AMRC - NYSE

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Ameresco Incorporated Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Leila Dillon, Senior Vice President, Marketing and Communications. Ms. Dillion, you may begin.

Thank you, Lisa, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco’s Chairman, President and Chief Executive Officer; Doran Hole, Executive Vice President and Chief Financial Officer and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on slide 2 of our supplemental information and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included reconciliations to these measures in our supplemental information. I will now turn the call over to George. George?

Thank you, Leila, and good afternoon, everyone. Fourth quarter results marked a strong finish to a challenging year for the renewable industry and for Ameresco. We not only achieved very positive revenue, adjusted EBITDA and net income growth but also our business development execution remained very strong. We exited 2023 with a record backlog and asset development metrics. These metrics together with our intense focus on execution point to 2024 being a year of achievable growth. Demand for energy efficiency and renewable solutions remains robust, and Ameresco ability to effectively compete and win new business demonstrates how well aligned our capabilities and offerings are with our clients' priorities. At the same time, we are also growing our assets in development at a strong pace, which together with our project backlog give us excellent multiyear visibility. This supports our 2024 midpoint guidance for revenue and adjusted EBITDA growth of 20% and 38% respectively, and provides us with over $7 billion in multiyear visibility and of profitable revenue. Ameresco total project backlog was a record $3.9 million at the end of 2023, up approximately 50% versus 2022 with new awards for the year of $2.2 billion and proposal activity remains at record levels. During the year, we also placed 118 megawatts of assets into operation, bringing our operating energy assets to over 500 megawatts. We also added other 98 megawatts of assets in development in 2023, ending the year with 669 megawatts of Ameresco own assets in development and construction. Now, I would like to make some comments on the industry environment and what Ameresco is doing to address current challenges. First and foremost, as I stated before, industry demand remains very healthy and elevated power prices, greater demand for electricity and green resiliency combined with attractive incentives have created a very favorable demand backdrop for renewable energy and energy efficiency solutions. This robust industry demand alone has also strained some parts of the system. The industry continues to experience some lengthening in award conversions interconnection and permitting delays supply chain disruptions and shortages of critical equipment and skilled labor with a focus on execution and cost efficiencies Ameresco continues to take steps to adapt to this new environment. We are optimizing our operational structure to bring more uniformity and scalability across all of our geographies in business units, taking a more conservative approach to our construction schedules, promoting knowledge sharing and increasing best practices across our teams and focusing our business development efforts on larger opportunities in our core markets and areas of expertise. We also remain very focused on our working capital levels and liquidity. As part of this, we are prioritizing the timely conversion and execution of our tremendous project backlog. These actions are already yielding results. Our 40% project revenue growth in the fourth quarter was stop by the conversion of awards to contracts that had been previously doing. Our focus on conversion also helped drive a 32% year-over-year increase in our contracted backlog, which ended the year at $1.3 billion giving us good visibility into our 2024 revenue. Demand for our services remains very strong and Ameresco is well positioned for 2024 and beyond. As I mentioned before, there are a number of very favorable macro factors driving the strong demand. One of these is the IRA legislation. Looking at the Ameresco history, one can see that we have performed quite well regardless of the party in office. The main reason for this it is the diversity of our business model and the fact that our solutions are driven by economic returns and cost savings to our customers many without additional government incentives, especially in our project business. We also see tremendous support for our resiliency solutions from utility government and military customers. Again regardless of the administration. Therefore, we continue to see strong demand and great opportunities ahead. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?

