Q1 2021 Ameresco Inc Earnings Call

[music].

Thank you for standing by and welcome to the first quarter 2021, and Wesco, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone as a reminder, today's program may be recorded and now I'd.

Vice President marketing and communications. Please go ahead.

Thank you Jonathan.

Everyone. We appreciate you joining us for today's call. Joining me here are George <unk>, <unk>, Chairman, President and Chief Executive Officer, Doran Hole, Senior Vice President and Chief Financial Officer, and Mark <unk>, 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 predictions 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.

And 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.

Thank you Leila and good afternoon, I hope, everyone is staying healthy and safe.

The first quarter marked another excellent quarter for <unk> as we posted great financial results and completed our first equity raise since our initial public offering 10 years ago.

Well the first quarter began slowly with inclement weather in some of our project sites and operating plans our focus on execution.

With the improving weather conditions led to improved performance throughout the period.

As a result.

<unk> exceeded our expectations.

With revenues increasing 19%.

Net income, increasing 8% and adjusted EBITDA up 40%.

With a strong start.

We are raising our annual guidance.

Now I also want to take this opportunity to thank our employees for their tremendous dedication and hard work. Despite these challenging times.

Our project business had another strong quarter, well, our energy assets again posted solid results.

And we are we continue to focus on execution.

Project execution.

We were very pleased to see a meaningful pickup in awards during the quarter, which will lead to future growth in our contracted backlog.

We were also very pleased to have successfully executed an equity offering bringing in over $120 million in proceeds to the company.

Well, we historically have found that our long term growth primarily through internally generated cash flows and nonrecourse project financing, we decided the time was right to accelerate our growth by raising additional outside capital.

For many years, we have been growing our energy asset portfolio to provide highly profitable recurring revenue that day.

Christmas, how long term visibility and profitability.

Over the last few years, our team has been so successful that the OE.

Our assets in development and construction are now greater than our current operating asset base.

In particular, we will accelerate the development of a number of financially compelling renewable natural gas or LNG assets.

With this new capital, we now anticipate building three R&D plans for commissioning during 2022 and then another four unit 2023.

Over the last few years, we have seen a tremendous increase in interest in using RMG from and number of end customers, including large transportation and logistic companies natural gas utilities and distributed energy resource owners.

Just the other day.

Washington State announced the low carbon fuel standard joined in Oregon, California, and British Columbia.

Back in 2010.

The rest of the game one of the first companies in the country.

The commission and non LNG plant.

Currently our LNG is the most natural path to reaching a reduced or zero carbon footprint for many of these companies.

With our current operating LNG assets and those that we will.

We'll be adding over the next few years and <unk> will remain a leader in these environmentally important and profitable technology.

Many of the early policies axiom and statements from the New administration in Washington support this increased interest in R&D.

Additionally, we believe that they are more escalated in an excellent position to benefit from the new administration is for us from low carbon future.

Already we have seen the U S rejoin the Paris climate Accord and most recently announced goal to cut U S Green gas greenhouse gas emissions by up to 52% from 2005 levels by year 'twenty three.

Also the administration plans to directly farms and invest in the country's low carbon future through an <unk> scanner.

Working through the legislative process.

A good example of this targeted investment.

Is the approximately one trillion dollars.

The $2 three trillion infrastructure package.

Which will target project designed to.

Mitigate climate change is include expansion of solar and wind power charging stations for electric vehicles technologies to capture and store carbon pollution and equipment to make infrastructure more resilient against severe weather and other contingencies.

This new government priorities are beginning to filter through the economy.

We are already seeing traction with state and local governments and in the sea is commercial and industrial market.

We have filled in a number of requests from companies looking to report and demonstrate progress on ESG initiatives to reach cash flow reduction targets.

<unk> is well positioned to thrive in this new environment.

We were recently ranked the number one energy as a service provider in the guidance Carlos Incise Leaderboards report.

This highlighted our ambitious energy as a service vision expertise and technology solutions track record of success across customer segments, and our ability to provide financing for energy.

Service projects.

Our strong <unk> brand and our reputation as the industry's leading provider of distributed energy resources should enable us to benefit from the very attractive growth opportunities in our clean technology markets I will now turn the call over to Dora to provide some cash.

