MORL and MORT, starting at their earliest common date, 10/16/2012, which is the launch date of MORL. As you can see below, if you have reinvested your distributions, a $10,000 MORL investment would be worth approximately $11,624 today. It underperformed the S&P 500 quite a bit, but at least you did not lose money. A $10,000 investment in MORT would be worth approximately $11,498. Wait… a minute. At this point you may be asking yourself… you took twice the risk for a mere $126 incremental return? Yes. Not so fun. (click to enlarge) Ok. What about if you are a typical income investor looking for income to live off of, and did not reinvest any of the distributions? That is what the second illustration is for. (click to enlarge) As you can see, a $10,000 MORL investment would now be worth approximately $6,430 on your statement. A $10,000 MORT investment would be worth a more tolerable $8,444. 2008-like account statements that you would have in 2015. Speaking of 2008, how would this portfolio have performed during that time frame? Unfortunately, none of the marketing materials from VanEck or UBS brings that up. Furthermore, many of the index constituents did not exist prior to 2009. What we do have are 3 mortgage REITs out of the index that do have a trading history. Fortunately, Annaly Capital Management (NYSE: NLY ) that makes up 17% or so of the index has a long trading history, along with MFA Financial (NYSE: MFA ) and Blackstone Mortgage Trust (NYSE: BXMT ). Together, these 3 REITs make up slightly over 25% of the index. You can see the performance of those 3 over the last 10 years below. MFA was the only one able to maintain a positive share price over a 10-year period. NLY is down approximately 32%, and BXMT imploded in 2008 and never recovered netting a 91% loss in share price. (click to enlarge) So how did they do during the peaks of the bear market? Below is a chart from Jan. 1, 2008, through November 1st, 2008: (click to enlarge) NLY suffered a 23% loss, followed by MFA with a 38.8% loss, and finally BXMT with a 72.9% fall in the share price. The thing to keep in mind is that the above are with no leverage. If you were exposed to those companies through the 2x levered UBS note, your losses would be far more severe. Bottom Line Is MORL right for you? Is it really a good product, or merely another idea thrown up in order to generate fees at the expense of foolish investors who are merely looking at yield? For an institution or an experienced professional investor, this article would likely add little that they don’t already know. Those people are also more likely to trade this product, and not invest in it. For a retail investor… listen up. MORL and perhaps even MORT are sophisticated, complex investments that cannot be just bought and forgotten about. They can hurt you very badly, very, very quickly. You must absolutely track them like a hawk with a defined exit strategy in case things go bad. A big thing to keep in mind with MORL is that it is not an exchange traded fund with underlying assets. As with other UBS ETRACS products, it is an exchange traded note, which are unsecured debt obligations of the issuer, in this case UBS AG (NYSE: UBS ). In case of default, your investment is not secured in any underlying mortgage REIT. You would be standing in line with other bondholders with a claim. Besides the zero leverage in MORT, this ETN structure is the other difference between the two products. In case VanEck has issues, your ETF is invested in the underlying mortgage REITs. I do applaud UBS as it clearly makes an attempt to point out that it is a UBS unsecured note and not an ETF on its quarterly fact sheets. The other big warning is… …Don’t Let the 2x Leverage Fool You. In reality, it is far higher. What the marketing material does not go over too well is that the underlying mortgage REITs are already heavily levered. For instance, at the end of Q4 2014, NLY was levered somewhere around 4.8x, and that was a decrease from 2013 when it was more than 6x. What this UBS ETN is doing is applying a 2x leverage multiple to an already levered asset. Remind me again, wasn’t this part of the financial collapse? Is this 2015 or are we reliving 2008 all over again here? Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: None of the information discussed should be considered investment advice or a solicitation to buy or sell any securities. Please consult your investment advisor for specific recommendations.

American DG Energy’s (ADGE) CEO John Hatsopoulos on Q2 2015 Results – Earnings Call Transcript

American DG Energy Inc. (NYSEMKT: ADGE ) Q2 2015 Earnings Conference Call August 12, 2015 11:00 AM ET Executives John Hatsopoulos – Chief Executive Officer Gabriel Parmese – Chief Financial Officer Ben Locke – Co-Chief Executive Officer Analysts Walter Schenker – MAZ Partners Ralph Wanger – RW Investments Roger Liddell – Clear Harbor Asset Management Michael Epstein – Northeast Securities Operator Good afternoon, and welcome to the American DG Energy Second Quarter 2015 Financial Earnings Conference Call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] For your information, this conference is being recorded. As a reminder, a recording of this conference call will be available approximately one hour after the conference call by phone until Thursday, August 20, 2015. Individuals can access the recording by dialing 1-877-344-7529 toll free or 1-412-317-0088 and entering the replay conference number 10070265 followed by the pound sign. Now, I would like to introduce Gabriel Parmese, Chief Financial Officer. Please go ahead. Gabriel Parmese Hi, everyone. This is Gabriel and thank you for attending our second quarter 2015 financial conference call. Safe Harbor provision. Various remarks that we may make about the company’s future expectations, plans and prospects constitute forward-looking statements for the purpose of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. We may make forward-looking statements about our future financial performance that involves risks and uncertainties. These risks and uncertainties could cause our results to differ materially from our current expectations. We encourage you to look at the company’s filings with the SEC to get a more complete picture of our business including the risks and uncertainties just mentioned. Also during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of the non-GAAP financial measures used on this call to the most directly comparable GAAP measures is available in our press release and in the accompanying tables that we released. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. And with that, I’d like to turn the call over to John Hatsopoulos. John, are you at mute? Ben Locke Yes, John, we can hear you fine. Gabriel Parmese Go ahead, John. Ben Locke Well, maybe what we’ll do operator is, I will go ahead and start the call and then we will have John join us for some remarks at the conclusion of my discussion. So as Gabriel said, welcome all of you to our second-quarter earnings call. Before I go into a review of our second quarter, I just want to do a quick reminder for those of you who may not be familiar with our call [ph] of our business. ADG and Eurosite Power are in the business of selling energy in the form of electricity, heat and cooling to customers who wish to save money spent on traditional sources of energy. We own the assets that produce energy on-site and earn revenue as the customer pays ADG at discounted rate for electricity and heat or cooling. This model called On-Site Utility or OSU is quite common and practical with energy technologies such as wind, solar and cogeneration systems. The OSU model is an essential part of any distributed generation infrastructure since not every customer has the capital or financial flexibility to own the asset outright. I’d like to also reiterate to our investors what the main focus of the company has been over the past two quarters and how it relates to our plans for growing company in the future. My main focus for the company since becoming co-CEO has been to improve the operations of our existing fleet in order to increase productivity by optimizing our margins. As our results confirmed, we are seeing