Aug 2, 2012
Executives
Brad Nelson Yehudit Bronicki - Chief Executive Officer, Director, Chairman of Compensation Committee, Chief Executive Officer of Ormat Industries, President of Ormat Systems, General Manager of Ormat Industries and Director of Ormat Industries Joseph Tenne - Chief Financial Officer, Principal Accounting Officer and Chief Financial Officer of Ormat Industries Ltd Yoram Bronicki - President, Chief Operating Officer, Director and Director of Ormat Industries
Analysts
Daniel J. Mannes - Avondale Partners, LLC, Research Division Jesse Pichel - Jefferies & Company, Inc., Research Division Carter W.
Driscoll - Capstone Investments, Research Division Mark Barnett - Morningstar Inc., Research Division Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Ormat Technologies Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you.
I would now like to turn the conference over to Mr. Brad Nelson of KCSA Strategic Communications.
Sir, you may begin your conference.
Brad Nelson
Thank you. Hosting the call today are Dita Bronicki, Chief Executive Officer; Yoram Bronicki, President and Chief Operating Officer; Joseph Tenne, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations.
Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operation and are based on management's current estimates and projections of future results or trends.
Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see Risk Factors as prescribed in the company's annual report on Form 10-K, filed with the SEC on February 29, 2012.
In addition, during this call, statements may include financial measures as defined as non-GAAP financial measures by the SEC, such as EBITDA. The presentation of financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with GAAP.
Management of Ormat Technologies believes that EBITDA may provide meaningful supplemental information regarding liquidity measurements that both management, and investors, benefit from referring to through non-GAAP financial measures in assessing Ormat Technologies' liquidity and when planning and forecasting future periods. This non-GAAP financial measure may also facilitate management's internal comparison to the company's historical liquidity.
Before I turn the call over to management, I would like to remind everyone that the slide presentation accompanying this call may be accessed on the company's website at ormat.com under the IR Events & Presentations link that's found in the Investor Relations tab. With that all said, I would now like to turn the call over to Dita.
Dita, the call is yours.
Yehudit Bronicki
Thank you, Brad, and good morning, everyone. Thank you for joining us today for the presentation of our second quarter 2012 results and outlook for the near future.
The second quarter this year was another strong quarter, both in the financial result of operation and in the progress of our construction activity. Compared to the second quarter last year, total revenue increased 24%, with Electricity and Product segment revenue increasing 5% and 91%, respectively.
Operating income increased significantly as a result of organic growth and improved operations. Both had helped to offset the impacts of low gas prices on our energy rates under the Ormesa, Heber and Mammoth SO#4 PPA in California.
In June, the McGinness Hills geothermal plant reached full power and met the requirements under the Summit Holdings agreement. And together with the commercial operation of Tuscarora plant, both would present an increase of approximately 9% to our portfolio.
With the completion of McGinness and Tuscarora, we have demonstrated the strength of our vertical integrated structure in moving forth from greenfield development to operation. In the Product segment, with the recently signed $61.4 million EPC contract with Enel, we were able to maintain an impressive backlog, ensuring high level of revenues for 2013.
Let me turn the call over to Joseph for a review of the financials. Yoram will review operation.
And following my remarks, we will open the call for Q&A. Joseph?
Joseph Tenne
Thank you, Dita, and good morning, everyone. Beginning on Slide 5, total revenues for the second quarter were $129.8 million, a 24.1% increase over revenues of $104.6 million in the second quarter of 2011.
In our Electricity segment, as you can see on Slide 6, revenues increased 4.7% from $81.2 million in the second quarter of 2011, to $85 million in the second quarter of 2012. The increase in electricity revenues is due to $4.1 million in revenues from our Tuscarora power plant, which commenced commercial operations in January 2012, and which included a $1.3 million retroactive payment for the first quarter of 2012.
Revenue in the second quarter of 2012 also include a $3.8 million net gain from 2 swap contracts with respect to our Puna complex, and a put option transaction with respect to our Standard Offer #4 PPA in California that we entered into in the second quarter of 2012. And $3.5 million net increase in revenues from other power plants.