Thank you, George, and good afternoon everyone. For additional financial information, please refer to the press release and especially our supplemental information that was posted to our website after the market closed today and which contains some new financial content that I will describe in more detail. We ended the year on a high note with total revenue for the quarter of $441 million, up 33% from the previous year. Each of our four business lines experienced double digit revenue growth. Our projects business had a particularly strong quarter as the company executed on a number of large contract conversions, some that had slipped from the previous quarter and benefited from increased overall activity. We also saw a benefit of approximately $40 million from faster implementation of active contracts. We continue to make great strides in growing our European footprint. You will notice in our upcoming 10-K that our European revenue now accounts for over 10% of our total revenue and is therefore now separately disclosed going forward. We experienced strong revenue growth of over 150% this year with solid organic growth and the significant contribution from our very successful Enerqos acquisition. We believe the European market remains highly fragmented and very economically attractive to Ameresco. Energy asset revenue grew 12% largely due to the greater number of operating assets compared to last year as well as higher RIN prices experienced during the quarter. We continue to bring assets into operation growing this important recurring revenue stream. Our O&M business and other lines of business grew 13% and 12% respectively. Gross margin of 17% dipped during the quarter, as project mix impacted this quarter's results. Like in other quarters, our gross margins can be impacted by the mix of projects we are executing during the quarter ranging from higher margin performance contracts to lower margin design-build revenue. While gross margin can vary from quarter-to-quarter and year-to-year we are not seeing any fundamental changes in the margins of our projects. As always, we remain focused on driving incremental gross margin dollars and operating leverage, over gross margin percentages. Adjusted EBITDA grew 33% to $54.9 million in the quarter, with non-GAAP EPS almost doubling last year's results of key -- a key driver of tax benefits. We expect to continue to take advantage of a number of tax incentives, which we've accounted for in our 2024 guidance. Q4 was not only an excellent quarter for execution, but also for business development with other over $500 million of new project awards in the quarter. Our project backlog represents a very well balanced mix of performance contracts and design-build work with particular strength from the federal government sector. During the quarter we also placed 63 megawatts of energy assets into operation and added 198 megawatts to assets in development and construction, with a diversified mix of solar, battery, RNG and biofuel assets, supported by our recent awards in Hawaii. Turning to our balance sheet and liquidity, I'll draw your attention to some additional metrics we are providing in our press release and supplemental information, both available on our website. First let me spend a few minutes on our debt. As many of you are already aware, Ameresco carries two distinct types of debt: Corporate Debt and Energy Asset Debt. The vast majority of our debt is energy asset debt, supported by our large and growing portfolio of profitable energy assets. As most of our assets are backed by multiyear offtake agreements, banks are willing to lend a high portion of the cost of these assets, at competitive rates. Given the long-term nature of contracted cash flows, they're expected to generate. As of year end, our energy asset debt represents only 72% of the bookvalue of the related energy assets, a fairly conservative level. It is also important to note that the majority of our energy asset debt for our operating assets is fully amortizing over the 15 to 20 year term of the Offtake contracts. Matching our debt with our contracted revenue flows for these assets. And for a significant portion of our assets in construction and development we have already lined up long-term debt financing through our existing sale leaseback, RNG and other portfolio financing facilities. In addition, given the strength of our asset development efforts, we are continuing to pursue a, develop and sell business model for a portion of our assets in development. This allows us to convert assets that would otherwise require cash equity into EPC and O&M contracts which instead, generate project revenue and more immediate positive operating cash flow. Even with these develop and sell transactions, we will continue to target long-term operating energy asset portfolio growth of 20% plus. Lenders and investors have continued to fund these attractive assets at competitive rates, allowing us to minimize the use of the company's own equity. Our corporate debt, which includes our term-loans and revolving line of credit, is the minority of our total debt. At year end, our corporate debt was $280 million with a leverage ratio of 3.3 times, below our bank covenant level of 3.75 times. It is important to note that our corporate debt covenants do not include energy asset debt, as part of the leverage ratio calculation. In the end, the vast majority of our debt is covered by our strong and profitable energy asset business, backed by multiyear contracted revenue streams. And our corporate debt should decline, as we bill and collect on the SoCalGas projects. Another consistent topic of discussion with investors and analysts is, our cash flow generation. Our quarterly cash flows can be quite volatile, given the variations in the timing of collections and outlays on our contracts. Because of this, we are providing a quarterly moving average of adjusted cash flow from operations over an eight quarter period, which is broadly representative of our implementation cycle. In our supplemental information, we have provided a longer term chart of this metric, over the past several years, which clearly shows, the temporary impact of the working capital we needed for the SoCalGas contract. We expect this metric to improve back towards its historical positive trend, as we bill and collect from SoCalGas. Now turning to 2024, we are guiding to revenue and adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively. Included in our non-GAAP EPS guidance is the anticipation of a likely net tax benefit. Our ranges are slightly wider than in prior years. Given the operating environment, we believe the primary variables that can impact our results this year will include the timing of converting project awards, the execution of develop and sell transactions, as well as the pace of implementation of our contracted back project backlog. Other important variables include the timing of bringing our new energy assets into operation, realized written pricing and tax benefits. We anticipate placing approximately 200 megawatts of energy assets in service during 2024 including our large component asset and united power battery assets. Our 2024 asset guidance also includes placing three RNG plants in operation, one of which went COD already in January. Our expected CapEx for 2024 is $350 million to $400 million, the majority of which we expect to fund with energy asset debt and tax equity. As we look to the first quarter, we estimate revenue and adjusted EBITDA to be in the range of $225 million to $275 million and $20 million to 30 million, respectively with negative non-GAAP EPS. As we noted, we saw approximately $40 million of project revenues from faster implementation of active contracts in the fourth quarter impacting our Q1 guidance. We expect the remainder of the year to follow a more normal quarterly seasonal cadence. Now, I'd like to turn the call back over to George for closing comments.