solid improvements in our margins. I believe demonstrating robust and consistent margins for ADG is the most important metric to guide our business forward since it’s the basis from which we can resume building the business, confident that each new project will return margins that will lead us to profitability as quickly as possible. With this theme in mind, while our second-quarter revenues were essentially flat as compared to Q2 2014, our overall gross margin without depreciation improved 34.5%, a solid improvement over our gross margin of 28.3% last year. Our efforts to improve fleet performance are even more demonstrated by the improved margin of the ADG North American operations which increased to a little over 38% in the second quarter. And as our press release indicated the company achieved positive non-GAAP cash flow from operations as a result of tax incentives received by EuroSite. Excluding this UK tax incentive, ADG still showed improved EBITDA cash flow as compared to 2014. In terms of sales development in the second quarter, we announced the sale and installation of 2 Ilios heat pump systems in Hawaii this quarter. These heat pumps offer tremendous savings as compared to traditional heating systems and Hawaii is turning out to be an emerging market for ADG sales efforts. We also announced yesterday a contract for the design and construction services of the 2 Times Square hotels. This contract leverages our experience with boiler room construction projects and is expected to lead to more projects with this hotel chain. And lastly, EuroSite continued showing good growth in the quarter by announcing two contracts for systems in the UK. For those of you that listened to the EuroSite call earlier this morning, Paul Hamblyn is making great progress, with revenues increasing 30% and operating expenses decreasing 26% compared to the Q2 2014. And as mentioned, the cash inflows from the UK energy tax incentives resulted in overall non-GAAP cash flow positive for the quarter. Before going into detail about how our fleet performance has improved, I’d like to remind investors that our fleet consists of three segments. ADG owned and service sites, EuroSite owned and service sites and sites jointly owned and serviced with our LLC partner. As I described in a conference call we held on June 23 as well as our annual meeting call, in the second quarter we formalized a reallocation of the LLC sites resulting in ADG adding 8 sites consisting of 13 units to the ADG controlled fleet and 7 sites consisting of 9 units being dispatched to our LLC partner. The remaining 5 sites consisting of 16 units will remain in the LLC but ADG will assume operational control over these systems. Now that this reallocation is complete, ADG has complete control over the added sites, allowing us to determine each site’s potential for improved productivity and profitability, possible extension of the OSU agreements and in some cases expanding the OSU to include new systems on the site. We’re now in the process of making improvements to a number of former LLC sites. Some of these improvements are minor resulting in minimal downtime. Other improvements require more effort resulting in longer downtime. We fully expect to have a small dip in revenues in the third quarter as a result of this work but the long-term benefits of the improvements far outweigh any short-term revenue reduction, and as I already mentioned, we are approaching certain former LLC sites with new OSU propositions that will improve the customer savings and secure long-term profitable revenue for ADG. With this reallocation now complete, our fleet now consists of 119 systems, consisting of 76 ADG controlled systems, the 16 systems still in the LLC and 27 systems in the UK with EuroSite. So turning to the ADG North American fleet. We saw an increased productivity of 12.5% as compared to Q2 of 2014. When including July numbers, which also increased 12.3% from last July, this marks nine straight months of increase productivity for our North American fleet. While our revenues do not always track linearly with these productivity increases due to variations in gas and electric prices, it is a solid trend that we expect to continue. As described on the EuroSite earnings call, EuroSite total energy production increased 44% from Q2 2014 and EuroSite added 2 systems into their fleet in the second quarter, also reaching an agreement for an additional two systems to be installed later this year. So turning back to sales for our North American operations. We have several strong sales prospects that we expect to close in the third quarter. As I mentioned on previous calls, we have instituted a new layer of project evaluation and analysis prior to accepting any new OSU arrangements. It is essential for our future growth that ADG only accepts projects that will assuredly deliver the promised revenue and margins that our analysis projects. In many cases, we are now requiring that M&V or measurement and verification be conducted prior to closing OSU agreement. This step adds time to the closing of the OSU project but ensures that the actual electric and thermal load profiles match our economic analysis and therefore validates our ROI projections. Many OSU projects look good on paper but only through M&V and construction cost verification will these projects return the ROIs expected by ADG. With that said, the backlog of projects we are seeking to close, all meet the stringent criteria for success. I am working very closely with the sales team to make sure that we only accept jobs that will meet our projections since these will be the projects that materially contribute to our revenue and profitability goals. So in summary, I strongly believe that ADG’s business model is vibrant. The fundamental economic drivers for our OSU model remain strong. Electric rates continue to rise, natural gas remains affordable and customers continue to value the resiliency to grid outages that fatigue co-gen equipment provides. We have made excellent progress improving the performance of our North American fleet, the upgrades of former LLC sites for optimum result and higher revenue with good margins. And EuroSite is making tremendous progress in the UK and we expect more project announcements in the coming quarter. All in all, I believe 2015 will demonstrate that ADG business is strong and the goal of reaching cash flow positive operations by 2016 is achievable. With that, I’d like to turn it over to John for a few comments before we take questions. John Hatsopoulos Ben, thank you very much. The phone kept coming on and off, I don’t know what happened but anyway, ladies and gentlemen I wanted to thank Ben for the fantastic job he has done in straightening up and solving some of – most of our problems that we have at ADG. We obviously think very highly of the prospects of ADG and some of you might not know that we have been buying our stock and we have bought in excess of 800,000 shares in the open market and probably we need to talk to our board, we will probably continue to do something like this for a while, as long as our stock is trading at a discount to our cash plus the value of the shares of EuroSite that we have. As you know, we have a little over 28 million shares of EuroSite which represent about 48% of our assets. With that, again, I want to thank all of you for being on the call. Ben, I don’t know if Gabriel needs to say something. But again, thank you. Ben Locke Operator, I think we are ready to take questions. Question-and-Answer Session Operator [Operator Instructions] Our first question comes from Walter Schenker of MAZ Partners. Walter Schenker To what extent can ADG ex-EuroSite become cash flow positive through improving the current operations or to what extent do you have to add additional units to get you to that point, and if so, roughly how many additional units might it take to get you there? John Hatsopoulos Go ahead, this is your question. Ben Locke Yes, Walter, I can answer the question. This is Ben. So we have looked at that exact case very precisely what it’s going to take for ADG absent EuroSite to reach cash flow positive operations. And it’s going to be a – I mean this effort that we’ve