The increase was offset by a reduction of $7.6 million in revenues from our Standard Offer #4 PPA in California, that their energy rate was converted in the beginning of May to viable rate driven by natural gas rates. In the Product segment on Slide 7, revenues for the second quarter increased 91.4%, from $23.4 million in the second quarter of 2011, to $44.8 million this year.
The increase in product revenues reflect the new orders that we secured 2011, and this rise is largely attributed to the $130 million of order we received from Mighty River Power Limited for the Ngatamariki Geothermal Power Plant in New Zealand. Moving to Slide 8.
The company's combined gross margin for the second quarter was 30.9% compared to 31.7% in the same quarter last year. The Electricity segment gross margin was 31.8% for the quarter compared to 23.4% in Q2 of 2011.
And the Product segment gross margin for the second quarter was 29% and the 60.5% in the second quarter last year was mainly due to the addition of $7.9 million of revenue in the LNG energy recovery unit in Spain, with virtually no associated cost of revenues since the cost had been included in the past in associated development. Moving to Slide 9.
Operating income for the second quarter increased $6.6 million from $19.4 million to $26 million, a new build in the same quarter last year due to higher revenues and lower maintenance costs in most of our power plants, and specifically at North Brawley. Moving to Slide 10.
Interest expense net of calculated interest for the second quarter was $14.3 million compared to $17.4 million in the same quarter in 2011. The increase was primarily due to a $4 million loss of interest rates lock transaction relating to the U.S.
Department of Energy loan dollars definancing that was recorded in the second quarter of 2011, and which was not accounted for as hedge transaction. Moving to Slide 11.
Net income for the quarter was $8.7 million or $0.19 per share, basic and diluted, compared to net income of $8.2 million or $0.18 per share, basic and diluted for the same quarter in 2011. As shown in Slide 12, EBITDA for the second quarter of 2012 was $50.8 million compared to $47.7 million in the same quarter of 2011.
And net cash provided by operating activities was $30.2 million compared to $26.4 million year-to-date. The reconciliation of net cash provided by operating activities to EBITDA, as well as additional cash flow information, is set forth in Slide 27.
Moving to Slide 13. Cash, cash equivalents and marketable securities as of June 30, 2012, was $71.9 million, down from $118.4 million as of December 31, 2011.
The accompanying slide breaks down the use of cash during the 3 months. We're doing the last 6 months.
Our long-term debt at the end of the second quarter of 2012 and the payment schedule are presented in Slide 14 of the presentation. And on the next slide, you can see our dividend policy and the recent dividend declaration.
On August 1, 2012, Ormat's Board of Directors approved the payment of a quarterly dividend of $0.04 per share pursuant to the company's dividend policy, which targets an annual payout ratio of at least 20% of the company's net income. The dividend will be paid on August 23 to shareholders of record as of the closing of business on August 14.
The company expects to pay dividend of $0.04 per share in the next quarter. That concludes my financial overview.
I would like now to turn the floor to Yoram for an operational update.
Yoram Bronicki
Thank you, Joseph, and good morning, everyone. Starting with Slide 17.
The total generation in the second quarter of 2012 was approximately 994,000 megawatt-hours. This represents an increase of 3.9% from the same quarter last year, a steady growth in total generation and the decreasing O&M expense include appreciation -- I'm sorry, exclude depreciation, reflect continuous progress made over the past years in improving operation and increasing efficiency at our plants.
And in this quarter, the big improvement in Brawley. As we recently announced, the 30-megawatt McGinness Hills power plant met the requirement for commercial operation under the OFC 2 loan agreement and has been operating at full power for almost 2 months.
McGinness sales demonstrates our ability to develop a successful greenfield project that was categorized as a blind system. A blind system is a system that has no surface manifestation, either hot springs or fumaroles.
The power plant also incorporates new technology that provides approximately a 10% increase the broad utilization efficiency. The plant is selling electricity at a rate that is approximately half of the full energy price of the PPA.
Full energy prices are expected to be paid effectively from the end of June, or following NV Energy's approval of the commercial operation date. NV Energy approved the commercial operation dates for the Tuscarora geothermal power plant.
We are now receiving full energy prices. And as Joseph mentioned in his remarks, we received retroactive payments through January 1.
