Good day and thank you for standing by and welcome to the Q4 2021 Ameresco, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded.

[Operator Instructions] I would now like to hand the conference over to your speaker today, Leila Dillon. Thank you. Please go ahead, madam..

Thank you, Nikka. 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. This call contains forward-looking information regarding future events and the future financial performance of the company. We caution you that such statements are based on management’s current expectations or beliefs.

Actual results may differ materially as a result of risks and uncertainties that pertain to our business. We refer you to the company’s press release issued this afternoon and to our SEC filings.

These documents discuss important factors that could cause actual results to differ materially from those contained in the company’s projections or forward-looking statements. We assume no obligation to revise any forward-looking statements made on today’s call. In addition, we will be referring to non-GAAP financial measures during this call.

These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A GAAP to non-GAAP reconciliation, as well as an explanation behind the use of non-GAAP financial measures is available in our press release and in the appendix of the slides, which can be downloaded from our website.

I will now turn the call over to George.

George?.

Thank you, Leila. And good afternoon, everyone. The fourth quarter capped an outstanding year of growth and profits for Ameresco, as our dedicated employees in cooperation with our customers executed in a difficult operating environment to deliver record results.

We achieved excellent growth across our entire platform this quarter, led by very strong increases in both our projects and Energy Asset business lines. In addition, to these excellent results, we have entered 2022 with a record of $5 billion in revenue visibility across our lines of business, including over $3 billion of total project backlog.

This coupled with over 400 megawatts of assets in development, supports our tremendous confidence in Ameresco’s multiyear growth trajectory. We continue to see proposal activity picking up, as customers seek solutions that address their increasing energy costs, resiliency needs and carbon reduction goals.

With the addition of the Southern California Edison, Arizona battery project, our contracted project backlog ended the year at $1.5 billion, almost doubling sequentially and increasing 68% compared to last year. And well the Southern California Edison contract was a major win for the company.

There are several other large opportunities with complex and production requirements that we are pursuing and waiting. Our Energy Asset business got another exceptionally strong quarter, with revenues up 35%. We ended the year with 343 megawatts of assets in operation, growing our base by 22%.

We also continued to aggressively backfill, bringing our assets in development and construction to 414 megawatts.

The clear acceleration in our growth is being driven by expanding addressable market opportunities, both related to continue industry trends as well as Ameresco’s investments in energy experts in new technology and solution offerings coupled with flexible financial solutions.

A good example of this expanding addressable market is demonstrated by our increased partnership opportunities with electric and gas utilities.

In addition to provide renewable electricity to utility industry clients to help them reach their renewable portfolio standard goals, we are now also helping them increase the resiliency of their grid through the use of innovative microgrids and energy storage solutions.

The Southern California Edison project, the largest in Ameresco’s history is a perfect example. At Ameresco, we continue to invest in people in advance technology solutions to ensure that we are in a strong position to capture these emerging opportunities.

For instance, in the last six months, we made an opportunistic investment in hiring over 20 senior biogas engineers and construction managers in our Renewable Gas Group, more than doubling the development staff in this business unit.

With 17 RNG plants in development, we believe this additional resources could help us accelerate the number of plants that could reach mechanical completion in 2023 from four plants to potentially as many as five or six depending of course on permitted.

As a – reminder, we do not expect any meaningful revenue from these plants in – 2023, but it provides a foundation for continued visibility and future growth. Over the years, we have built Ameresco organically and through opportunistic acquisitions. Our recent acquisition of Plug Smart is a great example of this strategy.

This acquisition expands our existing solutions in pipeline in the Smart Buildings sector. We see a rapidly growing opportunity to provide a complete portfolio of Smart Buildings solutions to our existing and future customers by integrating controls and automation with our co Cleantech Solutions.

An integrated smart building is the best solution for our customers seeking to maximize employee productivity, while minimizing their costs and their environmental footprint.

Our continued investment in the large and growing Smart Building market further expands Ameresco’s addressable market opportunities, while also providing our customers with a one-stop shop for their needs. I also want to highlight that we recently published our 2021 ESG report, entitled, doing well by doing good, innovation, action, integrity.

ESG is core to our corporate DNA. And there are many company-wide efforts underway to achieve our vision and goals. Well, great attention is paid to all aspects of ESG. I want to note some major environmental achievements and more importantly, goals that we set out in the report.

Since going public, in 2010, Ameresco’s renewable energy assets and customer projects have delivered a cumulative carbon offset of 60 million metric tons of carbon dioxide. We expect this number to grow significantly as a result of the energy efficiency solution we deliver and the renewable assets we placed in service.

We also have pledged to achieve net zero carbon operations by 2040 for both scope 1 and scope 2 emissions. Third, we will establish goal for green – greenhouse gas emissions reductions through a science-based targets initiative by 2025 to validate net zero targets with objective certification.

We are very proud of the quality of the impact that Ameresco makes every day in providing FinTech solutions a broad range of customers, and we are committed to attain to the highest standards of corporate citizenship.

During the quarter, Ameresco goes after the recipient of a number of awards and recognitions, highlighting the strength of the Ameresco team. Our excellent work was again recognized by S&P Global Platts and by the US Energy Storage Association which highlighted Ameresco’s strategies and accomplishments in the Battery Energy Storage Systems market.