undergone to improve our margin and increase productivity, of course, it’s very important to get the most out of our fleet but to me I really needed to demonstrate that any projects we get on board are actually going to return good margins of 35% or so. And I am convinced of that now. And so with that in mind, we do have a backlog of projects and unfortunately I can’t tell you the exact size of the systems and how many it is but it’s enough systems that we can install in a few quarters time that will indeed get us to cash flow positive operations in 2016. So what we have to do right now is we have to close those deals and as I mentioned, we are doing M&V on them right now. We need to close those deals, we need to get them installed, we have sufficient capital right now to install those systems, we don’t need to raise additional money to install those systems that we need to get there, and get them up and running in the next few quarters. I will give you a ballpark figure, under 10 systems that we’re going to need – we have identified in our backlog to get installed and get us to cash flow positive even without EuroSite. John Hatsopoulos Again, maybe Gabriel should say what was the operating loss of American DG US without EuroSite, because it was a very small amount. Gabriel Parmese Yes, hang on, give me one second. For the quarter, right? Ben Locke Yes and while Gabriel is looking that up, Walter, I mean a part and parcel of this plan is also looking at our expenses. Gabriel Parmese 149,572 – 149,000, this is a bogey [ph] that we have to reach for North American. Ben Locke And I think that’s very achievable. Operator Our next question comes from Ralph Wanger of RW Investments. Ralph Wanger What is the size of our sales force now and is it sufficient to handle – or we have to add more sales — Ben Locke Yes, Ralph, I can answer that for you. Our sales force consists of a couple of different elements. Of course, we have a direct sales team on staff at EuroSite and it’s a very senior salesperson and then an associate working with him. Supplementing that and in fact the way these sales work a lot of time is some of the engineers that we have end up doing – since they do a lot of interaction with the customers, they end up doing little bit of sales. But the real supplement to the sales team where we have these sales agents so that we’ve anointed, I guess, for lack of a better word, who find projects for us, help negotiate and close them, and they get a commission. So again for ADG sales team, it’s a senior person plus an associate, with some assistants from the engineering team and myself for that matter, and then a network of over dozen of sales agents helping us. Ralph Wanger And is that sufficient to bring in enough business to — Ben Locke I think it is. The problem is not getting enough leads. We get plenty of leads, our sales team is very effective with all the traditional methods of conferences and outreach and all that, and getting plenty of leads, the trick is to find those really good projects, that are going to get the margins that I am expecting. I absolutely do not want to be accepting projects and orders just for the sake of announcing we have projects and orders when in fact they’re not going to give the margins that we are going to need to be successful. So maybe much to the dismay of our sales team, being very diligent about only accepting the orders that are good. So I think our sales team is doing fine coming up with the leads and coming up with proposals, we’ve just got a much tighter filter right now to make sure that we don’t take on any poor projects. Operator Our next question comes from Roger Liddell of Clear Harbor Asset Management. Roger Liddell Good morning. I wanted to follow up just one definitional thing. We expect to be cash flow positive by 2016 was the comment [indiscernible] definition. So can we talk in terms of meeting by the exit rate of fourth quarter of ’16 or is the whole year likely based on what you can now say? Gabriel Parmese For EuroSite, we want to accomplish that by – sometime around the second or third quarter of next year. And we are hoping for the fourth quarter this year, so the timing is uncertain but rates plan of this – I think for ADG we are hoping for – we are shooting for the start of the process in the first quarter of next year, the second quarter the latest. Ben Locke The reason that timing is a little shaky, Roger, just to be totally honest with you, is once we close the project, as you know there is a construction phase, and a whole lot of separate topic is how I am looking at doing construction going forward, the ADG is trying to get that to be quicker. Once – ex the timing of the construction when they get up and running and when those revenues start coming in. So again building up the comments I made earlier, we know the projects right now that we need to close and install. We don’t have some placeholder project X or something, we know the exact projects, the exact sites that we need to install in the next months or so to get up and running to get us cash flow positive. John Hatsopoulos We are not talking about the end of 2016. Roger Liddell Second thing, there have been encouraging wins over the Tecogen site with school districts, and school systems, and I am wondering whether there is a thesis for school districts looking at the ADGE model relative to just take at the straight heads up financing of the conversion projects or the upgradings, so can you just give some discussions and texture – doesn’t have to be school districts but municipal opportunities which importantly include school districts? Ben Locke I can answer that a little bit, Roger. There are large ASCOs that come in to play for these projects and the acronym is must be the way, municipalities, university, schools and hospitals, and you will hear that acronym a lot when you look at Johnson Controls and Siemens and Honeywell’s ASCO businesses and the reason is that they have the capability and the might to really tackle those projects from the shoot to nut [ph] standpoint, window replacement, insulation, solar, wind and again CHP ends up being a part of it. So ADG really can’t compete with the Honeywell or Siemens that come in and will do an entire school system not to mention the fact that the name power of those large ASCOs basically carries the municipalities. But with that said, it is – you are exactly right that it is very encouraging that these ASCOs as Tecogen indicated are including CHP and there are efficiency measures because it’s really validating that CHP is a big contributor to all these efficiency measures. I think even though ADG, I don’t think it is going to be able to go into a school district and do K through 12 enhancements of the entire district. It does validate that we can find some sites, some projects that might be schools or might be smaller hospitals that will be willing to look at the ADG proposition for CHP. Roger Liddell And Hawaii, my understanding of the electric rates out there, it’s a tremendous opportunity, I do not know that the demand churns characteristics of Hawaii E but only two units so far and I would be surprised if there weren’t a major opportunity there, granted the support of Hawaii E business may be a gating factor, so could you touch on both of those? Ben Locke Sure. Hawaii E is really a great market opportunity, not just for American DG but obviously Tecogen. And in fact, ADG and Tecogen strategy is very well aligned here with our approach to Hawaii, which is – it’s a very dangerous proposition to go to a remote location like Hawaii and immediately start putting co-generation systems down, in fact, Hawaii went through a phase about 20 years ago where as a company dropped the bunch of co-gen units down or maybe more than 20 years ago. A company dropped a bunch of cogen units down and left, never service them, they ended up running, they ended up all getting disconnected and left a bad taste of cogen in the mouths of Hawaii Electric and lots of consumers there. It’s very important that when you go proceed with a cogen in a place like a remote place like Hawaii that you have a factory service presence there, to make sure you maintain these systems. So