Another area where we have continued to make progress is reducing operating expenses in North Brawley. The EBITDA this quarter has been very close to breakeven and we expect the improvement to continue throughout the rest of the year.
For updates on projects under construction, please turn to Slide 19. In the table, you can see the status and expected completion schedule for each project under construction.
The Olkaria III expansion is progressing in both field development and plant construction, and we expect to have the project online by mid-2013. Heber Solar construction began in the fourth quarter of 2011, and we expect commercial operation in 2013.
In Wild Rose, 3 wells have been drilled and we are continuing the drilling activity. We currently estimate the generating capacity to be at 16 megawatts and we will update our expectation based on this field development result.
There was no progress on permitting at Mammoth and CD4. We've already completed about half of the capacity that we plan to bring online before the end of 2013, and it is contributing to our cash flow.
An additional 62 megawatts are expected to be added by 2013 from Wild Rose, Heber Solar and Olkaria III expansion. On Slide 20, you can see the detailed list of projects under development that we continue to work on and a detailed description of our solar photovoltaics projects.
As it became clear that Wister will not be able to meet the PPA milestones, we started discussions with the offtaker on a possible cancellation of the PPA. The results have been -- progress, while still slow on Sarulla and the negotiations over the amendments of the JOC, ESC contracts.
Turning to Slide 21. In addition to the projects under construction and development, we now have 41 prospects in early exploration work even before McGinness began.
Turning now to Slide 22 for an update on the product segment. During the second quarter, we secured more work in this segment and further increased our backlog.
In July, we closed on a $61.4 million EPC contract with Enel Green Power North America. Under the contract, Ormac will supply 2 air-cooled Ormat Energy Converter power plant to Enel's Cove Fort geothermal project in Southern Utah.
As of August 1, 2012, our product backlog is approximately $242 million. It includes revenue for the period between July 1 and August 1, 2012, and the Thermo 1 $21 million order, which will not be accounted as revenue until the customer secures its financing on the project.
Let me turn the call back to Dita.
Yehudit Bronicki
Thank you, Yoram. Before anything else, I would like to comment on second quarter financing activity, our capital provision and conclude with revenue guidance for 2012, before opening the call for questions.
In the second quarter, we have received $72.2 million ITC cash grants relating to enhancement of our Puna geothermal complex, and to our Jersey Valley and Tuscarora geothermal power plants. Essential progress was made in the documentation of the OPIC loan to refinance or subordinate the existing Olkaria III loans and to finance the construction of Olkaria III complex expansion.
Please turn to Slide 24, where you will see the CapEx requirement for the remainder of 2012. We plan to invest a total of $140 million.
$90 million is expected to be invested in construction of new projects, and an additional $3 million for development of new projects. We also expect to invest up to $9 million in exploration, and budgeted $34 million for maintenance CapEx and enhancements for operation -- for operating power plant.
And $4 million is expected to be in invested in enhancements to our production facility. As we can see on the right side of the slide, we have sufficient capital resources from OPIC.
Turning to Slide 25, you can see our revenue forecast for 2012. We maintain our 2012 Product revenue guidance to be between $165 million and $175 million.
We expect the Electricity segment revenue to be between $320 million and $330 million. In closing, we made significant progress in the second quarter of 2012 and achieved core financial results.
Our existing portfolio benefited from improved operating efficiency. New orders are increasing our Product segment revenue and we move forward with backlog in excess of $240 million equates to the highest backlog it will achieve.
I would like to thank you for your support. And at this time, I would like to open the call for questions.
Operator?
Operator
[Operator Instructions] Your first question comes from the line of Dan Mannes with Avondale.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
[Audio Gap] -- that you have for both Puna and California in the first quarter. Can you, at least, give us a rule of thumb on how to think of those going forward?
I know they were obviously -- they were pretty supportive in the first quarter, but we've seen some movement up in natural gas and oil. Are these going to be -- are they going to prove to be mark-to-market headwinds potentially in the second quarter or -- sorry, in the third quarter and through the balance of the year?
Yoram Bronicki
It's -- they're different. The California and Puna are different.
In the case of California, we will enjoy upside. So if gas goes up, we will benefit from this.
