Good day, ladies and gentlemen, thank you for standing by and welcome to the Ameresco, Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

I’d now turn the conference over to your host, Ms. Leila Dillon, Vice President, Marketing and Communications. Ms. Dillon, you may begin..

Thank you. Valerie, 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 two, 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 the reconciliations to these measures in our supplemental financial information. I will now turn the call over to George.

George?.

Thank you. Leila and good afternoon everyone. I am very pleased to report that Q2 was another record quarter for Ameresco, both in our financial results and in our team's tremendous execution. We achieved growth across all four of our business lines and drove a substantial increase in profitability.

This outstanding performance demonstrates the strength of our people, the fortitude of our business model, the expanding market opportunities and the operational diversity and flexibility that is part of our entrepreneurial culture.

This corporate characteristics also enabled Ameresco to better navigate the industry wide inflationary and supply chain pressures being experienced in the market. I wish to thank the entire Ameresco team, along with our valued customers, partners, suppliers and subcontractors who have worked together with us to mitigate these challenges.

Before we discuss the strong quarter, I do like to provide an update on our Southern California Edison battery projects. During the second quarter we made substantial progress on the projects, achieving a number of key milestones despite COVID, supply chain and permitting challenges.

Just last week I walked all three sites and our team is doing an excellent job executing. I am pleased with the progress that they're making at each project site. Approximately two-thirds of the batteries for the projects are on-site and the balance in transit.

We now expect 200 megawatts to 300 megawatts of capacity to be in service in September and continue to expect completion by the end of this year. I'm also very pleased by the extraordinary efforts of both the Ameresco and the Southern California Edison teams in working around the clock to deliver these battery storage projects this year.

This is a true example of a partnership, and together, I know we will succeed in providing critical resiliency and reliability to the California grid. Turning back to our Q2 highlights, our robust revenue growth was led by our projects business.

We continue to not only execute on the Southern California Edison projects, but also we’re able to execute more quickly on other large projects due to earlier than expected customer approvals. Well, we had the benefit of upgrade results, we also continued our new business momentum this quarter.

We added 223 million of new awards to our project backlog. But what I am particularly excited about is that, our proposal activity was at multi-year highs in the second quarter. More than double the level of previous years.

This clearly demonstrates that customers are seeking solutions to address their increasing energy cost, resiliency needs and carbon reduction goals. For example, we have seen a total of seven comprehensive Federal requests for proposals in the first half of this year, compared to only five for all of 2021.

But our proposal activity was not just limited to Federal, we are developing and delivering many exciting advanced technologies, renewable energy, battery storage and traditional energy efficiency projects across all customer segments and all of our geographies. We also have exciting news from the energy asset side of the business.

We signed our largest ever combined PV solar and battery deal, The KuponT Solar, LLC Asset. We are thrilled to be partnering on this with Bright Canyon Energy, a wholly owned subsidiary of Pinnacle West Capital Corporation. Bright Canyon will also be an equity owner in this asset, making our first -- marking our first Energy Asset equity partnership.

Yes, it is designed to include 42 megawatts of solar energy and 42 megawatts, 168 megawatt hour battery storage system. It will be installed on Joint Base Pearl Harbor-Hicka under a 37-year enhanced use lease with the Department of Navy.

Up on it’s expected completion in early 2024 it will operate under a 20 year power purchase agreement with Hawaiia Electric and will provide clean and resilient energy to the island of Oahu. We look for -- we look forward to executing on this and working on other future opportunities with Bright Canyon Energy.

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

Doran?.

Thank you, George, and good afternoon everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market close today. As George noted, the Ameresco team delivered excellent second quarter results.

And while our projects business led to very impressive top line growth. It's important to note that all four of our lines of business grew nicely during the quarter.

In addition, the combination, the total project backlog and expected future revenues from our contracted energy asset and O&M businesses remains over $5 billion, giving us excellent long-term visibility and predictability during these uncertain economic times.

Robust year-on-year top line growth was led by our projects business driven not only from continued execution on the SoCal Ed projects, but also from acceleration in other projects that mobilized faster than anticipated.

As we have stated in the past, executing on the SoCal Ed projects has and will continue to impact our near-term cash flows due to the temporary increases in our working capital needs, particularly in accounts receivables and unbilled revenues.