Thank you Doran. We ended the year on a high note even in light of a difficult industry environment in that positive momentum has continued into the New Year and whereas with outlook for 2024 reflects a strong visibility from our backlog, recovery energy asset, and O&M revenue streams. And focus for 2024 is the execution of our tremendous project backlog and assets in development and the generation of cash flow. In closing, I would like to once again thank our employees, customers and stockholders for their continued support. Operator, we would like to open the call to questions now.

Thank you. [Operator Instructions] Our first question today will be coming from Noah Kaye of Oppenheimer & Co. Your line is open.

Good afternoon and thanks for taking the questions. Can you talk about the energy asset portfolio planning for 2024; you indicated expectations for 200 megawatts placed in service on. So Doran picking up on the comments in your prepared remarks around developing portfolio growth, but also doing develop themselves, how much of the 200 megawatts do you kind of envision retaining? And then the $350 million to $400 million CapEx, how much of that do we see an immediate turnaround on in terms of monetization and sales of assets ?

Yeah. So, no, the short answer to that is the entire 200 is what we're retaining on balance sheet, the CapEx figures or what we're retaining on balance sheet. So the develop and sell is -- we follow that develop and sell into our financial plan under the project business because it becomes EPC, but we do not included in the asset metrics.

All right. Very helpful. Yeah, it's a very substantial growth versus what's in operations today. So I guess talk to us a little bit about your guide posts for develop and sell versus retaining on balance sheet how much of that is unique to the assets and the nature of the offtakes versus an overall philosophy of managing diversification of resources and portfolio?

Yeah I think we know that the primary feature is based on returns, obviously, customer relationships will feed into that sometimes when we're making those decisions. But that's essentially it. We've just got a tremendous backlog of development going on. We want to grow the portfolio 20% plus. That gives us a lot of a lot of room to convert those into projects.

Great. And if I could sneak one more in just on the up the project side of the business -- really strong awards and backlog to close out the year here. Give us a sense of what's happening with the conversion cycle around awarded to it too firmly contracted and how that's sort of flowing in is it have you have you noticed a material improvement? I guess I would ask in terms of the pace of conversion and if so what are you driving by?

Going from the awards the awarded contracts to execute that it has. It's a conversion has not changed what we used before the 12 months to 18 months steel and sometimes for example like now we're talking about the government shutdown then you have delays and all of a sudden from 18 months you got 24 months. But I mean there was that the timing has changed a little bit is that design built, the EPC work that we're doing and that's helping. Another thing I wanted to give you a bit of perspective on the color of the backhaul that the branded via what I call the performance contracts we're going to keep seeing a very healthy increase.

All right. Excellent. I'll turn it over. Thank you.

Thank you. One moment for our next question. And our next question will be coming from George Gianarikas of Canaccord. Your line is open.

Hi. Good afternoon, everyone. Thank you for taking my questions.

Hi, George.

I'd like to ask about the 2024 EBITDA guidance which I know you just gave an initial look last quarter that was a little bit higher than what you're talking about now. Can you just maybe discuss anything impacting your profitability for 2024? Thank you.