I will now turn over the call to Doran to provide some comments on our financial performance and guidance.

Doran?.

Thank you, George. And good afternoon, everyone. Please refer to our press release and supplemental slides that have been posted to our website for additional financial information. The fourth quarter clearly demonstrated our platform in actions with all four of our lines of business contributing to our robust revenue and profit growth.

The diversity of our geographic footprint and project profile coupled with the stability of our asset and O&M businesses makes Ameresco uniquely resilient and capable of handling the impact of COVID and supply chain related issues.

While we faced many of the same challenges as others, our topnotch team was able to overcome these once again to deliver record results.

Just as important, we continued to pursue opportunities and win new business, allowing us to end the quarter with a record $5 billion in revenue visibility, positioning us well for another year of strong results as reflected in our 2022 guidance.

The impressive growth in our Q4 total revenue was led by our projects business, including the front end of the large SCE contract. The year-over-year increase in revenue from our Energy Asset business was once again driven by improved performance from our existing operating assets and strength in RIN prices.

We continue to grow our operating asset portfolio each quarter by bringing additional assets in development online. Our other long-term recurring revenue stream, the O&M business also had a strong quarter of growth as we attached long-term O&M contracts to our completed project work.

Consolidated gross margin was in line with our expectations, given the impact of the lower gross margin profile of the SCE design/build contract. Despite the lower gross margin, this project helped drive the nominal year-over-year growth in adjusted EBITDA.

The SCE contract is a prime example of our strong operating leverage in practice, demonstrating our ability to add gross profit dollars without substantial OpEx growth. Now, move to our project backlog.

We were very pleased to have increased our total project backlog 29% sequentially and 38% year-over-year to a record $3 billion, including the SCE project. Customer interest in bidding activity remained strong and we are pursuing many other large complex projects. We have a proven track record and customers recognize our expertise.

This positions us as one of the leading Cleantech integrators in the market. During the quarter, we placed 26 megawatts of assets into operation, while also backfilling our assets in development with an additional 33 megawatts, including both solar and batteries.

Our 343 megawatts of operating assets have approximately $1.1 billion in long-term contracted revenue and incentives. Together with our $1.1 billion O&M backlog, we continue to have considerable long-term visibility to these higher margin recurring revenue streams.

I’ll turn now to our full year 2022 guidance and also provide some additional color on the quarterly cadence as detailed in our press release. We expect 2022 to be a year of unparalleled growth with anticipated revenues, adjusted EBITDA and non-GAAP EPS, growing 52%, 34% and 26% at the midpoints of our guidance.

During 2022, we anticipate placing between 60 megawatts and 80 megawatts of energy assets into service, while investing $225 million to $275 million in capital, the majority of which we expect to fund with non-recourse debt.

While we do not typically provide expectations on quarterly performance or comment on specific contracts, we do feel it is necessary to provide some color here due to the significant impact of the SCE contract on our results. We expect that the 2022 quarterly cadence will be meaningfully different from the historical pattern.

We discuss linear revenue recognition for the SCE contract back in November before finalizing procurement and construction contracts. With more clarity on the schedule in hand, we anticipate first quarter consolidated revenue will be sequentially flat with our strong fourth quarter, with total gross margin at approximately 14.5%.

Revenue from the SCE project is expected to peak during the second quarter, driving an approximately 40% sequential total revenue increase, with total gross margin for the quarter expected to be closer to 14%.

Third quarter total revenue is expected to look similar to the first quarter, but total gross margin is expected to be approximately 17.5% due to project mix. We have assembled an internal, best-in-class execution team to tackle this SCE project without compromising Ameresco’s business development and execution capabilities elsewhere in the company.

Our procurement techniques have allowed us to navigate supply chain issues, and we are pleased to report that the project is progressing as planned. Now, I’d like to turn the call back over to George for closing comments..

Thank you, Doran. In closing, I want to, again, take a moment to thank the entire Ameresco team for their dedication and outstanding execution during a very challenging 2021. We also want to recognize the ongoing support of our customers and long-term stockholders.

We entered 2022 is a strongest position in our history, with over $5 billion in revenue visibility and a rapidly expanding addressable market. I believe that both our near-term and long-term prospects have never been better.

Finally, I do like to remind everyone that Ameresco will be holding its first Investor Day in person in New York City on March 23rd. During the event, we will be featuring interactive presentations and panels by a broad representation of our leadership team.

Discussions will focus on key growth opportunities highlighting our portfolio of innovative solutions which make Ameresco, the industry’s preferred partner for the most complex and comprehensive – advanced Cleantech Solutions.

The events designed to provide analysts and institutional investors with a deeper understanding of Ameresco’s powerful integrated business model. And long-term growth opportunities at the nexus of cost savings, energy resiliency, carbon footprint reduction. We look forward to seeing you there in person.

Operator, I would like now to open the call to questions..

[Operator Instructions] Your first question comes from the line of Noah Kaye from Oppenheimer. Your lines are open..

Thanks for taking the questions, everyone. You know want to ask you follow-up to your prepared remarks around the contracting environment and underlying backlog trend. You know George I think you mentioned several large projects with complex requirements. You’re – I think you said you were winning from those.