This increase in working capital was expected from the onset, and is one of the reasons why we amended our senior credit facility early in the year. Subsequent to the end of the second quarter, we collected another $33 million from SoCal Edison, which we had previously invoiced.

Unbilled revenues which are labeled on our balance sheet as costs and estimated earnings in excess of billings convert to accounts receivable win invoiced under contract terms, which usually considers passage of time or completion of contractual milestones.

On the other hand, revenue is recognized under the percentage of completion basis which does not consider contractual milestones. Therefore the timing of the invoicing typically does not match up with the timing of revenue recognition, which is why the SoCal Ed project has resulted in the temporary increase in unbilled revenues.

We expect all components of working capital to return to more normalized levels for our business with the completion of the SoCal Ed contract and the collection of the remaining amounts. Moving on the energy assets, I want to highlight our discipline as it pertains to the underwriting with new assets.

Our funnel of early stage assets in development continues to show strong growth with an incredible pace of proposal and award activity. However, recent increases in inflation and interest rates have impacted overall market returns on assets.

We, therefore, been particularly prudent in our capital commitments over the past couple of quarters, ensuring that our assets in development continue to align with our hurdle rates. We're also increasing focus on executing on our nearly 500 megawatt portfolio of assets in development.

We also note a new disclosure in our supplemental slides with respect to our assets in development this quarter. Given the partnership with Bright Canyon Energy that we announced in Q2, we're now reporting both the total assets in development, as well as a pro forma megawatts total after adjusting for our partners equity interest.

This should help investors better understand the positive impact of these assets are expected to have on our future financial performance. Those who are newer to the Ameresco story, I wanted to provide a bit of background on how we approach our exposure to the various environmental attributes we generate in our Energy Assets business.

Renewable Identification Numbers or RINs are generated as part of our RNG business. When we build a new RNG asset we generally sell forward approximately half of the expected RINs under a three to five year fixed price off-take contract to support our project financing.

We then will look to dynamically hedge a majority of the remaining RINs during the year in which they are generated using forward sales of large blocks. This helps to mitigate the effects of daily RIN price volatility on our financial results. Near the end of the second quarter RIN pricing began to experience a pull back after multi-year increases.

However, we're not expecting this to materially impact our 2022 results, because we are already over 90% hedged on our 2022 RINs.

Renewable energy certificates or RECs that we monetize are generated from our renewable electricity assets, primarily in solar and are concentrated in a few select Northeastern markets which have government mandated renewable portfolio standards.

The vast majority of these assets generate RECs under legacy Massachusetts SREC-I and SREC-II programs where there are effective price floors. This has helped to minimize the impact of any REC volatility to our results. So while we do have some exposure to RIN and REC price volatility, Ameresco proactively managing those risks.

Back to the P&L, we achieved impressive year-over-year adjusted EBITDA growth as a result of our strong operating leverage, again, demonstrating our ability to add gross profit dollars without adding direct incremental operating expenses.

Execution on contracts remains strong as we converted contracted backlog into revenue with the continued progression of the SoCal Ed projects. Business development remain equally as robust as we backfill it with new awards. Total project backlog was a healthy $2.8 billion at the end of the quarter.

As George noted, we were seeing and participating in exceptional proposal activity in the market. We expect this will lead to further growth in awards in the coming quarters. There's has been ongoing discussion around inflation, interest rates and energy prices. Our customer value proposition is based on energy savings.

Higher cost of materials and higher interest rates tend to work against us, while higher energy prices work in our favor. At this stage the year-on-year increase in energy prices has far outpaced the year-on-year increase in Ameresco's all in project delivery costs.

This has actually enabled even more projects to pencil and is driving interest and engagement in our innovative demand reduction solutions.

Our excellent year-to-date performance, as well as our visibility across all of our business lines has enabled us to reaffirm our 2022 annual guidance, despite the delays we have experienced in the SoCal Ed projects. As to the quarterly cadence, we expect Q3 revenue to be slightly greater than Q4.

We expect gross margins to start moving back to normalized levels of approximately 18% for the third and fourth quarters. Now I'd like to turn the call back over to George for closing comments..

Thank you, Doran. The need and demand for Ameresco’s comprehensive portfolio of clean energy solutions has never been greater. As the world faces numerous geopolitical, climate and budgetary concerns we are very excited with the heightened level of customer engagement at this time.