Yes I'll just start with the fact that we're building a little more conservatism in to the forecast out to what we're guiding. And in addition you know as I talked about in my comments, in my prepared remarks that we had some revenue $40 million bucks worth of revenue pull into Q4. So I think the combination of those two things really put us where a where we are in despite the wider ranges. You know this is a set of figures that we feel very good about.

Great. And maybe just to clear any confusion. Can you just remind us what the quote unquote “normal quarterly cadence” of your business is -- for year so for modeling purposes? Thank you.

Yes, Sure. This is Mark. Yes, I think we can sort of the normal quarterly cadence that we've talked about. Q1 is seasonally our lowest quarter and then it tends to be a steady ramp on generally with Q3 and Q4 being our heavier quarter. So it will definitely -- the shape will definitely have a heavier back half. I mean Q1 is always our unless something unusual comes into the mix. It is generally our lowest seasonal quarter.

Thank you.

For all the other and although we may add on that the comment. Thanks mark that is shorter heavily weighted average was 2023 to the last quarter.

Thank you, George.

Thank you. One moment for our next question. Our next question will be coming from Eric Stine of Craig Hallum. Your line is open.

Good morning. Thanks for taking the questions. Maybe we could just start on Europe. I mean obviously a pretty a great story there. The growth that you have seen, seems like it's a pretty wide-open opportunity. Maybe just talk about how you see it playing out going forward. I mean do you see that acquisition organic combination of bolus partnering with people that are just maybe your thoughts on that part of the business going forward?

I mean I think in the near term you're going to see a lot more organic. I'm thinking about this acquisition. That's -- you know it's a relatively small company that we bought. They have overperformed based on our own expectations and we expect to use that platform that local content to actually help them grow organically and actually help us grow organically throughout the continent. So I think that's one thing. The other thing is that a lot of the yes new technologies battery, EV charging systems, you name it, those things are starting to really come into play in the UK. And so I think we're expecting some really good organic growth there from some of the new technologies. So it's kind of. Yes it is across the major jurisdictions you know, Greece, Italy and the UK, where we're focusing the most but there's other opportunities in other markets where we haven't been yet that we see coming as well. So it's actually really exciting.

Thanks for that. And then maybe just a follow up on the Bristol opportunity. Can you just talk about where things stand with that? I mean I would assume that that is some of the growth but that also is just starting so maybe how that plays into it and do you see other projects out there or opportunities out there like that?

It's a great, great question. Actually about the beginning of the year. I spent a couple of weeks in Europe in the Bristol’s City. I spent some time and that we had the Board meeting. It's beginning to have traction right now. Where we are in the implementation phase and we're beginning to do more projects as we did in the last year. So in addition to that we are working with the mayor of Bristol and we're going to have a conference very soon that we will buy quite a few other series that are thinking of going down this particular route. So it's a great opportunity for us and that's in this right up to our toolbox because the reason they picked us because we provide a comprehensive services across the full spectrum of the Greek debts have acknowledged. So soon it's a great project and I think we will see more coming down the pipe. And the other thing I might just say normal organic growth. So we're growing a lot in Europe but we do if the market is fragmented and don't be surprised that you will see some small tuck-in acquisitions in in the near future. But we have not commented right now in our forecast for that but we will be aggressively looking for them.

Okay. Thank you.

Thank you. One moment for the next question. Our next question will be coming form William Grippin of UBS. Your line is open.

Great. Thanks very much. Just wanted to ask first about the debt raise pursuant to your creditor requirements and what is the plan and timing there? And then following completion of the SCE. project in accordance with their requirements, what would the that inflows and outflows? The cash look like there?

And so we outlined a bit of this in the press release. There's not much more we can say beyond what we put in the press release, the process is underway. We've got a strong interest will come. We'll obviously, be talking about that deal as it comes to fruition. But I think you would kind of have to stick with the info that we put in the press release and you know that the timing of that deal the you know, the overall parameters not really directly linked to when we expect to collect cash from Sou Cal? Not to be honest.

Fair enough. And then on tax credits maybe a bit of a technical question here but what is the main process you intend to use for realizing the benefit of the tax incentives? Are you doing ITC transfers here and how much are you embedding in the guide?