So now our financial performance.

And our increased guidance Doron.

Thank you George and good afternoon, everyone.

I'll ask you to please refer to our press release and supplemental slides that have been posted on our website for additional financial information.

Yes.

Clearly demonstrated our momentum in the first quarter showing strong growth in revenue net income and EBITDA.

As you May recall, we were somewhat cautious at the beginning of the quarter given the poor weather in key markets around the country.

While the weather did have some impact it was more than offset by strong execution and better business conditions in general leading to progressive improvement throughout the quarter.

Revenue increased 19% year on year again led by the excellent performance of our Federal group.

We also had strong results in our energy asset business due to several factors, namely the increase in the number of operating assets favorable production levels and an increase in RIN pricing and our renewable natural gas operations.

This better than expected revenue performance, along with tight expense controls and increased operating leverage drove an impressive 80% growth in our net income to approximately $11 2 million and 40% growth in our adjusted EBITDA to approximately $30 million.

As George mentioned, we were very pleased with the more than 35% year over year growth and 15% sequential growth in our awarded backlog, which now stands at $1 5 billion.

The uptick in origination activity and customer engagement, we are experiencing now not only helped to build the awarded backlog.

It also provides a more normal cadence for converting awards to contracts.

As a result, we are confident that our lower contracted backlog, which was attributable in large part to strong execution over the past several quarters will be more than replenished over the next several quarters.

Our assets in development had another quarter of impressive growth ending the quarter at 386 megawatts represented by multiple technologies and geographies.

Our 287 megawatts of operating assets have approximately $940 million in long term contracted revenue and incentives.

Together with our $1 $1 billion O&M backlog, we are continuing to grow our higher margin recurring revenue businesses.

Providing us great long term visibility.

<unk> liquidity has never been stronger and.

And we have ready access to the resources needed to execute our aggressive growth strategy.

We have significant cash balance of $81 million and over $100 million of capacity on our revolver. Additionally.

Additionally, we have broad access to nonrecourse project financing and tax equity as well as the ability to monetize development assets.

For example, during the quarter, we expanded one of our committed sale leaseback facilities from $150 million to $350 million.

On the back of our outperformance in the first quarter and the noticeable improvement in business conditions.

We are raising our 2021 guidance.

Our new revenue range is $1, one $1 billion to $1 $1 6 billion.

EPS is now expected to be between $1 22, and $1 30.

And we are forecasting EBITDA of $140 million to $150 million.

Now I would like to turn the call back over to George for closing comments.

Thank you Doron and closing I want to again take a moment to thank our employees partners and customers for their continued commitment and cooperation.

Together, we have been able to show tremendous resilience in the face of challenges.

With favorable federal policy momentum and now our enhanced financial position.

<unk> is uniquely positioned for accelerating long term growth.

As our customers continue to prioritize cost savings and resiliency as well as lowering their carbon footprint.

I would now like to open the call to questions. Thank you.

Ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key we also ask that you. Please limit yourself to one question and one follow up our first question comes from the line of Noah Kaye from Oppenheimer. Your question. Please.

Good afternoon, and thanks for taking the questions.

Yeah.

Adjusted <unk>.

Okay.

The first one on the project part of the business I think it was really nice execution in the quarter can you give us some color on what enabled you to capture some of the project revenues in the quarter a bit higher than previously thought.

What was just logistics getting easier or was there any sort of pull forward.

Is there any kind of evidence here a prioritization being given to these projects just given sustainability considerations and then how does that impact the thinking for the remainder of the year.

Yes, that's a very good question.

I will say, we pulled in and Mark can add some more color to add about $30 million from the balance of the year otherwise for quarters, two three and four and the primary reason for it.

Even though we had some.

Weather delay.

Delays in the central region.

In the Federal group, we were able to especially on the large project in Norfolk Naval Shipyard, we're able to get their permanent about two two and a half months ahead of schedule and in addition to some of the approvals associated with that particular project.

They came in a little bit faster.

As a matter of fact, we are about $25 million ahead of our.

Advanced scheduled in the payments coming out from that project. So and then we had a couple of delays in New York on the approvals collagen there is but primarily with the federal group debt.