the way you get there and this is where ADG and Tecogen are aligned. As you start off with a product that can be managed — relatively manageable in terms of a service interval and Ilios is a perfect example. The Ilios doesn’t require a tremendous amount of service intervals. You can typically find people on the ground who know engines and know HVAC and refrigerants and things like that. And so you can outsource the maintenance of that very easily and start to build up of fleet to the point where you get to a fleet, my goal is to get to an Ilios fleet of maybe 8 or 10 units, where you can now see of having a factory service person on the ground there. Once you’ve got that factory service, now you can contemplate, in fact, the next step would be chillers, like Tecochills which have just as promising economics as cogen, where it uses your resilience, your reliance on the grids as much as cogen does. And then build up to the point where you get cogen on the ground. So for a long way of answering your question, Roger, that you are absolutely right. Hawaii is a perfect market for Ilios, for Tecochills and for cogen. We just have to be careful about how we deploy putting these systems on the ground whether Tecogen sells them or ADG does the whole issue, to make sure that we can support them. Operator Our next question comes from Michael Epstein of Northeast Securities. Michael Epstein Ben and Gabriel, I thank you, I see that we have an elevated management team that we might have had a few years ago. I guess I am looking that we hear the commitment from management that next year’s annual meeting will be at the office in Boston, so shareholders can participate and give ideas and have some interactions and meet management. Can I get that commitment from the management? John Hatsopoulos No, Michael, look, we will have our annual meeting – number one, all management is available to talk to you and every investor any time you wish. We have to do whatever is best for the long term of the company. As of right now, our plan is to do it in Boston. But we cannot give you a guarantee right now that some countries for example, two weeks ago I was in Canada with the largest producer of paper, if something develops there, we might end up doing it in Montreal but as of right now we will do it in Boston but we will not guarantee to you. Michael Epstein Next one of my question is it’s so natural for the gas utilities to give us leads so they can sell gas, we can install the unit and get a fee on how we pursue that as a source of potential clients. John Hatsopoulos We are talking to one partner who is part of the utility who has a separate division who wants to sell electricity to some of our customers, and also wants to edge our gas, and then I think we have a good fit but it’s in the lead stages right now. So we are talking to folks right that. Ben Locke In addition, we also have through Tecogen very good relationships with SoCalGas in California. They are constantly developing leads for Tecogen and if it turns into an OSU agreement, those leads right go to the ADG sales teams. So you are absolutely right, Michael, working with the gas company as – to define projects as an excellent way to go. Michael Epstein Certainly a filter for getting potential leads. I guess my next question is about this Time Square hotel, where are you just selling them and installing equipment that we sell them a long term contract to – for services, or for using gas. So we make a spread on that, or just as this – just the contraction project. Ben Locke We are doing the construction, engineering and construction management phenomenon, we don’t have a long term services but I will tell you, Michael, why we are doing this because you maybe say what the heck do you think for? It is a very high prophet hotel chains. I would say tell management copy, you wouldn’t – the name wouldn’t make any sensitive but it’s a hotel management company that has several hotels that we’d like to get OSU agreements into and a way of building confidence with this management company, we are doing this project and it’s very pretty good, it’s good margins, and it’s good use of our engineering efforts and it’s pretty good margin – it’s good margins, it’s good use of our engineering efforts and I think they are pretty hard with what we have done so far. But the real goal here is to get a relationship with this hotel management company that will eventually lead to more OSUs. Michael Epstein We have such a bit image in the close stock market, why don’t we change our name to on-site utilities, and try and get a different image possibly and reserve in split, do some investor relations PR, so people understand that the model that recovering assets of now – potentially it seems to be lost along way when the stock decline precipitously decline, we lost all our following. What is the management’s thoughts on that? John Hatsopoulos Uptil now we have tried to avoid hiring and IR team in our company.IR firms, I have found as you know, our at turbo electron as the CFO for over 45 years. And I drew the conclusion that IR did not have an IR. You need to have build employees the bob and we understand into upsurge, a lot of failures in the thermal electron, we ended up getting people like [indiscernible] who is right now running the IR electron. We have Gabriel, I am doing interviews so right now people that we will put as employees of our company to help us who they are. Now as far as the name, it’s very interesting and I am going to bring it up to the next board meeting, lot of our best investors are great, so I don’t mean to share anything bad about anybody else. It suggests that we removed the name and energy from American DG and I am going to bring it up to our board meeting for a very simple reason, he thought is that people think of us as an oil company or a gas company and the oil energy is a negative. One of our people, employees of ADG remain with Christine and we received around various interviews, Christine check and maybe ADG, without the name energy is available. When we start as a company, owned by somebody and we recoup those – that’s why we added the word energy. So we are – I am going to propose or suggest that we have a discussion with our board about removing the word energy. I am not going to tell you who suggested that to me but it’s one of the people that are on the question and answer session today. Michael Epstein Few questions. One, you have Gabriel and Ben, they seem articulated and they would actively give a very good image of the company if we use them on certain basis for investor relationships and investor relationships. Just taking the name energy out, doesn’t really transform you that much. On-site utilities is more descriptive, it’s a great image and it really tells when you’re working, what you really do, you’re putting a facility – you’re putting on equipment on their facility and savings are savings. It seems to be that we can’t seem to close deals. I haven’t heard of any real significant deals closed when your prior president was where you had like how you just proposed and how many are out for contract. We don’t seem to have that anymore. Why is that? Ben Locke Again, Michael, this is Ben. My overall team in turning the company around is to demonstrate performance, demonstrate the fast units margins that we expect to make demonstrates that the model work, and only then start replicating that accepting new projects. As I mentioned before, I can close 10 deals tomorrow if I wanted to. I could sign 10 OSUs tomorrow if I wanted. But I know they are not going to be really good margin, solid projects, I am holding out for the few handful of projects which as I mentioned before, I know the names, we are about to close them, and they are the ones that are going to be cash flow positive. Those are the ones that are going to have good margins and revenues and we’re going to build the business on. And I just want to mention one more thing to you that I didn’t mention earlier. EuroSite actually does have a relationship with Dong [ph] Energy in terms of natural gas, so that’s certainly a high up on the radar of Paul Hamblyn from the EuroSite side. John Hatsopoulos Mike, having said