So we'll have a figure to give you how much we're embedding in the guide. But we've got a combination of strategies. So we've got ITCs that we take directly that benefit our tax line. We have 179D deductions that we take directly that impacted our tax line. We have and we will employ the sale of tax credits in tax credit transfer transactions. Those in fact don't go on the tax line may be a subject of a future Professor Doran commentary, but we have we actually reduced the book basis of the assets when we sell those credits. And then we will continue to do traditional tax equity financing as well for the solar and battery assets. We have not included anything related to investment tax credits on the RNG plants, in our guidance. So to the extent that, that material changes based on the recent hearings in some of the recent guidance changes, that would be that would be upside for us.

Okay. So just to put a final point on that, what I'm hearing is you don't need IRA sorry IRS clarity on any points of the IRA to from just sort of if the guide with respect to whatever is embedded for tax incentive?

That's correct. Yes, that's correct. We're I mean the stuff is still outstanding impacts what might be upside to our figures [indiscernible] make sure we get cash we get the clarification in order to be able to use it down a little bit.

Great. Thank you.

Yes, I think it does.

Yeah. Hey, Kashy, this is Mark I'll just take that again. I think the simple answer there is just visibility. And I think what we what we see in terms of Q1, what's available what's coming out of our which is pretty much all contracted backlog now. It's just really our confidence in our ability to execute on that contracted backlog during Q1. So there's but we're not expecting and much of anything from conversion of awards that we would then need to execute on the implementation. So we feel pretty good about although, it's no it's lower than normal because we have the visibility gives us the confidence in Q1.

Yeah. What I might add there too is that, last year at this particular time, we were counting more projects to move from the awarded to the contracted category. And that this year about over 75% of our total revenue is already contracted. And that's why it was important to execute on the contracted backlog that we have. And the other ones don't forget that, we did it take off $40 million from this quarter to last year for the acceleration was we started focusing there accelerating the construction of some projects. It began to happen and that's helped the last quarter. And I think it's going to help as we go through this year. But the most important thing is we do not have we don't count for as many contracts to go from the award of the category to contract it would in order to make our plan this year.

Got it. I appreciate the color there. And then my follow-up question is surrounding BFE projects. I imagine you guys are frustrated that it's taken so long, but it is now I think 18 months now delayed just based on the potential summer COD versus I want to say the original or late 2022 COD. And so similar question of what gives you the confidence that it is a summer date in fact and we won't see additional delays?

If I did I would only, I would only jump in with because I kind of personally involved and make all of the costs that are taking place. So we've got a lot of heavy attention being paid to the day-in, day-out commissioning efforts going on, on the site. That not only is it the team on the ground from Ameresco, and our major subcontractors. But also at the executive level of each of those subcontractors, as well as the executive level. So SoCal Ed, there's a tremendous amount of momentum on getting those two projects through the testing through -- the through the open items on the checklist for substantial completion as the visibility is definitely there. And I mean, I think we feel -- we do feel comfortable that that those are -- those are really close to being completed and being completed safely.

Appreciate it.

Thank you. One moment for next question. Julien Dumoulin of Bank of America. Your line is open.

Hey, good afternoon, team. Thank you guys very much for the time. I appreciate it. Hopefully you guys can hear me.

Welcome.

Look -- hey, thank you, George. Thank you, George. Look, I just talked about the debt, right? You mentioned in the prepared remarks talking about them being roughly at three times below the covenant of 375. You also talked about effectively deleveraging through the course of receiving some of these SoCal payments here. How do you think about the cadence of that leverage through the course of the year? How do you think about where you want to end the year? And then related, how do you think about the force majeure related to SCE, the decisions you can offer up? Any comments about that $90 million dynamic? I mean, again, I appreciate that this might be a little tricky, but really focusing on that deleveraging commentary.

Yeah, sure. I mean, I think the deleveraging, so we've all kind of circled around the amount of unbilled that's sort of still sitting there. We've got to get these projects to substantial completion, collect the amounts after 60 days, and see those go to pay down that corporate leverage, especially our revolver. The third project finishing later in the year. Obviously, you'll see that substantial completion payment the final acceptance payments coming in. I don't think I'm putting a particular no time period on it. I'm not going to say it's going to happen in Q2 or Q3 or Q4. I think it's going to kind of spread itself across the rest of the year as we delever over the course of the year. That's the way that I would answer that. And then frankly on the liquidated damages and the force majeure claims, there's not really any new information. We're continuing to exchange information with. So Cal Ed and that's what we've been doing. And we're continuing to do it in the and the hard yards and that will probably come after we finish after we finish the projects.