They had the ability to pull in some additional revenues of about $30 million, which of course it came off.

The chorus.

That's great color, let me ask one about.

Regulation and de Carbonization.

It strikes me that one good way to Decarbonize is actually to regulate carbon.

And.

Just a couple of weeks ago. It was announced that the EU is going to be introducing a package in June that add buildings to the sectors where there.

There is an emissions trading system.

We're pricing on clubs is actually being captured here and.

And there's even some moving to put in some states in the U S to do as well so I guess.

Are you, perhaps more incrementally bullish on the EU market opportunity just given that dynamic and then.

Do you see actual.

<unk> of carbon and carbon emissions of buildings, becoming a tailwind for the company in the future.

Yes, I will comment a little bit of an enduring my Ed look I think what's going on in the EU is no question about it it's great great.

Tailwind for our business and I would.

Visual price debt.

Don't be surprised we might accelerate the business.

The EU community use the UK as a base and then move from that but.

More importantly than that you know what.

We are hearing from Washington D C and what's happening in this country, we have a great deal win on the regulation.

And especially when some of the states that's coming out.

The United States, and especially in Canada.

So that's why in my commentary.

I feel very very good about this business, where we are right now otherwise the stars align them out to our benefit there is no question about it for.

For us is to be cautiously optimistic, but diligent in growing the business in new ways.

In a minute.

But the opportunities are there and I wouldn't be surprised that you will see us expanding in Europe in the near term.

Well, great. Thank you George looking forward to that and I'll turn it back over.

Thanks, Tom.

Thank you. Our next question comes from the line of Julien two months Smith from Bank of America. Your question. Please.

Excellent. Thank you and congratulations to the team here nicely done at the start of the year.

Thanks Julien.

And you'll permit me.

Several things here if I can.

First off.

The additional R&D facilities now in 'twenty, two and 'twenty three how are you thinking about this reconciling in terms of the total contribution of <unk>.

EBITDA growth incrementally I mean, certainly your targeted double digit EBIT growth. If you will certainly seems fairly well founded on these almost alone, but I'm curious how you would characterize that piece of it.

If you don't mind.

Well so a good question Lillian's, yes, Julian storied I mean, as you know we don't give guidance beyond the current year right. So kind of have to start with that.

The the EBITDA contributions I think we've talked about before.

With.

A reference two megawatts.

This question I'll take the opportunity to just sort of talk a little bit about that so we had talked about 750000 to one 5 million of EBITDA per megawatt equivalent.

Translating that into MN Btu, that's about $8 50 to $16 50.

Per M and Btu.

And that's of course dependent upon RIN prices it depends on Lcs participation right and midpoint, representing around 50% margins. So in revenue terms.

Million and a half to $3 million of revenue per megawatt or 17 to $33 per btu.

When I look at the cadence of the 2022 plants in the 2023 plants.

I think 2022, those three plants total probably around 36 megawatts ish or 3 million F&B to use.

Which.

By the end of 2022, that's two five times, what we have now right.

I think.

It's an important it's an important point when you look at the cadence. So I think based on all of that.

We continued to take a conservative approach towards the company's medium term growth rate, we'd look at that.

Now we're into the low double digits on revenue growth.

But over 'twenty on the.

The EBITDA growth and of course.

Net.

We're hoping to see that cadence continue with clearly our investment in these these R&D assets is hopefully going to give us a boost.

Excellent. Thank you bring up from the metrics here can you talk about your hedge position right now on the Rins et cetera.

Obviously, <unk> seen a nice uptick.

I think early you guys havent been fully hedged can you talk about how that contributes to your to your higher guidance.

As well as relative to the math you just described on future projects.

Yes.

Pointed out last time, we have we have about 40% what I would call forward sale actually we executed some contracts as they go out.

Five years.

As we grow.

You will see us executing contracts in the short range, though because I think the RIN prices in the market. Overall is developing now we are in the early stages. So I don't we don't want to sign long term contracts closer to what we think we sacrifice too many economics, but hedging.

Kevin short term contracts.

Five years, or so about 50% of the output of our plants. It gives us pretty good project financing.

We think the economics are better however.

As all these new markets, where there is the gas utilities or was the universities hospitals that they have combined heat and power plants, and then wanted to reduce their carbon footprint.