So first, can you give us a flavor of the types of applications or technologies that you’re referring to here? And second, [technical difficulty] underlying backlogs. Are – are they up sequentially ex-SCE? And do you think you can be kind of back at 2019 levels as you exit this year? And by this I mean by ‘22, apologies..

There were several questions there..

Yeah, you know it’s there.

So should we, I mean, first, should we tackle the technologies that we’re looking at in the backlog?.

Okay..

Basically batter storage, microgrids more green gas plants. More – a comprehensive Smart Buildings solutions it’s getting bigger and bigger play of our portfolio, some hydrogen and you saw some announcements that we made. So basically, the comprehensive list of what we call advanced technologies..

I mean, I think if I think about the backlog and what’s been coming in on the awarded side in the conversions, certainly and to echo what George just said, seeing a concentration with microgrids certainly that’s been a big part of what we’ve been seeing.

The second piece, lighting continues to be an important part, street lighting, especially, we’ve got some fairly large street lighting projects coming through, which involve you know controls as well. And then, as per usual, there is you know the traditional energy efficiency as well.

So, I think you know and as is typical for a lot of these customers – they want to fold in generation as well. So we have the – you know central plant solar along with the batteries coming in. So that’s the technology question. So if you’ll move to the next one, though..

He said he just got dropped. It was on the backlog. Operator, can we move to the next question? I think we have technical difficulties..

Sure, sir. Your next question comes from the line of Stephen Gengaro from Stifel. Your line is now open..

Thanks and good afternoon, everybody..

Good afternoon..

Two things for me.

Can you just give us a quick update on where – you know in your Energy Asset portfolio where the rollout of the RNG projects stands as we go through the next couple of years?.

Yeah, as I pointed out, we had three mechanical completion this year, and then we increased and we accelerated the level for the year after to five or six.

One of the biggest issues that we have with accelerating those projects with a team, we did an excellent job building up the team and now we can – we want to get to about building about six plants a year. But that’s going to take us next year and probably fully operational the year after that.

But permitting some of the plants, especially a couple plants in California get delayed, they are due to permits. And – but we substituted them with couple other projects that we were able to get the permits..

Yes. So, Steve you know can go through the rundown with you a bit here. 2022, the expectation is three plants, reaching mechanical completion, those represent about 22 megawatts, $1.8 million MMBtu per year. As George mentioned you know we had a couple of plants in California where the permitting process is slowing things down.

But because of the breadth – depth of our development pipeline, there were actually a couple of others that actually caught up and pulled ahead and with the permitting. In 2023, again, based on building up the team, we expect to you know pull in some additional depending on permitting.

But you know we’re trying to get to five to six plants in mechanical completion in 2023, and that’s about 45 megawatts to 55 megawatts or 3.6 million MMBtu to 4.4 million MMBtu..

Great, now that’s helpful. Thank you. And then as we think about the – you know the environment we’re in – sorry you know obviously there’s an inflationary environment we’re dealing with and you’re also dealing with high oil and gas prices in general.

I’m just curious how that impacts your, A, the contracting of new projects and B, sort of how you think about the impact of inflation and on the margin front as we go forward? I know labor has been tough.

Just kind of trying to get a sense for how you’re approaching at, and how – what kind of impact we should be thinking about?.

So I’ll start with on the project business. So in the project business, we – there’s some important pieces of Ameresco’s operating practices that I’ll point out here. One is to ensure that we hold the right amount of contingency on projects.

The second is that prior to signing contracts in the traditional public procurement process, because the cycle going from awarded to contracted is sufficiently long. We have the ability to pre-negotiate most of our subcontracts and procurement prior to signing the contract to allow us to protect our margins. So that’s one side.

The second side of it is on the contracting side, the origination side, as these energy prices have gone up, the overall cost of energy that we’re attacking with our energy efficiency measures is going up.

And that means, our energy efficiency measures, because we focused on reducing units of energy used, gallons of water, whatever it might be, the value of those will expand.

So there’s a – there’s sort of a – an incentive there for the customers to actually pursue more work, because of the fact that the amount of the savings from the units of energy that we’re talking to them about is actually increasing. And you know it’s our view that that is certainly beneficial and will help on the origination side.

Hopefully that answers your question, Steve..

Exactly right. So effectively, when you save in energy, you’re saving more money, right. I mean, your – here the value proposition is even greater..

That is exactly right. The value proposition become – much better. It improves –.

Great. Thank you, gentlemen – yeah thank you for the color. I appreciate it..

Yeah..

Your next question comes from the line of Tim Mulrooney from William Blair. Your line is now open..

Good afternoon..

Good afternoon –.

Hi, there..

So the question on backlog for now it was you know if you exclude Southern California Edison project from your backlog how does that number look on a year-over-year basis? And excluding that project, when would you expect to see backlog potentially get back to 2019 levels? That was the question..

Yeah, we – we’re still against – still on some growth than the contracted backlog. They think that we wanted to and we watch very carefully what’s happened into the marketplace is the fact that our awarded year-to-date had a 17% growth for last year. So we saw a – good pick up.

And as it turned out, I think our growth were left for three years on the top line on average 15%. In our awarded growth for the year 17%. It pretty much gets mixed from the last three years’ growth..