Yeah, got it. So right. So really don't expect any updates until after the summer or something like that on the force majeure on liquidity and burn payments here? And then on the specifics of where you're targeting leverage to be just, are there a bunch of puts and takes here by the end of the year? Any specific metric that you would offer up relative to three today at three times today that you would kind of aspire to?

So the short answer Julian is, no. I probably won't put that metric out there. And the primary reason is because George talked about being opportunistic in Europe, right? If something pops up and we will fund us and we want to go make a small acquisition in Europe or something else happens then you know we want to be able to use the corporate resources to actually go after transactions and ideas that will help us grow the business. So I don't I don't think it's appropriate for us to kind of put a target out there. We've -- the numbers are pretty clear as far as the weighted the So Cal will reduce that leverage. If there's anything that we do that we'll increase the leverage, it's going to be something we'd be talking about right, whether it's asset opportunities or M&A opportunities or something along those lines but no particular target Julien.

Thank you. And one moment for the next question. Our next question is coming from Craig Irwin of Roth MKM. Please go ahead.

Thanks for taking my question. So George, looking back to the time of COVID where you very successfully pulled forward execution it was a large part of the significant appreciation in your stock, right? Looking back to that time, a lot of this success is your ability to move your resources away from prioritizing pipeline, backlog, contracted backlog towards execution in a quarter? Can you maybe explain for us whether or not this was a factor in your fourth quarter upside? And how are your employees positions in the current quarter compared to historical? Are you leaning in a little bit maybe something could see some upside over the course of this year, given that the pipeline and backlog and everything is still incredibly healthy there? Or is this sort of more of an even distribution like you've seen over the last 10 years?

It's a great question Craig, but this year to the management team and to the Board I told them look guys, the development and redevelopment business a very good clip. We have to execute, execute and execute. And when we reorganize the company a little bit in order to take advantage of the people that we have over 100 around the company. We reduced it by a couple of units. So we have more interaction between the management teams right now done taking advantage of some of the expertise we have in the company by having less units we can transfer that knowledge from one group to another or more purchasing being done through their headquarters. So we save money the purchasing of equipment. And then the other thing sometimes lot of people they focused on smaller projects and maybe they are not in our wheelhouse within our wheelhouse. So I'd say we got a focus in larger projects and to the ones that we have a competitive advantage and those are the ones that are on our expertise. And that's why particularly I mention these in the federal government and we have over a $1 billion backlog on that, but alone and each additional is that accounts again the backlog is very good. So, the bread-and-butter business when the project backlog which is the energy efficiency which is our core business I think here we have the organization. We focus a lot on that because what happens once you pivot in some of these new strategies, new technologist, everybody is rushing to that. So, we wanted to if you take a look back and say hey guys this is what brought us here. And I want you to start focusing this this particular project. It has an impact already. We started that process I would say late last summer and we've seen some good results coming out of it.

I would only add Craig as I think that the comparison to COVID is an interesting one. It's probably not quite as and drastic in terms of the reallocation of resources of what we saw in COVID because of the fact that the business development, world hasn't kind of come to a halt like it did early in COVID. And for that reason what we're focusing on is making the business development process much more efficient and then the operational efficiency of getting proposals into awards, five hit rate projects, and then and then converting awards to contracts. And certainly you'll see some more resources being going into execution because we've got the management team focused on execution and reducing OpEx and so on and so forth. But it's a good comparison, it's not quite as extreme.

Thank you. So, my second question is about margin and backlog particularly contract backlog. So, your growth in contracted backlog is really impressive. But now that EBITDA guidance is lagging versus this growth? So, can you maybe help us understand if we are seeing compression from the increased size of large projects increased contribution from large projects and maybe lower margins on energy storage products. I'm compressing the profitability of that of that backlog and pipeline or is this something that's really just a short-term item that will happen?