In the case of Puna, yes, we have basically, that they -- at certain market the time of the hedge, and if for some reason oil goes crazy beyond that, we will not benefit from it.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
So could you -- so some of the gains you had in the first quarter or -- sorry, in the second quarter, those could turn around later in the year, potentially?
Yoram Bronicki
Not on the gas. And in case of the OEFC -- do you want to...
Joseph Tenne
In case of the oil, of course, if prices will remain -- the arrow will go up, or will not -- or go down -- we can reverse it. But on the other hand, we're getting the cash on a monthly basis, it's a monthly supplement.
Yes, it can be in fluctuation because of the accounting, which mark-to-market against P&L and not against comprehensive -- other comprehensive income.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
Okay. Real quick, a couple of other topics.
On the Product segment, given the nice signing on the Enel contract, I guess I was kind of surprised you didn't raise guidance for the year because your backlog far swamps what your guidance is for the back half of the year. Can you talk a little bit about, maybe, the timing of revenue realization?
Or is there some reason you think maybe more of this will be deferred into '13?
Yehudit Bronicki
The answer is that when we gave the guidance, we knew about the Enel contract. We had a $9 million advance released earlier in the year.
So there is the -- some of it is in our planning. And yes, most of the revenue we have built in the Enel contract will be recognized in 2013.
I think that what the analysis should say, that 2013 is going to be a strong year in the Product segment as 2012.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
That's great. And then obviously there's still a lot of time to hopefully book more contracts?
Yehudit Bronicki
Segregation.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
Real quick on the cost structure. We continue to see really impressive results on the power side, in terms of your bringing down the cost of your fleet.
Are we at a level yet that we can, sort of, carry forward -- understand there's some seasonality that $34 megawatt-hour, is that kind of the right ballpark? Or is there potential to even bring that down further?
Yoram Bronicki
I think that we still -- there's still an impact or a drag from Brawley, so we need to see more improvement there. And there's -- we will see an -- probably an effect of, still some of the new plants coming online that have a lower cost basis than the older plants.
So the impact of the future megawatts to come online is something that we should see on the cost side. On the margin side, that's also -- we expect improvement from the projects that are expected to come online.
So that would expand, potentially, the top line.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
Great. And 2 last quick ones.
On the Wister, on the PPA, any opportunity to maybe shift that to the California contracts and replace the SO4? Or would this be sort of a straight termination?
Yoram Bronicki
Unfortunately, not a simple way to swap the 2, no.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
Okay. And then lastly on the ITC cash grant, I noticed just that you've got Jersey Valley, Puna and Tuscarora this quarter.
And it sounds like you'll get McGinness soon. Anything left on North Brawley you can go after?
Or will that sort of wrap up the cash credit program?
Yehudit Bronicki
Number one, though, in the -- we will submit another application for North Brawley, for the additional investment that have been made since we received the initial application, and we expect the arrival with an ITC cash grant, so...
Operator
Your next question comes from the line of Jesse Pichel with Jefferies.
Jesse Pichel - Jefferies & Company, Inc., Research Division
Just a quick one. With McGinness coming online this quarter and the half payments, how should we think about margins in the third quarter in the Electricity segment?
Yehudit Bronicki
I'm not sure that we can answer it now. The margins -- typically, third quarter margins were higher than the normal because of the high rate that we were getting during the summer months from the Standard Offer #4 contract.
With the natural gas price pressure, they are in the export [ph] for we'd see [ph] -- I don't think that we would see the response that we typically see in the third quarter, and it should probably remain similar to the prior quarters.
Jesse Pichel - Jefferies & Company, Inc., Research Division
All right, good. And then as far as margins go in that plant, is it up to the full utilization and the cost of where you expect them to be going forward?
Yehudit Bronicki
Sorry, can you repeat the question?
Jesse Pichel - Jefferies & Company, Inc., Research Division
For the McGinness facility, so the plant's up to full utilization, and are you at your expected cost currently?
Yehudit Bronicki
Yes, McGinness came in on budget. It is at full utilization.
We are not getting, yet, the full commercial operation rate, but we expect to get it retroactively to July 1.
Operator
Your next question comes from the line of Carter Driscoll with Capstone Investments.