And given the growing market opportunities, our leadership in the market and our portfolio of comprehensive cleantech solutions, we believe we will experience robust growth for years to come. In closing, I want to once again take a moment to thank the entire Ameresco team for their dedication and outstanding execution.

We also want to recognize the ongoing support of our customers and long-term stockholders. Operator. I would now like to open the floor to questions..

Thank you. [Operator Instructions] Our first question comes from Julian Demulan-Smith of Bank of America. Your line is open..

Hey, good afternoon. Thank you for the time, I appreciate it. So maybe just to jump right in, I'd love to hear a little bit more on the IRA and your thoughts about the opportunities that this would unleash for your business.

Specifically, Doran, I heard your comments about RINs here, but as you think about the RNG business here, what kind of opportunity exist as it pertains to the tax credit that might open up for you, both in terms of projects that you've already originated and are actively in development, as well as for the opportunity set this might enable.

Again, I'm focused on RNG, but would love to hear where else do you see opportunity emerging for you guys?.

Sure, Julian. So first and foremost, I would say that the expansion of the credits, the extension of the credit certainly is going to work in favor of the industry overall.

We were continuing to analyze the provisions that relate to the qualified biogas property, so we have been assessing the way the law is written, we have to see what happens between now and when it passes to see how much clarity there is for how that might apply to the particular types of renewable natural gas facilities that we produce and where we focus.

But importantly, as with anything in our business, we're technology-agnostic, we're looking at all sorts of technologies across the spectrum and that includes RNG.

Now moving onto the others, clearly battery storage, solar, the extension of solar and then in a couple of years when the technology neutral provisions kick in, that matches quite well with our business and we're very excited about it.

Furthermore, I think Ameresco as opposed to many others, I think in the industry, we are quite familiar with the elements of the law that will provide the uplift of the credit from 6% to 30%, namely prevailing wage, union, domestic content, those things -- this is an area that we're quite used to working in, in terms of our space.

And so we think we can work with those provisions and really carry out the intent of the legislation that Manchin and Schumer have put in front of folks. But again back to, it's not signed yet, it's not passed yet, we're still working to analyze it..

If it does gets signed, no question about a tremendous upside potential for the company. Whether it's solar battery storage or RNG. And especially in the RNG sector, we have over 18 projects that we'll built over the next three year, four years. So -- and we are working on quite a few others. So it will be a tremendous uplift for the company..

And George, just to clarify [Technical Difficulty] capture the tax for considerably on everything already that's underway, even if it wasn't contemplated, right? Again, I think that's the key nuance here?.

No, it hasn't been built yet. It's all going to be new assets we put in service after the effective date..

Excellent. And so one more clarification if I can here, obviously, a good stuff on getting some clarity and line of sight up with SCE here. Just with respect to that progress, can you talk a little bit about any incremental cost you all, as it pertains to the slight shift here.

I mean, how are those conversations evolving if you can characterize those at all? Obviously it's dynamic, obviously, you guys are coming to some degree of resolution here, it's not too meaningful in terms of delays but just the incremental cost and defraying that et cetera?.

So on the incremental cost, that's one of the good things about the battery supplier, it jugs its price. Now that's one of the advantages that actually the Southern California have, because we actually go to that contract basically before we signed the contract with Southern Cal.

But the delay though, right after we announced the quarter last time, about late that week they came back and they gave us an updated schedule which basically we lost four weeks on the battery delivery.

But the good thing about it now is that, we have about two-thirds of the battery on the site and the balance is on ships and we feel much, much better than we felt before that we have control over that.

And as well as all of the -- the rest of the materials associated with that particular projects, that's why we feel pretty confident that they will be done this year. If you actually -- what happened this last quarter and especially the last six weeks, I will say, it increased our confidence of delivering those projects this year..

Yeah, Julian, the only thing I'll add is, there has been no change in the nature of the dialog and the relationship we have with SoCal Ed as far as finishing these projects. So the focus is on finishing the projects, compressing to on schedules and doing it in a safe manner..

Got it. All right, fair enough. I'll leave it there. Thank you, guys..

Thank you, Julian..

Thank you. Our next question comes from Stephen Gengaro of Stifel. Your line is open..

Thanks, and good afternoon everybody..

Good afternoon..