Yep. Okay, that’s good..

And the other thing we want to point out is that a proposal activity is picking up. And they say we have to remind ourselves is that we were operated in COVID situation, that we did not have access to the customers as well as we could possibly have.

But last quarter and even though it was the winter quarter, which usually is the slowest one we – saw a pickup in the proposal activity. And this quarter, the trend is continuing..

You’re seeing a pickup because folks are emerging from the pandemic and –.

Yeah, correct. And what we showed earlier, the energy prices going up is, people are concerned about energy costs. And, of course, our value proposition becomes better and better.

It has improved tremendously, even though the interphase have gone up a little bit, that doesn’t have – anywhere near the project, it had an adverse impact, but it is a part of the impact coming over the energy price is going up or the – it’s much, much better for us..

Yep, that makes sense. And you actually touched on my next question. So let me just see if I can flesh it out a little bit.

I mean, with the interest rates expected to increase this year, as we think about your value prop you know how should I think about that impacting [technical difficulty] generally?.

Its impact is little bit, but it’s very small – basis points you know what we’ve been able to do so far. I can use an example that a project we would like – we’d like to rate this week, basically and then we get to reprice the energy – the rates, the energy prices, the project grew.

Otherwise, we could afford to have a positive cash flow with the updated energy costs. And even though the interest rate went up a couple of basis, that s about 20 basis points, 25 basis points..

I mean, I think that’s the most clear example, current example of a situation. It’s anecdotal. But that project we locked in a rate reflective of the – you know current interest rate environment. But then the overall calculations based on the revised energy costs and projected energy costs, the project actually grew..

So if we’re focused on interest rates, we’re missing the forest for the trees. It’s really about energy prices right now..

Yeah..

All right. Thanks, guys. That’s great. Thank you so much..

Thank you..

Your next question comes from the line of Eric Stine from Craig-Hallum. Your line is now open..

Hi, everyone. Thanks for taking the questions..

Hi, sure..

Hi, Eric..

Hey, so just on the energy storage, the big one, the contract with SoCal Edison you know just curious what that has kind of meant in terms of you know maybe growth of the pipeline interest level, because that does clearly put you in a different league or I mean, it’s such a high profile project.

So just curious you know maybe that and as we think about projects moving forward or going forward, I mean, should we think of contracts of this size or would it be more you know some smaller contracts, but you’d be in the mix for you know greater number of them?.

That’s a good question. The activity level or the request by various utilities, and also by some of the smaller cooperatives out there, they do not have the expertise, it gets picked up considerably. Now, where we will get another contract term on a similar size, we would love to, and we will love to tackle it.

And I will say this much now that we know much, much more about this – that project, we feel pretty comfortable with its execution that is as planned, and feel very good.

But you will see more EPC look, as you see more and more solar plants, wind farms and so on, otherwise more of the electric capacity comes from renewable resources those got to be backed up somehow, and battery storage in the short-term is the means to do it, down the road, we might have clean fuels and so on that we will build probably plans that they run for 24/7.

But right now, battery storage, it’s a key market for us and – this project play it as in a different pool of competitors. And our expertise, which helped us a lot with this project and we have many more projects like that, similar, not the same size, but smaller size, quite a few.

And don’t be surprised, many of them that will be EPC, whether utilities or other companies around them. Some of them, they will be one assets we own, because I know we have three or four of them that we’re working on, but ultimately, we will own them. And, do you want to add any more color to –.

I think that’s the punch line, is that, there’s – our approach to customers is flexibility with respect to how they want to execute.

It’s execution track record that’s going to get us the deals, and our ability to provide either you know, PPA, stock, capacity, contract, what have you, as an asset that’s on our own balance sheet versus design/build contract for the customer you know we can provide both. So, we see the backlog filling with you know with both..

Got you. Okay, that’s very helpful.

And maybe last one for me, just in terms of you know component shortages and you having to deal with what everyone else’s in the industry? You know just curious I mean, the fact that you’re equipment agnostic is that something that’s helpful? And maybe just some of the steps that you’ve taken and how you see that going forward?.

No question about it. The fact that we are technology agnostic, it has lot of traction in the marketplace, because people they don’t want to be captive, and we can go out and – step in.

And that’s one of the competitive advantages that we brought to the table of the Southern Cal Edison project that we have a much more flexibility than other people they would tie in to some other people, it’s definitely a tremendous advantage..

Got it. Thanks..

Your next question comes from the line of Craig Irwin from ROTH Capital. Your line is now open..

Hi. Good evening and thanks for taking my questions. So George, I wanted to ask you a question. I had heard maybe six months ago that you doubled the size of your green gas project development group. Now, is that true? That’s actually a really positive thing that gives them more time in the seat. And it’s good that you’re talking about them now.

But can you maybe confirm when the new people were added? And maybe talk a little bit about their experience base and the timeline to make these new resources productive for the Group to capture new projects and execute [that] [ph], et cetera?.

Yeah, I will start from the end and go into backwards. They are productive – they were productive definitely, because they were Senior Executives and all – senior people. And all of them they’ve been added the last six months. And I will say some of them the last month or so, two months.

And I don’t know if you want to add any more color?.