Carter W. Driscoll - Capstone Investments, Research Division
Just a quick question. Has there been any of the solar initiatives in Israel that have received a full regulatory approval yet?
And if not, what may or may not be the hindrances and potentially the timing of[indiscernible]?
Yehudit Bronicki
Unfortunately, not yet. We are very close on 3 projects, but we are not there yet.
Very close, but not there yet.
Carter W. Driscoll - Capstone Investments, Research Division
Okay. The other question I just have is the inevitable question about Sarulla.
You mentioned some progress. Could you maybe give some additional color about what the progress was?
Obviously, maybe since the Analyst Day, if you could just give it your own qualification? Obviously, we've been long awaiting this potential addition on the EPC side.
Yehudit Bronicki
The progress in resolving the issue -- but the main issue -- I think we explained it on the Analyst Day and I'm happy to repeat it, which is, a solution to the ownership of the power plant's assets viewing the financing forfeit. There is -- the actual solution to it was not yet found.
There is a willingness to forfeit but how exactly to implement the solution was not yet found. But we are making progress towards those budget solutions.
The nice terms that we are expecting is the signature of the JOC, ESC. This has not yet happened.
Carter W. Driscoll - Capstone Investments, Research Division
Okay. And then I'm assuming that you guys had a hard-fought win, really, to get the PPA rate up.
Any further discussion about modification of that? Or do you really want to put that to rest and really try to sign the agreement?
Yehudit Bronicki
We are not opening up the rates on full year.
Operator
Your next question comes from the line of Mark Barnett with Morningstar.
Mark Barnett - Morningstar Inc., Research Division
Just a couple of quick questions here. With the Wister PPA situation, if you do end up having to cancel that, what would be your options around that facility?
And can you talk about that a little bit?
Yoram Bronicki
Yes, I mean there is -- in a situation like this, we can go ahead and try to market it again at the right time. So provided that there's a way to develop the project there, it's just a matter of timing for finding an offtaker.
Mark Barnett - Morningstar Inc., Research Division
Okay. So I guess we'll just have to wait for that.
And then with the Jersey Valley PPA, do you have any comments on where you stand with resolving that? Or is it still too early to say?
Yehudit Bronicki
No, not the PPA, the performance of the plants, you mean, right?
Mark Barnett - Morningstar Inc., Research Division
Yes, correct. Sorry.
Yehudit Bronicki
The PPA is in good form. There is no issue with the PPA.
The plant is underperforming and we are working towards adding additional injection capacity in order to the bring the performance of the plant up. We expect a permit for bringing the injection rate in the next couple of weeks.
And we'll see if really, the rates starts going up.
Operator
Your next question comes from the line of Tom Daniels with Stifel, Nicolaus.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
I thought maybe you could talk a little bit more about North Brawley? And could you give us what the megawatt output was during the quarter?
Yoram Bronicki
Yes. I think that the output was -- the average output in the quarter was 24 megawatts.
And if you recall in previous presentations, our efforts are to gradually increase generation but especially control costs and we've been very successful in the quarter in doing so.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Okay. Was the cost for that quarter $7.2 million, and now $7.5 million in this quarter?
Do I have that right?
Joseph Tenne
Yes.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Or is that just increased depreciation?
Joseph Tenne
No. The depreciation didn't increase much, maybe additional CapEx.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Okay. So those costs were up a little bit sequentially?
Joseph Tenne
But a very, very minor level.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And now how should that cost trend kind of going forward?
Do you expect to keep bringing it down or is the $7.5 million kind of a decent run rate for the next several quarters as you figure everything out?
Yoram Bronicki
Our expectation is for the cost to, again, within our control, barring unexpected issues, we expect the cost to remain at about this level, maybe trend a little bit down for this generation capacity. But the focus would be to increase generation while maintaining this -- roughly, these costs.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Okay, great. The contract of Mighty River Power, the $130 million contract, we saw some dispute, I guess, between the indigenous, the M?ori and the New Zealand government during the quarter.
I just want to make sure that your project with Mighty River is not at risk at all, is it?
Yehudit Bronicki
It is not.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Okay. And now you guys are...
Yehudit Bronicki
For approximate, for saving, we don't have any issues of in here, about any direct issue related to our projects.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
Okay, great. Where do you see the bidding activity for the products?