So two things from me. One is just on the number of energy assets that were put into service in the quarter and the outlook or the cadence for energy assets in the back half of next year, just seem that it was below our expectations in the actual quarter.

I was curious if there was anything going on there or just timing of projects coming on stream?.

Yeah, it's more of a timing issue and some projects they get delayed because of the interconnection or whatever the case might be. But as far as we're concerned, we did say to the street that we will install between 60 to 80 megawatts of assets this year, we maintain that guidance.

And the only thing that has become a big issue is the utility interconnections, we have some projects already finished, but we haven't been able to interconnect them because their schedules is so much demand for them to do work that it has become a big bottleneck..

Great, thank you. And then just as a follow-up and I know Doran you probably don't want to go into a ton of detail, but the gross margin guidance that you suggested for the back half of the year, it seems to indicate that you've recognized a larger chunk of the SCE revenue already than maybe we had expected in our model.

Is that accurate?.

I don't think a larger amount. No, I think it's on page [Multiple Speakers].

I think it's within our expectations, and that's why we really --.

And that second half just reflects the mix moving back toward the normal business but not different than what we were expecting..

Yeah, it's a mix of the other projects that are getting in, but greater percentage..

Great. Thank you, that's helpful..

Thank you. Our next question comes from Noah Kaye of Oppenheimer. Your line is open..

[Technical Difficulty] I want to pick up on your comments around these record levels of bidding proposal activity. I know you highlighted the federal, but it'd be helpful to get a sense of more broadly where this demand is showing up, what incrementally seem to be a focus areas.

And I think critically how to think about the contracting and sales cycle for these -- we might think of federal projects as having a longer conversion cycle, for example, than other types of customers.

And so as we look at the award and backlog trends, how can we be mindful of that going forward?.

Yeah. well, the normal cycle is between 12 to 18 months once we make the proposal to get the award, but especially with the federal government -- the federal government tremendous, tremendous activity. But we're now going to see that pickup most likely till next year as far as showing up in the awards, in the contracted.

But some of the C&Is that we see they have a shorter turnaround time, maybe six months or so and sometimes even less.

And thus we see very, very high activity on that level, the Canadian Group, tremendous activity and especially on the C&I market, one of the activities that we're picking up just from the utilities or the co-operatives some of the battery storage projects that we have become a known entity now into the marketplace.

So we are proposing core bet proposals now that’s associated with that battery storage. So I would say, probably you will see six months to 12 months down the road that the award and the executed contracts will show very, very healthy increase. But the activity level that we feel, I'm very excited about it.

The activity level is much better than we had encountered. And the other thing going with it though, we had net added about 100 people during this year in order to keep up with this activity level..

Yeah. And how much of this activity, you mentioned federal, how much of it could be in Europe? We're [Technical Difficulty] potential winter energy crisis for the EU. It seems like the door has never been wider opened for your value proposition.

What are you seeing there and can it be material in terms of business wins and adding to the backlog?.

I think many, many customers know their about their carbon footprint. Look at Bristol City, that is becoming more of the blueprint. And now I think last time in the last quarter, we were talking to one, now we're talking to three potential new cities going down the direction.

But the energy costs been as high as they are, it has become a catalyst and many people, especially the C&I or even the other, what is the federal government or institutions, they are concerned about the high energy costs.

And as Doran pointed out, even though we have seen probably around 10% to 12% increase from the project costs and somewhat increase in the interest costs, the energy prices from the average is over 40%. So the value proposition has increased..

Yeah. Thanks so much for the color..

Thank you. Our next question comes from Eric Stine of Craig-Hallum. Your line is open..

[Technical Difficulty] for taking the questions.

So back at the Investor Day in March, you gave a 2024 outlook, I believe $300 million plus in EBITDA, just would love to take your temperature confidence in those goals and maybe thoughts on how you get there, do you need another large storage contract or is the momentum and pickup in both new awards and proposal activity, is that kind of what you're assuming to get to, well, a step up in 2023 and then ultimately in your 2024 goal?.

Yeah, I will address this first and then Doran might want to add some more color to it. But we're still very confident about the $300 million EBITDA by 2024. As far as getting another big contract associated with the battery storage like the Southern Cal, no. That is not in the plan as it was back then or as it is right now.