Deal candidates for longer term contracts and I know some people in the industry. The codes in long term contracts and some of them we have looked at them and renegotiated for some time, but we passed because we thought.

In early stages of this market development. So we're going to watch it very carefully, but however from the lump because we are adding.

Like Don said 12 megawatts next year and about.

That much.

30 megawatts the following year.

The plans that we had.

We will.

Cash of about 50% of that output from those plants, but for short periods of times, but if let's say six months from now we have a good deal and it goes out 10 years or 15 years, we will do it.

And the other thing I want to add.

The equity we have a little bit more flexibility now that we had before and Thats why I felt we felt more comfortable in going ahead and accelerated the development of this asset because we have a tremendous backlog on that.

We have we built six assets.

Now on the LNG and we have another six in the development pipeline and forget what we have.

And in the actual pipeline that's right right.

All right.

Julian and sorry, just because it was part of your question. So I think the <unk>.

Impact on returns for the quarter.

Probably a couple of million dollars.

Higher.

I think we.

R&D overall, probably.

Contributed.

$3 million to sort of we'll call it over over performance.

And but one of that was just pure output.

The plants just had improved production higher production and then a couple of million dollars from the higher energy prices.

And then if I.

Permit me.

In Greece, if I can.

How are you thinking about your disclosure package as you think about the <unk>.

Great.

Business evolves, you talked about Europe, you talked about LNG.

How are you thinking about updating and providing perhaps more specific disclosures on different parts of the business here.

By the way George Thank you for the heuristics just now on the <unk>.

And in the R&D side, but obviously you get yourself involved in different.

The business here have you given much thought to that.

Yes, Julian I think we are continuing to give thought to that.

At this point in time, we're staying the course with that Youll see the supplemental slides the way that we present the material graphically.

I think we felt very good about providing additional color during the Q&A.

Look I've just given you.

But kind of beyond that I think we're just going to take it one step at a time.

Excellent well again, I emphasize congratulations and best of luck.

Thanks, Julian J Julien.

Thank you. Our next question comes from the line of Craig Irwin from Roth Capital. Your question. Please.

Hi, good evening, thanks for taking my questions. So.

You can you remind us the half dozen plants that you have confirmed into your pipeline on the.

R&D site.

Is the schedule of those build outs.

And when do you expect to build these.

How should we expect those to come on over the next couple of years.

Craig why don't why don't I take that so just I mean, as we've talked about we've got the one plant. This year right, which is 12 megawatts or about 1 million Btu in.

In 2022.

Now kind of scheduling three plants.

Total of 36 megawatt equivalents of $33 million in <unk> right and those are the three California plants, we've talked about before.

Alright.

The 2021, and we're expecting that to be kind.

Kind of fully commission before the end of Q2.

This year.

In 2023, we've got four more they're a little bit smaller.

'twenty two.

99 megawatts total $2 5 million in <unk>.

And then we've got in our asset and development pipeline.

More plants.

Signed gas and land rights to them and as you can imagine there's quite a lot more in the kind of the development and negotiation stage behind that but that's the that's the cadence we're not ready to talk specifics about the timing within the year 2022 or 2002.

'twenty three as far as those plants are concerned, but we do feel pretty comfortable with that cadence.

Okay in those years.

Thank you for that.

We spent a little bit of controversy out there over the last couple of months.

About the cash flow off the assets right. So.

<unk> has greatly improved the disclosure around the assets.

And.

Help us understand this quite a lot over the last few years.

But can you maybe describe for us what you expect as far as cash generation of these assets over the next couple of years this year.

2022 and beyond.

Im not asking for specific numbers, but maybe.

Titles that you looked at it internally and then how much of the capital budget and if you have specific numbers for us in 'twenty, one and 'twenty two.

Can you go towards the asset build out for these projects.

So sorry, starting with the very end of your question, which is these projects and I think that we will.

Dropped some numbers in the press release about our expectations for the rest of the year in terms of Capex on energy assets overall, R&D, plus solar plus micro grids, plus whatever else energy as a service. So that range is a $165 million to $215 million remaining for the year.

The.

As far as the cash flow question Craig.