all this, on our board meeting, I have mentioned a suggestion, we have a powerful group of directors and Charles Maxwell is one of them who is our Chairman, the other one is John Rowe and so forth, so the other one is Dr. Samaras and so forth, we will have a discussion on it and he has agreed and I will give you both. Operator And our next question comes from Thomas Orr, a private investor. Unidentified Analyst My first question was kind of asked by the last caller, it had to do with the contract you announced yesterday. It wasn’t an evaluation but I was curious if you can talk about what the rough value to ADG would be of that contract if you can, can you do that or no? Ben Locke Tom, unfortunately our agreement with this hotel management chain precludes us from mentioning the actual contract value and as I said these are people who are really trying to get good gracious with. So we are abiding by their wishes. Unidentified Analyst I understand the value to doing that is, is the level of profitability to gross margin on a turnkey piece of business like this equivalent to the overall operating margins the 34%, 35% that you just saw for last quarter, is it less than that? Ben Locke Yes, I think it’s safe to say yes, it is possibly even a little bit higher. Unidentified Analyst Next question, I just want to make sure I understand on the cash flow positive scenario that you mentioned. You said you had the 10 roughly – 10 orders or potential orders identified that – so can you fill those out of existing backlog or are you incorporating into that projection of 10 prospects that you have that aren’t quite signage orders but that you believe you are going to sign those orders in the near future? Ben Locke In addition to fulfilling our backlog, these are projects that we will be signing new OSUs with that you will hopefully be hearing about soon. Those are the projects. Unidentified Analyst So they are projects that you think you are close to closing, so effectively you have those 10 identified, part backlog, part new orders. So you have to say that your visibility – I mean the time could be plus or minus a quarter two but effectively you are very highly confident then once you get those 10 in place and operating, you are cash flow positive and you think we stay cash flow positive then or more or less after that, and just build on it, is that – Ben Locke Absolutely, once we get cash flow positive, I mean these OSU agreements are going to keep going and as I mentioned earlier in the call is as some of our OSU agreements are ending, we are rebooting them, and approaching the customer and say look, the OSU agreement is over, but we could do the following work and get it going, get more savings for you. So absolutely, once we get cleared that hurdle, the revenues are going to be recurring. And I just want to mention one more thing, again these projects that I know of that we are hopefully going to be closing, as I can reiterate enough, we are spending a lot of time doing M&V making sure that they are solid, and also validating our construction estimates, making sure that we already have bids from contractors so that we absolutely know what the cost is going to be, to get these projects going and assure Gabriel here that we have enough money in the bank right now to pay for them. So we don’t need to go for more funds to get these projects going. Unidentified Analyst One last question, on the last call I believe there was some discussion about borrowing and lines of credit and some other thing, Elias mentioned on the EuroSite call, prior to this, the fact that EuroSite was possibly in a better position now to tap that market or some other financing mechanisms that were cash flow positive. Have we moved that any further along and are we closer to actually signing a letter of credit or having a credit facility formally in place going forward now? Ben Locke Well, I will start to answer the question and then I will pass it on to Gabriel or John for more color. But my initial answer to that is my goal is first to get cash flow positive because you are getting it in much better terms in any type of debt facility when you are profitable and showing money. So I am trying to avoid that right now. But once we clear that hurdle, any number of opportunities open up to us in terms of looking at credit financing. Gabriel? Gabriel Parmese That’s correct. I mean we’ve had two term offers, they weren’t good enough. Our gross margin is rising, so the risk premiums coming out of the future deals, so we want to continue to drive that initially, in the end we get the best deal. And we could get financing today but I think it’s best to wait. The other end is, we want to get really good at design, engineering and getting these things up quick and then we will make more money and we want to be able to borrow the money for the least period of time and pay the lender off quickly. So all this has got to come together, we are working on it hard, and when it comes together, these projects, the turnover will be quicker and then the profitability will come sooner. Unidentified Analyst So we are comfortable then as a company waiting say two or three or possibly four more quarters maybe into the second, even third quarter of next year before we actually – John Hatsopoulos John Hatsopoulos, we have started [ph] doing that up everybody. I am in London right now. We have just finished talking to two banks that they have approached us at very reasonable rates for loaning money – lines of credit to EuroSite of a substantial amount of money, at less than 7% interest. I can’t give you numbers because we are negotiating and talking about. So if we do that with EuroSite, it’s obvious to me that we will be able to do the same thing with American DG. But it’s amazing they are calling us rather than us calling them. That’s why I am in London right now. Unidentified Analyst Look, to me I see significant operational improvements, stronger management, much more cogen indication, might be this concern, it isn’t just always liquidity, do we have to go back and borrow, I just want to make sure, so we are comfortable then John, you feel we have more than ample cash now to carry us forward, what, over the next year before we have to borrow any money or easily a year, six quarters? John Hatsopoulos First, let me tell you, that EuroSite as you know I loaned them some money at a very low – the only interest they pay me is what I pay the IRS. And we should get over the next – before the end of the year a line of credit which is better than money because line of credit you don’t pay interest, if we use the money, for EuroSite and I can tell you that we have enough money till the end of next year for a very simple reason, if Ben gets most of the jobs that he has, then we will need some money but by then if we can get it in for EuroSite, we should be able to get from the same banks, which also have branches in the United States, same or better terms and it pushed them to some, I am there too. So and as you know, raising money has not been a problem, we just raised $5 million for Tecogen with no bank, I did it myself, I am bragging, and I apologize, we gave no warrants, and it’s a group, it’s a family group that I know that they were willing to give us more, and we only took $5 million for Tecogen. That is public information. So I am not giving you any inside information. I am here in Europe with the same family member that gave us the $5 million because they are also very intrigued with everything else we are doing. End of Q&A Operator And this concludes our question and answer session. I would like to turn the call back over to management for closing remarks. Ben Locke Well, this is Ben Locke again. Thank you all again for joining us for the call. As always, as John indicated, we are happy to answer any more questions if you want to reach out to myself, or John or Gabriel for that matter. Thank you again. Operator The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Alterra Power’s (MGMXF) CEO John Carson on Q2 2015 Results – Earnings Call Transcript