I think the development of our assets where there is a renewable natural gas or the solar plants, the increase of the O&M and what I will call the normal line of contracts that you have seen us in the past, we feel pretty good that this is going to get us there. And then of course energy price has been escalated the way they are.

It's shouting of course better than what it did way, way back when we did that particular plan. And the only concern is the supply chain issues, and as soon as those things get away, we get over -- we will be in a better position to execute, but we still feel very confident about it..

Okay. No, that's great. That is helpful.

And then maybe just following up on commentary from your prepared remarks, but you mentioned the award or the first project, kind of partnered project in energy assets with Bright Canyon, maybe you could just talk a little bit about the pipeline there and how you see that developing over time?.

We -- that particular one, it's interesting the way it evolved. We got the award to do the enhanced use lease for the Navy in Hawaii. And then Bright Canyon Energy, they had the PPA, we're already at one through for the Hawaiian Electric. So it was a perfect relationship, the same to us.

And actually the base, they said, guys you go you own the contract for the lease, but these guys have been working with us for a long time and they won the contract, the PPA.

What you guys give up, so we came up with them and they are great partners working together so far and we are looking at some other deals that we could potentially work together with them. It's an excellent, excellent relationship so far.

And look, sometimes we haven't done it too much in the past, kept some channel partners out there, I think it's going to help us and accelerate the business down the road.

We did get a partner to do couple of projects in Greece and the relationship has worked excellent and that's what --going back to what Noah asked the question, we see great activity in Europe and we have great traction in the UK and also in some other parts of the Europe that we're not ready to talk about it yet, but don't be surprised that we will have some good news to report down on the road coming out..

Okay. Thanks for the color..

You're welcome..

Thank you. Our next question comes from Tim Mulroney of William Blair. Your line is open..

Yeah, thanks for taking my questions. Two quick ones.

George, I want to make sure I heard your comments correctly earlier in the Q&A, you said you were talking to a few more cities about signing the type of contract that you've signed with Bristol City, are those all isolated to European cities or are you also having some of these conversations with US cities as well?.

That's a good question. One is another European and two other they are American..

Okay, that's good to know. Thank you. It's good to know it's on the side of the pond as well. And then just one more probably for Doran or Mark, it sounds like there's some noise in cash flows this year primarily due to the SCE project. After we see normalization, so I'm looking out a year or two here.

What is the right range for cash flow conversion rate you think this business can support as we look out in those future years?.

Well, I think -- so we've looked at working capital. When we talk about normalized level of working capital without So Cal Ed, we've been running between 10% and 15% more on annualized revenue basis. So we haven't really seen a whole lot of volatility there. So I think we'd expect to get back to those levels.

From a cash flow perspective, I think we're trying to provide some more metrics to help with the free cash flow calculation. But again we've been showing some pretty consistent positive free cash flow on a trailing 12-month basis, and I think when we get on the other side of So Cal Edwe'd expect to get back to that and continue that going forward..

Okay. Thanks very much..

Thank you. Our next question comes from Kashy Harrison of Piper Sandler. Your line is open..

Good evening, everyone. Thanks for taking my questions and congrats on the results. So my first question relates to the backlog, it's become kind of difficult to evaluate it, just given the impact of the SCE project.

I was hoping you could help us quantify how much of that current backlog is associated with the SCE contract? And then I have a follow-up..

We don't break it out. The only thing I will say is that, the overall backlog what we contemplate and signed in this quarter and next quarter, it's going to put us in a great, great position. We'll have another great year next year..

Yeah. I think the way you can look at that is taking a look at the revenue estimates and the recognition of the revenue during the quarter, as well as prior quarters on the SCE contract versus the total contract size.

Some -- we haven't gotten into the discussion of what would it look like ex the SoCal Ed contract, I think primarily because the SoCal Ed contract did happen, we're continuing to add awards, we're continuing to backfill as we burn off that revenue.

So as you see sequential and year-on-year increases in the awarded and contracted of the total project backlog, I think that just supports the fact that we're maintaining our visibility and able to backfill the backlog with awards that you see the actual revenue from SoCal Ed are burning off.

Again, this backlog, it still remains the $2.8 billion, represents something between two and five-years' worth of revenue, right. So that hasn't changed..

That's helpful. Thank you. And then my follow-up question, I wanted to maybe dig in a little bit to the RNG business. In early June, the EPA reduced the RVO for D3, as you mentioned, that impacted prices temporarily. However, prices have since they have since begun to recover.