No, I think, Craig so you’ve got a store. And we’ve got you know on the engineering side, the development side you know legal finance just folks that are really familiar with these projects and the market up and down. And you know of course much of this is opportunistic.

And we, you know as George mentioned, a lot of these folks came in in the last month or so and have really hit the ground running..

Okay, excellent, excellent. That’s really good to hear. And I would –.

So I want to add one maybe and specifically, they were working for green gas plants before developing them, operating them, built in and so on so – and financing them. Yeah. So it’s not engineers that we try to convert them from another field to this field. And that’s why I put in my remark, RNG experts..

Understood, there’s a lot of flimsy RNG startups in the market. So it’s probably not hard to steal talent from some of those you know, I’m happy to hear that you’re bulking up there.

So my second question is really about the SCE project, typically construction companies now I know you’re performance contracting company, but typically for construction companies when they have projects that are you know more than 10% of revenue in a year, will break out the percentage of completion for investors.

So we can monitor this on a quarterly basis. You did give us quarterly revenue progression, but no specific revenue in there. I was wondering if you might be able to give us a little bit more color on the cash flow cycle there.

And then you know if you could talk a little bit more extensively about what you’ve done to risk manage this project you know a lot of storage projects out there have been canceled in the last six months, because battery costs going up, a lot of other complications in the market.

Any operating details around how you risk manage this would be really useful to know. Thanks..

Okay. Good question, go ahead..

So on the quarterly cadence, the specific reason why we didn’t want to go through percentage complete on a quarter-by-quarter basis here is simply because of the fact that you know there’s always a quarter end. So you know equipment deliveries or you know activities on the sites you know may shift kind of across a quarter here and there.

And as we discussed it you know ultimately things get lost a little bit in the ranges that you might have to provide. And we thought that taking the approach that we took in the script today was the best approach to give you all the best information that we can give. So I think we’ll leave it at that. In terms of risk management.

On this project, which I was directly involved in, we followed many of the exact same risk management techniques we do on other projects, that means, satisfactory contingency, locking in pricing, holding our suppliers to account for delivery dates and for their other obligations you know technical or otherwise, under the contracts, and that applied to both suppliers and subcontractors.

That’s the approach we’ve taken. And that’s the approach we continue to follow as we carry through this project, because this, you know, the spotlight is on and SoCal Ed knows it, and I think that we – we’re executing accordingly..

That’s great. Hey, congrats on another great quarter..

Thank you very much..

Thank you very much..

Your next question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your line is now open..

Hey, guys, congrats and thanks for taking my question. I guess, I want to just ask a high level. I guess they’re both high level.

But my first question is just you know if we look at the capital intensity of – primary energy generation, it’s gone up such that you know like taxes directionally, there’s only one way that energy costs are going absent you know short-term aberrations.

And so I’m wondering in terms of the conversations that you’re having with customers, how many have come to terms with accepting the fact that, that that vector is directionally going up? Is it relates to you know the trend of digitization and electrification within the context of efficiency? And then I have a follow-up..

Yeah, I can take the first one and then the follow up can go to Doran. The customers are beginning to accept and you say that on the rates on the PPA agreement that we might be selling to a particular customer. Because electric rates, energy costs are going up.

For example, let’s say before the average rates they were $0.15, and we were selling solar energy at $0.09 or $0.10. But you can see them creeping up, because people are realizing that everything went up, capital costs are going up. And, of course, corresponding rates are going up. So they are beginning to, now, are they 100% there yet? No.

But I see a little bit understanding of where we are and what’s going on in the market. But what makes them react, though, the fact that the energy prices are going up and up. And that gives them a cent to move..

So I feel like – I was just going to say I feel like it’s a little bit of scenario planning as opposed to you know solidly going with higher costs, right. I think it’s scenario planning. But they certainly are starting to recognize that it’s mixed and that the inflation versus other geopolitical forces.

There’s a lot of uncertainty there that they need to plan for. And it’s a scenario..

And I can give another example, a particular customer, large project that we get priced I would say a couple of years back, they did decide not to move, and then they said, we want to move now.

We went back, of course with an update [technical difficulty] and they said, wow, what happened here was that you waited two years, that’s what you have $0.10, but it didn’t take us out. They said they put in the renewal right now and most likely they will go ahead..

Yeah, thanks. And I asked the question, and I’m sure you know I don’t want to steal any thunder from your Analyst Day.

But this seems rather apropos for you know, the moment of time of how you look at your business, because if you look at the business over a three-year period of time, you see a very steady, what would be you know a steady growth versus sort of the moment in time which seems rather appropriate you know because of this big contract that you have with SoCal Edison.

Here again, I’m sure you’ll be addressing that. Just one – my follow-up, if I could sneak this in, is, you know the largest generator, backup generator company talked about virtual power plants and kind of energy as-a-service with the – in the context of existing equipment that’s out there in the field in about 40 gigawatts that’s out there.

Is utilities are faced with the squeeze of having to go through a rate case in the process to bring new assets online? It would seem like that business of turning on sort of the virtualization, if you will, of existing assets would be something of a focus for your project business, I’m just curious in terms of you know the discussions that you may or may not be having around, has that started to be something that’s seen as attractive by your customers either on the selling side or the buying side of the utility?.