I'll add to that Craig. So, I think that if you look at the awarded backlog and the contracted backlog conversions during the year, entirety of the year of 2023, no fundamental changes in the margins from. I think Q4 certainly had some larger awards in there where the margins on some of the solar EPC, especially in Europe, are a little tighter than what we normally would go after. Again very, very good operating leverage for that because it doesn't require a huge amount of resources from us because we have a JV partner that manages the execution. But that to me it actually feels like the latter part of your question sort of you know make maybe a temporary jump in that because we did we did sign a couple of a few pretty sizable projects in Europe in the fourth quarter that that probably would have had that impact. But I don't see that necessarily impacting long-term. And in fact, post-signing those contracts, George and I have been back to that team on the origination and you know preaching the same thing we're preaching in the U.S., you need to go with the higher margin higher hit rate projects. We've got a lot of great stuff in the backlog, but let's focus on the really high quality stuff going forward.

Great. Well if I can say congratulations for that success in Europe. George the 15 plus years I've known you, you've been trying to figure out how to get a business there and grow it. And it's nice to see Ameresco figure out that formula and seeing real success driving revenue and profits over there. So congrats.

Thanks Craig.

Thank you, Criag. We are good to pay -- a good place, I would say.

Thank you.

Thank you. Our next question is coming from Tim Mulrooney of William Blair. Your line is open.

Yes, thank you. I just have a couple of industry-related questions as it relates to energy storage. We recently read an article about at Duke Energy decommissioning cattle battery systems that can presume military base. We know you do work from military bases. Do you think we'll see more of this type of action across the government space? And how do you think that might impact your business if at all?

So, I'd say that there probably will be more of an action similar to that as the national security concerns start to raise, no different than the you know 5G network stuff that was going on right a couple of years ago. That being said, the primary concern doesn't really have to do with the CATL battery containers or the quality of their systems. They're still one of the largest manufacturers of those in the world and in fact most battery manufacturers use their cells. It's really about the software in the battery management system, the BMS systems, right. And I think that, you know CATL is going to need to respond and figure out a way to ensure that they can get the federal government comfortable with what the BMS systems are and so I think there's more to come on that space. Importantly, from our perspective, we are agnostic to suppliers. CATL is not the only game in town. We're deploying batteries from numerous other manufacturers in our projects and things that are in our backlog. We're bidding other manufacturers into these projects. And those are those just don't -- they simply don't carry the same concerns.

Yes, that's great. And let me add plus this game with the two reality. I went back and I checked with Nicole that runs the federal group, whether we have any of the capital barriers with the military bases, we have none.

That’s interesting. I appreciate all that clarification. That's really helpful. Sticking on batteries, we've heard lithium-ion phosphate batteries come down quite a bit, even since you're at the prices that has got even since your last earnings call. I guess my question is, are you seeing that as well? And can you talk about what kind of impact a greater availability of batteries for energy storage or lower cost for these batteries might have on the project economics for you and your customers?

Yes, certainly positive -- positive moves in the in the economic benefits. You know whether it ends up. I mean you'll ultimately all this ends up benefiting the ratepayers in the utility districts where these utilities are putting the batteries, right that utilities are rebasing either a long-term capacity contract with they have with us, when we own the batteries or it's just the EPC price and the cost of the batteries. If it's coming down, those rates come down and it really helps us -- helps them pass those savings onto their rate payers.

Okay. So input prices here doesn't really impact project economics for you. It's more about the end customer?

I guess I mean, it certainly gives us a little bit more room, but yes, it did allows us to sharpen our pencils on contingencies that we have to include, right. That's you know -- that's most certainly the case now.

Okay. Okay. Thanks so much.

Thank you. One moment for the next question. And our next question is coming from Pavel Molchanov of Raymond James. Your line is open.

Thanks for taking the question. You have a lot of interesting businesses in Europe, except one, I don't believe you've ever operated an RNG plant in Europe. Would you be interested in either developing or acquiring RNG assets in Europe?

Naturally, we are looking at some, but you're right, we haven't done one of them over there yet. But we have hired a project at a business developer to go after our RNG facilities in Europe and don't be surprised that we might have some partners. But rather than we're not a bank to operate to just buy operating assets unless we believe we can add some value to it and get a good return. But we are looking, no question about it. Actually, I have seen two days ago, I approved a particular proposal that we are making in Europe for a long-term business.