And so I was just curious what you're hearing from counterparties in terms of RNG industry supply growth, is it underperforming expectations? And then maybe part and parcel of that, do you have any market insights on how the EPA might set the RVO as we think about 2023? Thank you..

Sure Kashy. The latter, I think the answer is going to be, no, we don't think we're going to express our opinions on what we think they might do.

The market overall, I think that we have been -- as you might expect, internally focused on the 18 projects that we've got in development and construction, right? The way that supply works -- the supply chain has slowed things in terms of implementation for many of the folks on the street that are developing and building RNG projects.

So I think that that's something that we face and we continue to see our Intercom competitors because it's not like we're actually chasing after the same exact assets, right? What I think you'll probably see is, trend-wise, we're continuing to see an increased focus by parties on voluntary purchases of renewable natural gas.

We think that trend is actually looking positive for the industry overall.

It certainly could be for us, I outlined our RIN monetization strategy pretty clearly this time in the script and I think that we feel very good about what the economics look like on the assets that we have in development and then what we were planning on putting in the ground over the next several years..

If I may add, we continue to be very bullish in that segment despite some of the drop on the prices on the RINs and so on. It's -- even when -- like Doran pointed out, on the inflation point of view, still make good money, spends a lot very good with that assets.

Now any issues with getting the equipment and getting there on time and executing and getting the permits..

Thank you. The next question is coming from George Gianarikas of Canaccord Genuity. Your line is open..

Thanks so much for taking my question.

Just quickly to dig in a little bit into the momentum in Europe, can you just expand a little bit there and tell us which technologies are gaining traction? And second, do you feel like you have the assets on the ground to take advantage of the momentum you're seeing, should you expanded there through additional sales offices or through acquisition, just if you can highlight to us what you're thinking about there? Thank you..

Look, we're looking at all of the above.

Basically, we're looking for acquisitions, we are looking to add more assets, actually we have got a couple of head hunters to help us out to build our infrastructure or the assets we book, but some of the projects that we have seen, they're going to be more sophisticated, similar to what we see over here, comprehensive.

I visited one of the jobs that we did that South University of London, and they had the geothermal heat pumps, so they were pretty much across the board, solar, micro grids, batter storage, light everything else that we are doing in the United States they are doing there and more.

One of the things that they get done on the solar, they had this solar panels, but also they provided -- they're working for the dorms. So -- and the energy price has been what they are in Europe.

I know we're trying to, on the Southern part of Greece, do some solar installations and then that's the government there what you think the likelihood is of them happening and they said we defiantly need every KW/KWH we can generate. So it's -- but we need to help in building up our infrastructure there and we are working on it..

Can I ask one follow-ups on supply chain, you've mentioned pain points there several times during the call, can you kind of help us dig in as to what exactly those pain points are.

It sounds like battery cells may have improved a little bit, is it more labor-related, what sorts of equipment are you still having a hard time getting your hands on? And thank you..

On the batteries, as far as we're talking about the projects that we have right now is delivery that we have with them. But sometimes getting some other equipment, especially with the RNG plants it has become little bit more difficult to get in there.

Transformers, for example, we like it, we have the transformers for the Southern Cal projects, but for some other installation that we are looking at that can become a bottleneck. And basically, what happens now, it extends the implementation of new projects..

The timelines are the key issue. It's all about delivery timelines.

We've -- luckily we work in a market, we are in public procurement, we can layout realistic timelines from the get-go when we're talking in terms of proposals so that we kind of factor in the expectations and timelines compressed, then we can deliver early, right? But we're not expecting timelines to compress until we actually see it starting to happen.

So we're trying to be realistic about that. And then at the same time, look to be honest, we continue to expand the number of suppliers that they have in any category equipment. So we are ensuring that not only those folks having to compete on price, they're competing on customer service delivery timelines and quality right across the board.

So we're certainly investing resources and additional, what I'll call, procurement management practices within the company..

Thank you..

Thank you. Our next question comes from Chip Moore of EF Hutton. Your line is open..

Thanks for taking the question.

Want to follow-up on European activity, specifically you obviously gotten fall for a pretty big role in Bristol, can you maybe just talk about the types of discussions you're having with some of these in-country partners for some of these larger potential projects and those been picking up since you've gained a little more notoriety?.