I think we're in a position today to start <unk>.

<unk>, formerly disclosing cash flow or net income kind of on a.

Alright.

Energy asset category by energy asset category basis, its something that we are looking at to try to.

A little bit more clarity.

As you know unlike.

Yield codes or other dividend paying stocks, we are investing all this cash flow that we're pulling it off of these assets.

Furthermore.

As we grow the portfolio like we're doing in increasing our our plans for the next few years.

Much of that cash flow information.

We will largely be driven by ultimately the revenue mix associated with the offtake and the type of project financing or nonrecourse financing, we apply to these assets so more to come I. Appreciate the question I understand its importance.

And we're going to work on that.

Okay, and then last question if I may.

With the successful IPO Montauk.

And the obvious success.

<unk> with your clean gas portfolio it seems like Theres dozens of these.

This green gas companies out of the woodwork coming out of the woodwork.

Many of them.

Don't have much as far as an experience base, but are trying to raise cash to.

Acquire projects in development.

Stages of development I.

I do know that there are projects that are being shopped.

But most of these are.

Items that people actually have to go out and find themselves and about the way <unk> has.

Can you maybe give a little color on how challenging it is.

To get a project up and running beyond the initial paperwork.

Maybe filings from permits or initial agreements.

Can you maybe handicap for us what day.

These new entrants are really looking at as far as.

Longer term execution challenges.

And Thats why some of these companies, sometimes when the forecasting some numbers.

It's very challenging.

Especially in California in quite a few other states too.

Permit.

Sites as well as get pipelines in order to into connection with a good deal at the gas companies and so on and that's a great differentiator that we have in the marketplace not only we have the development of capability because we have the relationships with the various <unk>.

Lindsay alone as we've been doing this for the last 21 years.

In addition to that we've been designing building and operating and maintaining them.

From the time that you would get started lets say you identify the customer.

And sign a letter of intent and then negotiating the agreement, let's say, whether it's a gas agreement and so on by the time you get the plant up and running I would say, it's a three year cycle.

And I can tell you in California, a couple of our earlier project it was even longer than that the permitting.

So, but as a regulatory and the environment changes little bit.

Things might change shorten that cycle, a little bit, but and thats why we feel very very good we see a lot of money going to the RMG and let our funds and so on but we think we have a competitive advantage because we've been there we have the relationships. We have the development backlog I mean, even if we didn't sell in other projects we have a good 2020.

I was figuring the other day 25.

I know in our pipeline, we have quite a few more.

We have not only build them, but we operate and maintain them and they are pretty complicated I give you. An example, and why we're a little bit cautious.

This quarter our numbers.

When we made.

The annual.

Report.

We have three of our plants out.

San Antonio because of the freeze up down there we will estimate is going to be about three to four weeks out.

Our guys they got it back within 10 days.

We had the woodland plant out estimated for two weeks, we got a debt with less than a week and then.

<unk> construction, we had to demobilize because of the freeze up and so on and we thought it might be a couple of weeks, we lost four days.

So whichever the capability, that's very very important.

To build these vessels they are very complicated they are not like solar.

Much easier.

<unk>.

We feel very good about this but on the other hand.

You probably read the book.

And the growth in the Paranoids survive with all of his money coming into the market.

I am paranoid and I always try to stay ahead of the competition.

Great well, we have no doubt youre going to stay ahead of the competition congratulations on the really impressive performance here George.

And <unk> heme at MRI Scott This is.

This is impressive impressive execution.

Thank you great. Thanks, Greg Thank you Greg.

Thank you and once again, ladies and gentlemen, as a reminder, please limit yourself to one question and one follow up. Our next question comes from line of Ben Cohen from Baird. Your question. Please.

Alright. Thank.

Thank you good evening.

My partner George bed redo, our to say happy day day to George.

Good day.

Okay.

I guess my question. Thank.

Thank you.

Youre welcome.

For me too.

Yeah.

The new capital.

Net.

10 years.

Have a raise debt capital until now.

I think were all the questions.

<unk> focus on.

On the renewable natural gas opportunities.

I just wonder about.

Different opportunities you just said.

This is more difficult than solar.

I wonder for yoga.

Next step of things or maybe that's not how you look at.