Executives Ross Beaty – Executive Chairman Lindsay Murray – Interim Chief Financial Officer John Carson – Chief Executive Officer Paul Rapp – Vice President, Wind and Geothermal Power Jay Sutton – Vice President, Hydro Power Asgeir Margeirsson – CEO, HS Orka Analysts Marin Katusa – KCR Fund Jonathan Lo – Raymond James Mike Plaster – Salman Partners Alterra Power Corp. ( OTCPK:MGMXF ) Q2 2015 Earnings Conference Call August 12, 2015 11:30 PM ET Operator Good morning, ladies and gentlemen and welcome to the Alterra Power Corp Second Quarter Results Conference Call. At this time all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions] I would like to now remind everyone that this call is being recorded on Wednesday, August 12, 2015. I would now like to turn the conference over to Ross Beaty. Please go ahead. Ross Beaty Thank you very much operator and welcome ladies and gentlemen to our second quarter conference call of our financial and operational results for Alterra Power Corp. I am pleased to be here in Vancouver with our senior management team and I’ll let John Carson our CEO introduce some when it comes time to that. I would welcome everybody. We’ve all have questions out there and remind everyone as well that we will making a number of forward looking statements today. We see Safe Harbor for these, we have a disclosure statement in our website and in our, all of our materials and I would direct your attention to those. The web presentation that we usually accompanies us is there and we can’t seem to find it ourselves, it’s just been put up and you can go into our website alterrapower.ca to follow along with presentation today as we provide it. So I’m going to turn things over right now to John Carson who will be referring to the web presentation, you can look at simultaneous with presentation as, both his material and our operating and financial team today and just go straight check it out. So John over to you. John Carson Thank you, Ross. It’s been a quarter for us. We did close the Shannon wind project financing this quarter; we’re very excited about that. We have two large projects under construction and so you’ll hear a lot about those projects as we go through the call today. I’d like to introduce the members of senior management that are here with me. You’ll hear first from Lindsay Murray our Interim CFO, then you’ll hear from Jay Sutton, our Head of Hydro, Paul Rapp, our Head of Geothermal and Wind. Also with me today is our General Counsel, Shannon Webber and also on the phone from Iceland is our CEO of the business there Asgeir Margeirsson. So with that, I’d like to proceed into the presentation and turn it over to Lindsay. Lindsay Murray Thanks, John. As you all have seen from our financial statement and MD&A release yesterday, Q2 is another busy quarter for Alterra, with the advancement of construction at the Jimmie Creek and Shannon projects, execution of project financing, partnership and tax equity agreements at Shannon and strong operating results. Although, there has been a lot going on at Alterra during the quarter, Shannon had the biggest impact on our financial statement presentation. On June 30th, we successfully closed at $287 million credit facility and concurrently partnered with Starwood Energy Group, which resulted in both parties owning 50% of the project. Shannon has been recorded as an equity investment in the June 30th financial statements, where previously it had been consolidated into our results. As you all have seen in our financial statements, we have deconsolidated the assets and liabilities of Shannon, recorded our equity investment at $62.7 million and received a $750,000 construction management fee, $1.5 million developer fee and will continue to manage the project. The completion of both the financing, partnership and tax equity agreement further demonstrates the strength of our company and executive team, as we were able to obtain new equity and financing partners from key players in the market, adding to our great partners on our existing projects. As for the project, construction is well underway at site and I will Paul Rapp, our VP of Wind to provide you with an update on construction. However, I’d like to highlight that following completion of the construction loan and equity contribution, the company does not expect to make any further equity contributions towards the project. Moving on to our operating results and for all of you following along the analyst presentation, I refer you to slide four. At June 30th, we continue to consolidate the results of our geothermal facilities in Iceland owned by our Icelandic subsidiary HS Orka of which we own 66.6%. EBITDA and gross profit increased 17% and 44%, respectively as a result of increased retail sales and decreased costs at HS Orka, increased revenue at Toba Montrose and foreign exchange. Foreign exchange had a significant impact on our results during the quarter as both the Canadian dollar and Icelandic krona weakened. Our consolidated revenues decreased $3 million against the comparative quarter and due to the sale of Soda Lake in January 2015, as well as, foreign exchange as revenues in ISK were up quarter-on-quarter. Consistent with the comparative quarter, our income statement fluctuated significantly due to the non-cash movements and foreign exchange. In the current and comparative quarter, such non-cash movements were due to movements in the company’s holding company bonds and derivatives as well as the gain on the deconsolidation of Shannon’s net assets. Consistent with previous reporting presentations, the company continues to monitor the performance of our operating results on an interest rate basis. Net interest reflects our ownership percentage at June 30th being 66.6% of HS Orka, 40% of Toba Montrose and 25.5% of Dokie 1. During the quarter, the company benefited from strong fleet generation achieving 103% of budget. Both Toba Montrose and Dokie 1’s generation increased over the comparative quarter due to strong water and wind, respectively resulting in increased revenue and EBITDA. In fact, our statements don’t give a true picture of the exceptional performance of Toba Montrose in the quarter as foreign exchange almost entirely offset a 10% increase in generation. Although, HS Orka’s revenues declined quarter-on-quarter, this is entirely due to foreign exchange. Lastly, development and head office costs decreased due to lower reoccurring costs and fluctuations in foreign exchange. Turning to the balance sheet, total assets decreased 6% to $586 million, since December 31st. This is in part due to the sale of Soda Lake, repayments of loans and foreign exchange, which on average decreased 8% since December 31, 2014. The company’s working capital available cash and liquidity has decreased against December, primarily due to cash spend on Shannon coupled with debt repayments and spend on plant and equipment at HS Orka. However, it should be noted that the company has a $20 million Canadian revolving credit facility available to fund its working capital needs and received distributions from Toba Montrose and Dokie 1 of C$8.1 million subsequent to the quarter end. The final slide I will talk to is slide eight. This slide provides details of all the long-term debt held by the company on a net interest basis, including debt service paid in the quarter. You will see the addition of the Shannon construction loan in the quarter, which is short-term and expected to be repaid in late 2015 or early 2016 when tax equity investors will fund $219 million to the project and repay the loan. The key point to highlight is the company’s operating projects continue to pay down their debt. That concludes my presentation, I now hand back to John. John Carson Thanks, Lindsay. And Lindsay we’re happy to have here as our interim CFO, our regular CFO Lynda Freeman is on temporary maternity leave, but Lindsay has done a fantastic job this quarter, especially logging the addition of the Shannon project. So with that I’d like to turn our attention to operations and for that I’ll turn it over to Jay Sutton and Paul Rapp. Jay? Jay Sutton Thanks, John. So referring to slide nine, TMGP had a very successful second quarter of 2015, producing 270 gigawatt hours of energy versus our forecast of 229 gigawatt hours. A warm spring and hot summer resulted in continued higher than