We've got few jurisdictions outside of the UK where this is happening.

Certainly, the UK while Bristol was a big partner there, but by and large a lot of the efficiency business and proposal activity that we're seeing over there were going at our own much like we do here, right? As Ameresco continues to push itself as a one-stop shop, we tend to propose these things on our own.

However, when you go into other European countries, oftentimes it makes a lot of sense to have a local partner to work with in order to secure additional business and with the uptick in the energy prices, we're starting to see that and we're starting to see those opportunities.

So technology speaking, George mentioned, solar, wind is certainly relevant, street lighting is certainly relevant, but we also believe the broader energy efficiency that we're seeing in the UK will equally be showing up in some of these other countries. So I think that we have -- we're pretty bullish on the opportunity over there. Go ahead, George..

Basically, some of them, for example, they might have some solar assets they developing and they need financial partners and to bring them over the hump or wind farms and so on. So we're getting all kinds of different proposals, you may call it, the potential partnerships and so on.

And that might accelerate our development there since we do not have enough legs on the ground..

Got it. Understood. That's helpful. All right, thank you..

Thank you. Our next question comes from Christopher Souther of B Riley. Your line is open..

Looking at 2024 and how things are shaping, it sounded like things are still pretty on track here.

I just wanted to get a sense, when do you think we'll have like visibility of the energy asset portfolio that can give you confidence like, hey, it's 80%, 100% based on the backlog of projects and the energy asset portfolio like what would be the timing where we could expect you guys to stay, hey, this is when we should have it in the bag so to speak?.

You go ahead Doran. That's a question for you..

Yeah, that's -- I'll open by saying not today. So as you might expect, we just talked about Europe, we talked about potential for additional asset expansion over there as well as here in the U.S. and in Canada. So the market and the types of assets and the energy as a service category still evolving, we're building it up as we stand today.

I don't think that there is a plan of any sort to alter the cadence in the way we provide guidance going forward. So we would expect that when we report full year this year for 2022 we will be giving full year guidance for 2023.

In 2023, once we provide full there, we'll talk about 2024 to the extent that we feel like we've got some level of confidence we can revisit your question at some point in advance of the 2024 guidance to see whether we want to talk about that or maybe we decided to do another Investor Day, we'll let you know.

But at this point, I think we're going to probably be sticking to our cadence that we've done in the past..

Okay, thanks. On the SCE project, can you maybe just provide a bit more clarity, I know you called out, you've got a $33 million post the Q, which is good to see.

But I'm just curious, can you provide the SCE total cash collection and the projects? And then on the accounts receivable, the cash payables, excuse me, can you talk about any impact on SCE that's also related to these as well?.

When we file the Q, we can take a look and see what you can see there in terms of disclosures about cash collections. Mark, do you have anything..

Yeah, I think what I would say, Chris that we've continued to collect timely from So Cal, right, as we invoice them, right. So we really haven't disclosed how much is an AR, but we have disclosed subsequent receipts and they're paying like clockwork.

So I think that's the positive there, where we are invoicing as quickly as the contractual milestones allow us to and they're paying us within terms. And so I think that's the positive direction that we're heading in and that's pretty much all I think we can say on that..

Yeah, I think as we said it before, we expect the normalcy to return once everything is going to flow through of that contract, 10% to 15% trailing 12-month revenue, that's our working capital..

Okay, got it. That all makes sense.

And then just last one here on the inflation reduction potential, may be too early to tell that, it seems like there are some new ways for nonprofits that could potentially utilize the investment tax credit more directly, I'm curious how you think that might change the mix of those customers providing -- owning the pages versus leasing PPAs, perhaps could you give any breakdown given your current energy asset portfolio or the pipeline that's non-profit versus C&I type customers?.

So I think at this stage it's premature providing a breakdown in terms of how that would look. I would tell you that numerous customer conversations are ongoing with respect to those specific provisions regarding the limited direct pay that they put it in the bill.

As I said before, we need to see how this bill turns us, we need to see what happens to that between now and when it actually gets signed. As you may expect, these things tend to move around as people start to make noise. So but nevertheless it will -- if it were to pass in its current form that provision will be very relevant to us.

As I think we've talked about and we've said in our disclosure, 70% or so of our revenue comes from government type entities.