Okay. Kind of a big, big picture question about the economics of energy efficiency, we've talked about made through the past two years, constant escalation in power prices and the incentive for building owners to invest in energy efficiency. Is that economic rationale the best it's ever been right now?

I would say so, because energy prices are going up. Even though inflation is going up, there's still the value proposition. And that's why in my commentary, from my script I said, the energy efficiency doesn't need any government incentives whatsoever but with 179, it helps. And that's why I've been preaching to the world that the 30% of the energy can be saved economically and it pencils out so, and what the other thing that's happened in the technological advancements that we have in bringing the cost down. So, it's great and it's getting greater, I would say.

Okay. Thanks very much.

Thank you. One moment for the next question. Our next question will be coming from Craig Share [ph] of Tucci Brothers. Your line is open.

Good afternoon. Thanks for fitting me. A couple of quick ones. First, last quarter you all mentioned similar supply chain and project execution issues but noted that Europe had been largely exempt from that. Is that still the case?

It is. Yes, Europe has still been really good availability of solar modules. Of course, we're all kind of spooked by the Red Sea, but it ended up kind of not being much at all. And we have a supply management consulting business in the UK as well. And I talk to the head of that business quite often about what's going on with the natural gas and power supply markets and what happened with the Red Sea on supply chain. And yes, not a whole lot impacting our business. It's been good.

Great. And staying on Europe a little low, George, as you talked about more internal communication, centralized purchasing increasing project sizing, how do you see those kinds of internal initiatives playing into your European strategy?

Go ahead, Doran.

Yes. I mean the short answer to that is me, because George ask me kind of directly involving my -- the execution of the operational aspects of a lot of what's going on in Europe and those some of that many of those centralized functions are things that have been developing over the last couple of years on the procurement side, enterprise risk management, et cetera, Risk Review Committee. So we have mechanisms in place to ensure that these large projects go through risk reviews that involve the folks in the U.S. who have been involved with the large projects and also that we can kind of capitalize on these efficiency measures -- these operational efficiency measures that we're implementing here. We're still a very flat organization. We've got a lot of direct involvement directly with the gentleman who runs our Italian business Enerqos directly with the JV partner, directly with the guy who runs our U.K. business we're in constant conversation.

Thank you. One moment for the next question. And our next question is coming from Benjamin Kallo of Baird. Your line is open.

Hi. Thank you. Good evening. If possible could you use any kind of color back to the envelope or any kind of color on the assets you add to the balance this year? What kind of your EBITDA you project to layer on for next year or they're all completed?

So I don't think I've got a really good guide. We can probably reiterate some of the guidance we've provided in the past as far as you know EBITDA per megawatt with respect to solar and battery, right? We're talking about a couple of hundred thousand dollars per megawatt mostly solar. I think the range for the renewable natural gas still kind of remains valid there on the EBITDA side $750,000 to call it and 1.5 million with RIN prices are doing great. But those -- based on those particular cadences, I think that term should give you some idea of the breakdown and you probably have the megawatt numbers that we're looking at the three RNG plants. I think we have a total of is that above 20 megawatts of the new megawatts going in this year is RNG. The rest of it is kind of solar and battery with that 200,000 number being a good a good back of the envelope like you said, Ben.

And thank you. Have you guys changed anyway that you contract or think about do we energy storage or battery developed by either your own balance sheet or for customers because of SoCalGas? Thank you.

Actually, no, I think the on the contracting framework as it relates to that the things that we think about if it's an EPC project, obviously, we're being very, very tight with working capital. Now we've got a lot of guidelines out to the business units to minimize the amount of working capital that is associated with any project where we're doing EPC. And then secondly from an execution perspective, clearly, a lot of heavier focus upfront about the commissioning process and in that feeds into supplier selection. But as far as markets where we're developing, types of assets that we're developing, we're still kind of pulling things in from multiple jurisdictions and economics and risk will determine whether we end up putting those in kind of a development and selling category or put them on the balance sheet. So that's probably the best description I can give you, Ben.

Great. Thank you guys.