I mean, we are looking at some virtual power plant, renewable power plants ourselves, where various customers they will be buying it for a particular solar plant down the road probably green gas plants. So we are looking into it, no question about it. And I think you will see it evolving.

We have couple of industrial customers or commercial customers that basically they have facilities around the country, and we will develop solar plants in central location we’ll give power to them. So a virtual power scenario..

I think the only thing I would add there is that we – we’re relatively consistently approached by a number of parties that want to – I mean looking to partner with us to provide the kind of software solutions associated with DERs. And the approach of using DERs in the markets where they can add value, economic value to the customers.

So we’re, of course, considering that. The second piece is that, of course, we have a business that consults utilities on DER programs and they’re certainly seeing an uptick in their activity in that space for program administration and software, that’s the Applied Energy Group..

Thanks, guys. Look forward to the Analyst Day..

Thank you..

Thank you..

Your next question comes from the line of George Gianarikas from Baird. Your line is now open..

Hey, guys. Thanks for taking my question..

Hey, George..

Hi, George. You know I’d like to ask a little bit about your – there’s been a lot of regulatory disappointment. But underneath the surface, I think the Biden Administration signed a directive of executive order around the federal purchases of renewables.

And I’m curious as to whether you could share any color or any potential momentum you’ve seen in your business specifically around that – the executive order?.

No, I mean, we see a considerable pickup associated with that. And whether that built back better plan past, it would have helped us even more, but even without that we see a considerable activity around the executive order.

I mean, no question about it, every base now they’re more interested in doing not only renewables and energy efficiency, but resiliency and so on so..

Maybe as a follow-up, please go ahead..

Basically considerable uptick. It takes some time for those guys to move, but on the other hand, always a long-term, no question about it. It’s a considerable pickup. We – even after the executive order came out, we had the people before but we increase – increased our capabilities through personnel in order to take advantage of that opportunity..

And then maybe as a follow-up you know there’s been some recent M&A in the sector. And I’m curious as to whether you could refresh us on your philosophy and thoughts around M&A. Thank you..

I will start and then probably Doran will add some. Look, we have done about 22 acquisitions with a company, 22, 23 and we did a small one which is accretive, and we – and not only that, but it helps us a lot in the Smart Building technologies, and taking advantage of that expanded market opportunity.

But we are looking at several that we noted the point which I can talk with any one of them, but you will see us going organically at the rates we have talked in the past you know top line around 10%, EBITDA line around 20% and don’t be surprised that we will complement that with accretive acquisitions. [We’ll] [ph] win the market..

Yeah I’ll just close it, it’s opportunistic. You know the business has to make sense. The story has to make sense, the management team has to make sense for our organization. And the strategy needs to be clear as to how we’re going to make it part of the Ameresco story..

Thank you..

Your next question comes from the line of Julien Dumoulin-Smith from Bank of America. Your line is now open..

Hi, guys, this is Anya stepping in for Julien.

So my first question is, what should we expect in terms of updates at the Analyst Day? Specifically how could disclosures improve relative to what you’ve provided historically?.

So – and you want me to take this one – yeah I’m asking George’s permission. So the Analyst Day, we – presenting the guidance for 2022 like we did today, that is what we plan to do all along.

The Analyst Day is intended to focus more on addressable markets, long-term growth strategy, how we go about tackle the markets and actually give investors and analysts a little bit better than face-to-face view with a number of executives inside the company. So they can see kind of how these folks tick.

We don’t anticipate making that a day to start publishing numbers. That’s not what it’s about..

Okay, that’s fair.

And then secondly as a follow-up, what kind of – RNG pricing is factored into your 2022 EBITDA guidance? And then how hedged are you at present for this year on R&D?.

So entering the year we’re right about 70% hedged..

Yes. Slightly –.

Okay, yeah. And we’re somewhat conservative in terms of determining our guidance, but not meaningfully away from current market prices on those D3 RINs..

Okay, perfect. Thank you very much..

Thank you, Anya..

Your next question comes from the line of Pavel Molchanov from Raymond James. Your line is now open..

Thanks for taking the question. First one dovetails a little bit with what you were asked a few minutes ago, about the White House executive order. I’m asking about the US Army net zero strategy and given that federal revenue, I think is still you know one-third of Ameresco’s sales.

I’m curious what kind of opportunities specifically in the defense area you’re going to see you know beyond the work you’ve already been doing with the Marine Corps and so on?.

It’s very hard to quantify that. But on the other hand, I wouldn’t be surprised if it doubles. But it probably will take us two to three years to get to that level.

And because I tell you, some – couple of the sites that we’re already working on it, by 2024, we will have them at net zero, between battery storage, solar energy efficiency measures and so on and so forth.

So it’s doable, and many of the sites as we know they have excess land where we can put a substantial amount of solar and the battery storage and what’s going on you know resiliency, whether it’s hospitals, colleges, universities, the further the base is just about every base that we are talking to right now, not only net zero, but they want resiliency.

And because of what’s going on with the climate change. And like I said before, whether we’ll take out all the solar, we’ll take all the wind. So we have to have some kind of a backup as well. How can I say, that they recognize that and they want to do something about it. But to quantify it, though, it’s early.