We do a lot of business with municipalities, not for profits, schools, hospitals and we'll be evaluating the way that those projects in particular solar and other qualifying energy projects are financed, given the fact that that direct pay alternative will allow us to pursue projects without employing tax equity.

And so of course, we're looking at it very closely, and we do think it will be relevant to the extent that it stays in there..

Okay. And then just on the labor piece, it sounded like that would be much of a lift for you guys to be taken in a lot of the ways that they can going around.

I'm just curious is that 75% you think that you already are hitting those types of milestones, they would need to see today, is it basically 100% like how in line with, how the business operates today with hitting those different targets you think?.

Well, without throwing out any particular percentages, I think that we just have such a familiarity with what those requirements mean. I think the devil will be in the details when you get into the nuts and bolts of the apprenticeship requirement and et cetera.

But nevertheless, that's just going to simply turn into a contract discussion, meaning, we've got to consider what our sub-contractors are doing and how they're actually considering union or non-union or prevailing wage et cetera. But again, it's an area that we are quite familiar with..

And most of our work it's prevailing wage or unions..

Okay. Thanks guys..

Thank you. Our next question comes from Joseph Osha with Guggenheim. Your line is open..

Hello everybody. Just a couple of questions, starting again with the RNG business, the way that business works now with the relatively short contracts in the RINs and everything is a function of where it is.

But given the way the world looks, I'm wondering if we could imagine you potentially managing to do some RNG projects that would be maybe 15 or 20 years with a utility grade offtake because that would make that business look very different? And then I have a follow-up..

Yeah and that's why one of the reasons right now we do not execute long-term contracts because we are of the opinion that eventually utilities and we're talking to some of them with colleges, universities where they have cogeneration plans.

In order to get to carbon-neutral, they will need long-term contracts, but the price now, the discount that some of them 10 or 15 new contracts are, it's not attractive, but down the road, I'm very confident that you will see long-term contracts and we will execute some of them might be 10, 15 and maybe 20 years, which of course will give us much better predictability to our numbers and so on..

And better project financing..

Exactly. And so we are very carefully monitoring that. We spent a lot of time, and at the end of the day, we envision a day that we will be executing those long-term contracts..

So if you right now, it's just that the actual RIN pricing isn't there yet?.

Yeah look, the way that we've been working the market, you saw we are over 90% hedged for this year, even though the prices went down. It didn't have any material impact on us and we have done great analysis on the Board that those kinds of questions.

Looking forward, what discount we will get if we're going to execute longer-term contracts and so on, and we felt more comfortable using the strategy that we have right now. And as prices go up, don't be surprised that you will see us that 50% maybe going to 60%, 65% and because the prices [Multiple Speakers], contract, it's shifting upwards..

That makes sense.

And then second, this is an interlocking question, everything you've done so far in energy storage has been with the Mion, is there any potential that we could see you perhaps looking at deploying some other types of storage technology, in particular, because one wonders whether there may be in addition to all our credits we've been talking about potential wisdom some DOE loan financing out there.

So I'm just wondering how you think about that?.

We think a lot about it. We got some essential depository of new technology review that goes on and we are constantly looking at new technologies. We do have a project in Nova Scotia that we've disclosed.

And that one without talking about the specifics of the manufacturer or the chemistry type is now with the Mion, we are putting a battery in to leases as part of an installation is currently under construction right now.

So we do and we will provide that we feel good about the quality of the product and we can stand behind the installation the same way we do with all of the rest of the products, but that results in a chemistry that is either more efficient, less costly has better degradation tables, longer duration whatever it might be, all that does is give us more options in terms of what our customers are looking for..

Yeah.

And then just on the DOE side, I'm curious whether you're thinking about whether that the LPO could be a factor here for some newer technologies, whether that's relevant for you at all?.

It certainly could be. Yes, for sure. I would say so..

I think the call is working [Multiple Speakers] something like that..

The LPO, sorry just to be clear, the way that they're approaching things for the size and scale of the type of projects that we do, it isn't glaringly obvious.

However, especially given the direct relationship we have with the Federal government is so many different places, it would be -- we'd be remiss if we were in regular conversations with them about what they're doing at four, who are they doing it with and where it fits within our business. So, yes, those conversations..

Thank you..

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day..