forecast inflows and as a result, we achieved on 118% of our forecast generation in Q2 and our 118% of forecast generation year-to-date. Our strong generations continue into our third quarter and we achieved 99% of the forecast for the month of July and are currently at 95% of our provided forecast for the month of August. As we stand all four units are currently running and operating – generating just under 200 megawatts. In the second quarter we did make some further improvements to settlement exclusion at our Montrose plant that will result in reduced annual outage time and further reduction in our long-term operating costs. Our crews continue to operate and maintain the plant safely and according to our environmental commitments and there are no significant operating issues at either of the facilities. That’s all I have for Toba. Over to you Paul. Paul Rapp Thanks, Jay. Over for everybody to slide 10 for the Dokie 1 highlights. The Dokie wind farm performed slightly below plan in Q2, it produced about 61.6 gigawatt hours of electricity or 90% of the budget. The production was negatively impacted by low wind in May, which was seen throughout the region at all our neighboring wind farms as well. Production recovered well and exceeded plan in both June and July and we’re tracking at plan through August as of this morning. Production overall is at 95% of the year-to-date plan. The Dokie facility continues to operate well, we have no safety or environmental issues, no equipment issues and we’re exceeding our availability targets. Moving on to slide 11 for highlights at our Iceland operations, at Svartsengi and Reykjanes, both plants performed well in the second quarter and production was at 97% of plan for the quarter and 98% of the plan year-to-date. Focus up in Iceland right now is on capital works, for operational improvements at our Svartsengi plant. We’ve completed setting surface casing for two planned production drill holes, adjacent to the Svartsengi field; drilling in the two holes will commence in September, one hole is a makeup to provide additional steam to the plant and the second hole is an exploratory hole as we look to expand the field. At Svartsengi, we’re also continued to work on a new fluid disposal pipeline and we’ve commenced construction of the outlook works to the sea and construction of the pipe alignment. This pipeline will allow better control of fluid discharge at the plant and will allow for increased power production at the plant. At Reykjanes the main capital work continued to focus on construction of a pipeline from the plant, which will transport geothermal fluid from power production to the previously addressed ability for the Reykjanes plant. I’ll hand it back over Jay and talk about some of our active construction projects. Jay Sutton Thanks, Paul. So referring to slide 12 now. Jimmie Creek continues to make great progress. At a high level, we are expecting to complete civil work on the project by the end of this year and then focus on the electrical and mechanical insulations through the winter to the spring, we’ll begin our commissioning. Up at the intake, we are more than 65% completed the concrete for the intake in rubber dam and is scheduled to divert the flows back into our new intake structure in late September. The river and tributary diversions have functioned well through the high summer flows and the intake is on schedule to be complete by the end of the year. Down the penstock construction, the contractor continues to make great progress with nearly 80% of the penstock installed both in backfilled, including the bifurcation in pipe bridge sections. We expect to complete the installation of the penstock in October of this year. Then as you can see on the photo, we’ve completed the construction of the steel superstructure and bridge crane for the powerhouse. And we are now working on the control room and electrical balance of plant inside the powerhouse. Construction of the switchyard foundation is complete and we are ready for the delivery of the transformer which is scheduled for later this month. Members of our engineering team are wrapping up their site visits for the factory acceptance tests of electrical and mechanical equipment and we’ve been very pleased with the quality of the equipment being supplied. So all of the key components have now been shipped with the exception of the nozzles that are currently being assembled for shipment at the end of August. So early September, everything will be in shipment or on-site. We’ve got a great project team and great contractors performing the work and we extend our thanks to them for keeping this project on schedule and on budget. So it’s all that for Jimmie Creek, Paul, back to you. John Carson Great. Thanks, Jay. Let’s start off with Shannon, just talking about the financing, which is just closed on June 30. We did close a $287 million U.S. construction credit facility that was provided by affiliates of Citi, Santander and RBC. With that we also closed a commitment to tax equity of $212 million, could move up a little bit from of Berkshire Hathaway and Citi affiliates. So we’re very pleased that after a long process of getting really a global class financing done for a large wind farm in Texas with great participants. We’re going to hold these assets in a 50% partnership with Starwood. We’ve known them corporately for a lot of years and we’re very happy to have this deal completed with them. We expect strong cash flows and EBITDA about $7.5 million of EBITDA out the gate and close to that in cash flow from the project. So this is a very positive project for us, we’re excited about it to hold with our partners with Starwood. With that, I’m going to turn over to Paul, and to give an update of the construction activities. Paul Rapp Sure. Thanks, John. Construction activity has been ongoing since December as we reported in the last quarterly call and ended strongly prior to financial close. So to date we have completed construction of all site roads, all the wind turbine foundations, the underground collector system, the overhead transmission line and the project substation. The project main power transformer has been delivered and it’s ready for energization. Energization of our project substation from the Oncor interconnection substation is scheduled to be completed this month. Wind turbine erection is in full swing and as of yesterday, we had a total of 14 wind turbines fully completed and a further of 34 in progress. Wind turbine deliveries are well underway and the photo on slide 13 shows one of the wind turbine rotors being installed earlier this week. Our construction contractor Margeirsson is doing a great job and has a very high quality crew on site and they’re really getting efficient in their turbine erection as we’re really getting into full swing. Project is expected to reach commercial operations in late 2015 to early 2016. John Carson Thanks, Paul. With that, I’ll refer you to slide 14, which is the last slide we’ll speak to today. This is just a bit of looking ahead in brief. The big thing that I’m looking forward to personally is something I’ve been involved with for years and Ross Beaty, our Executive Chairman even longer, as our South American asset in Chile, the Mariposa field, where we own a fantastic prospect there with our partner Energy Development Corporation. We are going to commence drilling there in a couple of months, we think in October, maybe November, but depending on the weather. So we’re very excited about this, it’s the big opportunity for us. It will be funded by our partner and we couldn’t be more excited about the prospects. We’re also looking at multiple wind opportunities in the USA and other places, so you’ll be hearing more about these hopefully in the coming days. We’re working very hard initially on a 20 megawatt solar opportunity in Chile in a different region from our Mariposa asset. There were also, as you heard last time working on several early stage hydro projects both in Canada and in Iceland. Right now we’re very active on 90 megawatts in our larger portfolio with many more megawatts is behind those after we get these earlier stage once done we’ll be able to focus hopefully