But on the other hand, because we know we get them up to 50%, where they want to be with the way we’ve been doing it in the past. And if they will, go into accept or contribute some of their own money, we get them to 100% much sooner, but no question about it, that means, it will accelerate.

And the good thing that I will say that we are number one in that market, so we will capture our good percentage of the – of the several market..

Yep, appreciate that. Let me turn to the other side of the Atlantic. Even before the war began, we had record natural gas prices $25 in Mcf is your record electricity prices. Europe is – has never been a big slice of your revenue.

But I’m curious if you know you’re going to see uplift, both from an efficiency you know contracting standpoint and potentially as an RNG developer, since if you – if you’re displacing $25 gas that seems like a no brainer in that context..

No, it’s a good question. And I think I will say as much as I can. Even in the UK business, we saw a tremendous pickup. This last year, they had an excellent, excellent year. And they have a great backlog, even though we don’t separate them out. There are several projects that we cannot talk about them yet. But the traction is going to be very, very good.

And for the reason you rearticulated, energy prices are going up. And we are looking for – to expand the European operations, especially in UK and the southeast part of Europe..

Thank you very much. Appreciate it..

Yeah. Thanks, Pavel..

Your next question comes from the line of Chris Gerham from B.Riley. Your line is now open..

Hey, guys. Thanks for taking my question here.

I was curious you know given the big win with SCE, can you give us a sense of the battery pipeline for projects you know either gigawatts’ standpoint or you know just the one that you guys are kind of bidding on, it sounds like they’re not necessarily the same size, but there’s multiple one that you guys are looking at.

And you know within the Energy Asset development pipeline, any color you could provide on the 259 megawatts that are in there as far as you know standalone storage or you know what – you know solar plus storage you know kind of the storage breakout would be helpful..

Sure. So just to tackle the assets in development piece, first. So we’ve got about 266 megawatts of solar and battery. And there’s probably 60 megawatts of battery in there, 45 of which is standalone. Again that’s megawatts, not megawatt hours to be clear, because sometimes those are two hours.

Some of them are twos, some of them are fours, some of them you know, you get the point there. And importantly, again you know SoCal is obviously that’s a project, that’s a design/build project has nothing to do with our asset in development metric. It is important to make that clear.

And I think that if you talk about the pipeline, there’s proposals, those proposals come large and small. I’m always a little bit reticent to talk about the, you know the kind of huge, whatever the funnel is, because it’s something that we don’t measure.

Like when we measure this asset in development metric, we got 90% plus confidence in those things being placed in service, everything that goes before that is stuff that’s in proposal stage you know and even in award stage where we’re still working through site and permitting and et cetera.

So I think it’s important to point out that we’d like to stick with that as far as publishing measures. You know George, if you want to talk about the kind of the depth of that funnel, though, I mean that’s – it’s a big funnel..

It’s very large, it’s several magnitudes of what we have on the development backlog. Assets in development. But like Doran said, it’s very hard to give a specific numbers, EPC has not gone, we haven’t done all the screening to go into the awarded category.

But the pipeline, it’s several magnitudes larger than what we have right now in the assets in development?.

Yeah, one last thing I’ll add and I mentioned it before, is that, we – we’re in the early stages of negotiation with these battery projects, there’s still quite a bit of discussion as to ownership of the battery. And so you know if the ownership of the battery sticks with us, then it ultimately becomes part of our assets in development.

But if it doesn’t, then it just flows into our project backlog. So, there’s sort of two different business lines working in the same with that technology..

Okay, now that makes a lot of sense. And just a little bit on the project size.

Obviously that you know the big battery is an outlier, but you know has the scope of what you guys are doing on some of these projects has been increasing? I’m getting a sense that you know the average project size has been increasing pretty significantly for you guys in some of the large streetlight projects and military base work.

You know is that something you guys are tracking as far as you know the trajectory of that? Or are we starting to get you know a lot more small projects you know in the pipeline and awards as well?.

It’s increasing, no question about it, the projects are getting larger and larger. And because – and that plays right into our strength because they’re more complex and they include microgrids, battery storage combined unit power. The full spectrum of energy efficiency measures.

But a specific number, I don’t know, do you have any? Overall, I think we’re probably still in that seven to 10 range, because of the increase in smaller projects by project count, right.

You know in some of these you could almost call pilots you know we’ve just you know we’ve – there certain markets where we take smaller projects that are $1 million or less, even sometimes, just so we can get one on the books to establish the track record in the technology. So we – you know we’re still seeing kind of seven to 10..

Okay. That’s helpful. Thanks guys..

Your next question comes from the line of Chip Moore from EF Hutton. Your line is now open..

Hi. Hi, guys. Thanks..

Hi, Chip..

Wanted to follow-up there on the pickup and proposal activity you’ve been talking about in regards to visibility and timing, right, obviously way too premature for any sort of ‘23 outlook. But there will be something of a tough compare.

And this might be more for the Investor Day, but just sort of high level, how to think about some of those dynamics..

I think we will focus more on what the market opportunities are, but, and we’ll probably break it down by the charging stations and so on, battery storage. So then we might comment a little bit about the activity level, but I don’t think we’ll be giving any specific numbers to that effect.