Batteries are micro grids are.

This capital opens up.

No question about it.

Yes.

I know, we emphasize the RMG appropriately more than any other ones, but I think somewhere we've made the statement and all other renewable assets or micro grids look combined heat and power is here to stay distributed generation I think it's the way of the future and some people.

They think it's going to be by built in more transmission lines for resiliency at the end of the day. They will find out that it will be micro grids and distributed generation and Thats. Why we are very excited about the energy as a service and we are getting some very very good traction because basically that's another asset asset classes.

We will have we're talking to some commercial and industrial customers.

They're going down that direction.

No this capital and Thats why when we made the decision. This is what we looked at where the business is going not only on duty. The green gas will also the solar that will get the accelerated as well, but we have talked about in the past I thought and thats. The way, we didn't emphasize as much but distributed generation energy.

Energy in our service in the micro grids I think is the way of the future and Youre going to see us play more and more role in that particular market I envision and pretty good traction as well because we have the capabilities.

How how are the customer.

The same or different.

So how do you attack.

No.

Between those different opportunities I guess could you do that what you would do that so to open up a new opportunity.

How do you pivot or do not have the same cost.

Well, we do not we do not the energy as average we've been doing that.

For the last 10 years basically it's no different than our volume growth energy savings performance contracts because on those who gets fine all gets financed through a third party.

Does chosen the customers and.

On balance sheet energy as a service it does not show generally when the customer is off balance sheet financing.

And we get into on the savings from the other contracts.

Energy.

Cash contracts.

We will get paid out of the savings from the energy as a service contract. So by the way back in the 1981 day contract.

Contract that they did it was energy as a service zone way the Canadian market and reconcile what's built in that we were getting over 50% of the savings will make another 40% margin. So.

And we have customers that they can.

Pivots from the performance contract to energy as a service contracts, yes, Ben I think the asset ownership opportunity will also follow the.

The clean energy goals and the carbon reduction goals that are.

Proliferating across the market. So that's both much market.

As well as obviously the federal government plus the.

The corporate market and so I think that that's going to drive a lot of demand we're going to continue to offer flexibility in the way. These things get financed so if the customer wants an energy as a service that we put the asset on our balance sheet or a PPA or what have you we're going to be standing ready to do that and I think this.

This equity deal provides us with more firepower to just go after it.

And last one and thank you guys very much from that.

On the balance sheet.

So you guys can do.

We're looking at doing from.

From a debt perspective.

Sure.

Or if you got.

<unk> continued to experience.

Thank you guys very much.

Sure So Ben I think the.

On the debt side.

I'm not going to project forward, but.

Obviously, we're continuing to work on nonrecourse financings that are that are meaningful for the company based on the asset portfolio will continue to we'll continue to do that.

Certainly.

If we if we decide to do more we will be talking about it in the future.

Thank you. Our next question comes from the line of Tim Mulrooney from William Blair. Your question. Please.

Good afternoon, and thanks for taking my questions.

Sure Tim.

Hey.

I know you're working with a long sales cycle here, but curious if the debt.

The recent winter freeze in Texas has ticked up more conversations around distributed generation and energy security with your customers or potential customers.

Yes, no question about it and it started with the Sandy storm way back from especially as New York, and New Jersey, but.

Recently now it has become pretty much a way of life I would say.

Every base that we are doing a project with right now in the United States. It has some kind of resiliency solution take.

The Norfolk Naval shipyard details of combined heat and power and battery storage take the Paris Island, the same thing.

We're talking to some clients commercial and industrial customers.

I cannot talk about which particular ones, but they do colleges we have three colleges right now.

They are committed to have resiliency because look at it this way.

And I think I mentioned this before I was doing the generation planning for New England electric all the way.

The $19 79 and debt.

Then we were losing it is looking at the single contingency and then we wanted to double contingency basically losing 10% of the loaded new England, which that will be two nuclear units sales broken millstone and that will give us unless a low probability one in 100 years.

But now.

With 30% of the load coming either wind farms solar you'll get one almost 30% of the Lord willing now to a single contingency there is no way transmission lines when it Rick.

Recover that or anything is going to be distributed generation and battery storage and micro grids.

People will realize it.