I mean, is it kind of strong in any specific geography? Or in general, could you kind of speak of the bidding activity?
Yehudit Bronicki
There has never been any project stability in it and there's none today. Geothermal development is site-specific.
So clearly, there is no bidding as typically in Norway or Sweden, because there's no geothermal there. But wherever it is, whether it's in New Zealand or Indonesia, we cannot predict where, or from where, orders are going to come.
Turkey probably is in that exact market. The U.S.
is probably going to slow down after the installation of that existing cash grant. But it's very hard to identify it geography.
Thomas Daniels - Stifel, Nicolaus & Co., Inc., Research Division
And then maybe in the geothermal development, and the projects from the development, I didn't see a status update. Is everything pretty similar in Crump Geyser and Wister, understanding the PPA situation in Wister?
And how is permitting, in general? Has it become more difficult, just still difficult?
How would you guys cost that up?
Yoram Bronicki
I think that permitting remains difficult because it's very site-- it's both site-specific, county-specific and state-specific. So some areas in Nevada are very easy to permit, some areas are more difficult.
But there were no big changes in Nevada. We did make a lot of progress in working better with the different agencies.
In other locations, there's really no big difference. Just the -- our timelines remain about the same as they were before.
Operator
[Operator Instructions] Your next question comes from the line of Dan Mannes with Avondale.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
A quick follow up on North Brawley. Can you maybe walk us through what your plan is, both in terms of drilling and in terms of capacity maybe for the next 6, 12, 18 months as you ramp it up?
Yoram Bronicki
Well, remember, we said we will not disclose plans. So I'm between a rock and a hard place.
But I would say that, really, our focus -- immediate focus is do whatever it takes to extend the run life of the pumps. We have 1 pump now that exceeded 10,000 hours.
And over the first 2 quarters, we have seen -- really over the last 4 quarters, we have seen an increase in run life of the pumps. And this is the biggest cost driver, also affects availability.
We did -- and this goes back to a presentation in the Analyst Day. We did -- continued to -- continued interpretation of the 3D seismic survey that we have done in this field and correlated it with geological information.
And based on this, we believe that we can either redrill existing wells or drill new wells in locations that are much better, and would provide results that were, really, that we were hoping for in a lot of our drilling activity in 2009 and 2010, but never got. However, it is a long process and we will do it in a -- we will do it very gradually.
So it will be drill well bit based on the new interpretation of the field, test it for a good number of months to see that, indeed, we are getting the results that we were hoping for. And then drill the next one based on the same theory assuming that the theory proves right.
So on the cost side, and increasing run life of equipment, we have very detailed plans and it's ongoing. And we see the benefits from the work that we have done in the past 2 years.
When it comes to expanding the field, we will be, on purpose, very slow in doing so.
Daniel J. Mannes - Avondale Partners, LLC, Research Division
Got it. And then, real quick one on the topic going back to the Product sales segment.
I noticed that you are including the Thermo 1 order in backlog. Are you currently actually providing equipment to Thermo 1?
And if so, can you just briefly talk about the accounting? And then secondly could you talk at all about the status of Lightning Dock?
Yehudit Bronicki
The Thermo 1 is under construction. The equipment didn't -- wasn't delivered yet.
It is -- the quarter that you expect it to be online before the end of 2013, and it is under construction. The other for -- Lightning Dock was not on the list yet to put out to production.
It is the fairest condition to save in, the 12 months of savings. So for this one, it is in a firm situation.
The current improvements is -- the simple reason that even I can explain so I don't have to pass the call to Joseph, is it is going to be included in inventory, if you want, or in deposit because we cannot recognize it as revenue as long as we have Glendale under this project. We have 2 roles, we are basically contractor, and we are the lender.
Once the project is complete, it is expected that financing will not be a problem because the resource is there. It's just the problem that we are having.
And once there is some sufficient financing, then we will recognize a good revenue.
Operator
And there are no further questions at this time. I would like to turn the call over to management for any closing remarks.
Yehudit Bronicki
Not really closing remarks, but a big thank you for your useful questions and we hope to continue with positive results in the coming months. Thank you.
Operator
This concludes today's conference call. You may now disconnect.