But we will give a good idea what our market share is and how we stand against the competition. And I think from that you can extract what we will be able to achieve. We feel very good where the markets are going and our position in the marketplace right now..

And just to be – I spoke about this a bit before, Chip. But just to be clear that we’re – there won’t be any guidance updates or guidance beyond 2022 anything like that coming at the Analyst Day. Again, we’re focusing on the qualitative aspects of our addressable market, our capabilities and giving people a view into the executives..

Absolutely. No that’s fair. And maybe just if I can sneak one more in just supply chain COVID related. I think there was $30 million or so pushed out last quarter.

Are y’all caught up there? Still seen any sort of impact and here are you embedding anything in the outlook?.

Yeah, wherever it gets pushed out, we get that revenue – in a later quarters, but typical with our business, sometimes we accelerate some contracts, but because of COVID-19, COVID situation, I will say more were pushed out rather than being accelerated.

But the point that I want to reemphasize is the fact that, we will see those revenues in later quarters. But the other thing you know on the first quarter, especially some of these states in I think Canada, they still, the first couple of months they had issues with access on the various facilities and the same with Northwestern a bit.

So we’ve seen some push out, but not losing the business. The value proposition doesn’t change..

All right. Well, congrats on the momentum. See you in New York. Thanks..

Thank you..

Thank you..

Your next question comes from the line of Greg Wasikowski from Webber Research. Your line is now open..

Hey, good afternoon, guys. Thanks for fitting me in. Most of mine have been answered. So I’ll just keep it to one.

Can you talk a little bit more about the labor constraints or a lack thereof and how it has or how it could affect each of your business lines, in particularly – particularly around the SCE deal, just how you’ve been able to avoid any project slippage there as it relates to any sort of labor constraints? Thanks..

I will talk about the internal you know which is our labor. And so far, so good. The fact that we’re doing innovative projects, and having a great, great culture, we have been able to get the talent that we want.

And that’s the experienced talent as I pointed out in the RNG business, and that goes with the battery storage, we got some great, great experts coming into our company. Then as far as other labor, I will let Doran talk about it, especially the Southern Cal project, because he’s immersed in it, day and night..

So I’ll just compare it, because that you know if you think about us as design/build project and think about design/build projects.

A piece of real estate, a building that has to be built that has a contract size of you know like something like what we have with SoCal Ed, requires a multiple of the number of people on site that we require, right, for energy infrastructure is not as labor intensive from the dollar cost perspective as say, building a building, right.

And I think that that’s a differentiation that sometimes is lost on people with Ameresco, because we – you know, yes, we are a project manager, George just talked about the fact that we’ve been able to retain and attract a lot of the staff that we need, and then our labor requirements from our subcontractors are smaller than a lot of the labor force issues that are faced in the broader construction industry, because of the fact that this is energy infrastructure, it doesn’t actually require as much on site laborers as others.

In fact, it’s a fraction. It’s probably the best way for me to answer that question..

Yeah, that’s helpful. All right. Thanks for it..

Your next question comes from the line of Kashy Harrison from Piper Sandler. Your line is now open..

Good afternoon and thanks so much for taking the questions..

Sure..

So with respect to the Energy Asset portfolio and development and under construction, I was wondering if you could just maybe refresh us on how to think about EBITDA per watt for these opportunities by category, how to think about you know the CapEx per watt as well.

And then finally you know you had indicated that you know most of the capital would be funded via project debt, but I was wondering if you had maybe a long-term framework for how to think about the appropriate ratio of project that to you know to energy assets on a – maybe on a more long-term basis?.

Yeah I let Doran. Yeah. So, they haven’t changed much from the previous numbers, but –.

To start with the kind of CapEx figures. So, solar average is around $2 a watt, RNG somewhere between $5 a watt and $6 a watt, battery also similar to solar kind of couple of dollars a watt obviously you know battery pricing themselves.

So you know there’s ups and downs of battery pricing that you have to consider there, but that’s just a general indication. So across our entire asset in development metric that’s updated now, you’re talking about approximately $1.2 billion of CapEx.

That cycle for asset in development metric you know that’s four years probably maybe five years, it’s like four plus between four years and five years. So that’s the way to think about the cadence. I think that we’re sort of on average between 80% and 85% debt. So, think about it as 15% to 20% equity over the long-term.

So that’s – those are the – nothing’s really changed in that sense from our perspective, that’s – those are the – same numbers we’ve been giving for a while. In terms of EBITDA contribution. So batteries and solar are similar, probably talking about $200,000 to $250,000 of EBITDA per megawatt per year.

That’s kind of in the 75% EBITDA margin range for solar and batteries. On the RNG side, it’s higher per megawatt, which, you know matches the higher CapEx, so something between $750,000 to $1.5 million of EBITDA per megawatt obviously a wide range but there’s a reason for that, of course, with the value of the attributes moving around.

And, as of late, value of brown gas moving around. That’s probably 50% margin. So you’re talking about $1.5 million to $3 million of revenue per megawatt. Those are kind of the round figures per megawatt..

That’s super helpful. Thank you. All my question – remaining questions are on TAM. So I’ll look for the Analyst Day to get more of that information. Thank you..

There are no further question at this time. This concludes today’s conference call. Thank you for participating. You may now disconnect..