It will be the way the way to go.

Got it thanks.

Net interaction.

Okay. Thank you.

And then with all the recent headlines around ESG and corporate responsibility.

In conjunction with the new administration, taking over.

Curious if you're starting to see an uptick in interest from C&I clients, even even relative to say this time last year and if that's resulting in that no question about it mental traction what about for like for energy as a service offering for example, George.

Yes, we gave you some pretty good traction associated with that energy as a service.

Regale energy.

I think I mentioned it in the last call.

Total somebody that the first time that we had a call from C&I customers say, hey, guys, we need help.

We got there.

About our carbon reduction and we have the software to tell them what are they are until on in it.

And that's why I made it in my comments I heard it in my comments that we do get some activity.

Great. Thank you so much.

Thank you Tim.

Thank you. Our next question comes from the line of Eric Stine from Craig Hallum. Your question. Please.

Hi, everyone.

Okay great.

Okay, maybe just sticking with C&I.

Since since that.

An area that youre, starting to get traction and obviously as you as you look out three to five years.

I mean, what kind of mix do you think that can be of your overall business and then.

You expect that to fall more on the project side or do you think that that's something that you would look at more on the energy asset side.

So if you think about that going forward right.

Alright.

Right now we have more on the project side than we do on the asset.

We can talk about this wells Fargo Bank, we started out moving all of the 30 megawatts of solar and then at the end of the day. This is not your development design is built for US we will own. It. So we have seen that but on the other hand there.

A couple of deals that we will be talking hopefully in the near future.

Going the other way.

So I think it's too early to tell.

Mike.

I'll reserve judgment until we get more information on this.

I think that it's going to be driven by what the customers looking for in terms of their <unk>.

<unk> capacity and it will probably differ depending on whether you're talking about a large strong CT.

Corporate with a high credit rating and access to low cost of funds or something that is a little bit more down the credit spectrum. So it'll depend.

Got it and then just on in terms of mix I mean, do you think three to five years out this is.

This is.

A very meaningful part of your mix or do you think that the maturity of our business will still be.

You get a more traditional.

I think of the project business I think it will be meaningful I think it'll be meaningful we will certainly increase.

However.

Would say that.

The municipalities and the.

Our traditional much market and federal government customers are equally increasing their guidance on proposals rfps and.

Carbon reduction goals et cetera. So.

Yes, I mean, corporate certainly grow faster than the others, but the others are still growing.

Okay, that's great. Thanks.

Certainly thank you.

Our next question comes from the line of Jed <unk> from Canaccord Genuity. Your question. Please.

Hi, Thanks, congratulations on strong execution guys.

Thank you.

I guess first question just curious.

We're seeing inflationary pressures on.

On the materials side of things and so I'm, just wondering how youre thinking about that in terms of.

Project business are you able to I'm, assuming based on structure contract Youre able to.

Pushed those.

Rice's onto the customer in a cost plus type relationship, but at some point do you see any.

Negative.

The impact in terms of getting over a certain threshold, where the project debt.

Canceled.

Sure.

Given.

Yes, not to not to the point that we project will be cash flows.

Period changes, but we do see some.

Some pressures in the price and then suddenly equipment delays, especially when some of the micro grids and some of the sophisticated controls from street lights, we've had some delays in equipment there.

And then.

On the battery storage.

So, but so far.

It hasn't had a significant impact in the overall business or.

The performance of our company.

The other thing as you remember, we manage that risk very very well because we price the jobs and then we signed the contract in.

And generally we have bought the equipment and then many times, we have extra good as a sub contracts, but on the other hands from a contract that they have longer periods of time, we do have some exposure there and we are watching it very very carefully.

Right.

Great.

Pre buying panel lights, and so on I mean, the only the only thing I'll add there is that we we don't have any particular components that contribute such a large portion of our.

Supply chain, our needs our procurement needs right. So one inflationary pressures on steel for example, right.

Is there an impact sure there was an impact from most of our contracts get negotiated so we've got margin protection, but.

At the same time, even there that does not represent.

<unk>.

A substantial portion of our spend on the cost of execution and our cost of goods sold so.

I think we're somewhat protected by the diversity of the types of <unk>.

Equipment that we're buying.