more on those. In meantime, as Paul has emphasized we’re continuing our asset optimization plan, we’re working on the Reykjanes field and expanding the Svartsengi fields. You’ll be hearing more about that later and our hopes and plans for continued increase in generations there in Iceland. With that Ross, its back to you, that’s our quarter. Ross Beaty Thank you very much, John and everybody here today. My final comments here are involving more of the macro space. I think we’ve had quite a year this year in the renewable energy business in North America and the world. Renewable energy is now a mainstream form of power generation and growing very, very rapidly outpacing all other forms of electricity generation in the world. I think with the announcements by the G7 that they are going to drive to phasing out fossil fuel use by the end of the century and particularly the announcement by President Obama last month, said he was going to aggressively push phasing out of coal-fired electricity regeneration in favor of renewable energy generation. We’re going to see continued interest by governments, by communities, by a lot of people to get more and more of renewable energy because it is the ultimate sustainable energy solution for the world. This has helped to drive our own share price up, we’ve outperformed the market. We’ve had a good year so far, but it’s also being the growth that we’ve seen in our own development assets. Jimmie Creek and Shannon particular you’ve seen, we’re hitting our generation targets, we’re really doing well right on, as a company and so it’s very enjoyable time to be part of this company and part of this business. I don’t see that changing any time soon. I still think our stock is very undervalued and I think we’re going to have a continuing good year ahead. So with that, listeners I will stop the editorial here and open the call to questions and we can take questions right now, operator. Question-and-Answer Session Operator [Operator Instructions] Your first question is from Marin Katusa, KCR Fund. Please go ahead. Marin Katusa Hey, guys. Great job. I’ve got a quick question. I couldn’t quite hear the part regarding Shannon. Will the commercial operation be declared for January 1, 2016? John Carson We’re shooting to have it done before the end of the year, but it really is dependent on exactly how the turbine erection and commissioning schedule goes. It’s going to come in either December or January. Marin Katusa Is it on budget right now because with all the floods that happen, I haven’t seen any like, there was no literature on, are we above budget or are we behind budget or –? John Carson Yeah, Marin, thanks. We’re just approximately about $2 million over-budget due to floods that we’d had, some rain events in the year. We’d hope to make those savings back before the project is done. But yeah we’re just slightly over budget due to delays that were caused by heavy rains in the area, which were well publicized. Marin Katusa My final question is a reiteration from the last call. Just wondering if there has been anything on the board level regarding a dividend or what Ross’ and the board’s opinion is on that? John Carson Thanks for that, it’s Carson, Marin. We constantly talk about when, not if we’re going to be able to pay a dividend. We’re looking at all sorts of different scenarios right now. I would say let’s give us another quarter to come up with more definitive discussion about that subject. Operator Thank you. Your next question is Jonathan Lo, Raymond James. Please go ahead. Jonathan Lo Hi, thanks. Just two questions. First one, the cash, the net interest cash declined quite a bit. Is that from the Shannon investment? Lindsay Murray It would be from the Shannon investment as well as, repayment of debt at HS Orka. We were also doing capital projects at HS Orka which would have decreased our cash. Jonathan Lo For reinjection wells at Reykjanes, do you have an idea of the expected impact those will have on the generation there? Paul Rapp Yeah, the intent for those that provide pressure support to keep the field at its current output. It’s the typical, I guess, evolution of a geothermal field is as it matures, you need to provide reinjection support for the fluids you’re extracting, so that’s the intent here. It’s to try and provide pressure support to maintain the existing output. Jonathan Lo Thank you. Operator Thank you. Your next question is from Mike Plaster, Salman Partners. Please go ahead. Mike Plaster Hi, thanks very much. I guess, just sticking with HS Orka. We’ve seen aluminum prices coming off a bit this year and the value of the krona coming down. Just wondering if that’s put any pressure on the local market power prices. I know previously you were saying they’re fairly strong, is that still the case? Ross Beaty Yeah, it’s continuing strong and we don’t see that changing. Mike Plaster Okay, great. Now there has been some talk of potentially lifting the capital controls in Iceland. Do you think, that could open up some new opportunities there if it brings in more foreign capital? Ross Beaty Yes, we do and we do see that changing, it’s an actively evolving space right now, it’s got lots of issues around it. But absolutely, we think it will be very positive for our business there and other businesses when it ultimately happens. John, do you have any — John Carson No. I think you got it, Ross. Mike Plaster Do you any sort of sense on timing or is there something that could be kind of bogged down in the political process for a while? Ross Beaty Well, we have our Iceland manager with us today Asgeir Margeirsson. Asgeir, do you have any comments on that question. I think you could probably answer that more wholesomely than anyone here in Vancouver. Asgeir Margeirsson Thank you, Ross. There is a master plan in place, it was introduced by the government recently. It was extremely well accepted by the market. It will be a step wise process, but they haven’t put out yet the exact details of it. And bulk of it has to do with a states with fallen backs [ph] and their assets. So there is a master plan in place, we have yet to see more of the details over there. I underline, it’s been extremely well accepted by the markets. So we’re very happy about the progress. Ross Beaty Thanks Asgeir. Mike Plaster Okay. Great, thank you. Just shifting over to BC, we’ve certainly seen lots of forest fires going on in the province right now. Do you see any risks to any of your operations from any of them? John Carson It’s always risk, but so far I’m speaking Jay and Paul, so far we haven’t had any issues and the summer is rapidly drawing to an end here and so we expect to see fall ratings come in when that happens, the issue is going to be behind us. So, so far so good, but it is a constant threat and we have to keep vigilant. Paul Rapp One of the things I’d like to add is last year, we publicized the fact that the Mount McAllister forest fire approached closely to our Dokie 1 wind facility. The fact that it did so, which was a natural occurrence and subsided and did touch the facility actually gives us some additional safety in coming years for a while, since brush and trees et cetera have been the burned down for a bit around and near the plant. So there is safety there at Dokie 1. Mike Plaster Okay, fair enough. And then I guess with Jimmie Creek, if there were any fire related delays, presumably there is insurance for that. Jay Sutton It could be fires, floods, hurricanes, landslides, we got to make sure it’s all out. But let’s hope it doesn’t happen. Mike Plaster Yeah, okay, great. Thank you, that’s it for me. Operator [Operator Instructions] There are no further questions at this time. You may proceed. John Carson Thank you, operator and thank you, all. I think that’s all we need to say today. It was a good quarter once again. The company hasn’t had a good run this year and we don’t see that ending anytime soon. We’ve got some interesting new things we’re looking up and we look forward to reporting on those in the next quarterly reporting three months time. Thank you all for joining us today and we’ll end the call now. Thank you, operator. Operator Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.