Great and then just as a follow up question on the C&I.

In particular.

As we prepare to.

As companies are preparing to go back to the office or some type of structure.

I'm wondering.

The occupancy of most of the buildings.

Rather low on the commercial office side and also on the industrial side.

I would think that ERCOT.

His broad.

Resiliency top of mind I'm wondering if you could just parse out for me the Delta in terms of the driver is it more resiliency, that's driving some of that project business or <unk>.

<unk> offering.

Features and functions to.

In office like.

Charging station in the parking garage.

Or.

At our HVAC system.

How are you how are the projects kind of categorized in terms of the driver on.

On the C&I.

I would say primarily.

Getting back to the office and surround the charging stations and then may be some.

Filter in or new HVAC systems to to make sure that people get back and they have a safe environment and so on but now you are talking to a data center or a bank or something like that then the drivers there is resiliency.

Because I know from development. So we wont couple of projects because they won't have solar but then.

Realize that we drilled the micro grids and the battery storage.

That's how we get selected because we gave them a more comprehensive solution.

That's great. Thanks for the color and congrats again guys.

Thank you very much workout.

Thanks.

Thank you and our final question for today comes from the line of Pavel <unk> from Raymond James Your question. Please.

Yes, thanks for taking the question so.

We've talked about the infrastructure proposal from from Biden some of them.

Rhetoric as well.

Specific question in relation to the.

Department of defense.

Have you noted any.

Kind of concrete changes in.

<unk>.

The contracting approach or the.

Willingness to adopt efficiency solution by the Dod or the Army Corps of engineers, if we just think about the last hundred day.

Yes excellent question, because I asked Nucor vulgar internally the same question last week when she was here.

Gives you a perspective last year.

For the first six months, we had zero requests for Rfps come in over the federal government.

So far this year, we have five.

And Thats for energy savings performance contracts, we have other ones design build many but.

Specifically.

This is the main driver of our business the energy savings performance contracts. This year, we had five last year for this line plus another three months because.

The second quarter of last year was pretty much debt anyway.

But everything was closed zone, but the attitude.

Which is the driver and that's the way we've made it in a comment it's much much more positive. In addition to that incorporates not only resiliency, but renewables.

I think you will see that even the previous administration. They wanted to infrastructure upgrades, because these projects and getting them to come up with any money, but now the new administration not volume with one the infrastructure upgrades. There is you didnt see it but.

Renewable components from the various projects.

And some of the things that we're working on this infrastructure Bill will help.

<unk> so that we can.

The option whether to do it.

Let's say a solid fall.

Arm under the energy savings performance contract or they can take it out and do it under a PPA purchase power agreement.

Give them more flexibility to achieve vehicles.

Yes, Thats, an interesting Europe, a year of comparison and I appreciate the detail on that.

One more.

D O D theme question the contract that you specifically highlighted in north of $173 million.

I think it's the largest in <unk> history, correct me if I'm wrong.

Sequence of recognizing that revenue between this year and net kind of the Alex by the way is not the largest one at Savannah River way way back because we did we took on all of the 25 megawatt.

Qualify a cogeneration plant day.

One is just the rhythm and brand new.

Wood chips.

Power plant.

And it was done in the energy savings performance contract about couple of hundred million dollar projects, so close enough anyway.

It's been transformed.

Transformative projects for us.

$670 million, we get paid as a percent complete.

Actually they have.

Schedule, it's about two years right now.

And just on a percent complete right.

Alright, as we deliver that as we deliver the project will recognize that Andre as we're constructing at the percent complete and then we'll move into the O&M phase one.

That project has been delivered.

Right.

There is an excellent O&M contracts from that particular project once it's completed.

Alright, so half and half this year index.

No.

Yes.

I don't know if it would be.

Investment tough this year, probably less than half of this year and then more.

More next year.

Okay.

And there isn't behind because we.

We just like I said, we got the permits early March we started moving equipment into one takes some time to start to really ramp up but yes. So I think we'll see more of it next year.

Okay.

Thank you very much debt.

Okay. Thank you.

Thank you. This does conclude the question and answer session as well as today's program. Thank you for your participation ladies and gentlemen, you may now disconnect. Good day.

Thanks.

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