Q4 2021 Ameresco Inc Earnings Call

February 28, 2022

Give me and thank you for attending by and welcome to the Q4, 2021 and the rest co 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.

Please be advised that today's conference is being recorded if you require operator assistance. Please press star Zero I would now like to hand, the conference over to your speaker today.

Leila Dillon. Thank you. Please go ahead.

Yes.

Thank you Nicole and good afternoon, 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 Executive Vice President and Chief Financial Officer, and Mark to block.

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.

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 <unk>.

George Thank you Leila and good afternoon, everyone, the fourth quarter GAAP and notwithstanding.

Both brought bids for mris as I was there any employees in cooperation with our customers.

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.

$1 billion in revenue visibility across our lines of business.

Over $3 billion.

Total project backlog.

This coupled with over 400 megawatts of Ventas and development supports our tremendous confidence in <unk> multiyear growth trajectory.

We continue to see proposal activity picking up as customers seek solutions that address.

Accretion energy cost.

<unk> and carbon reduction goals.

With the addition of the Southern California, Edison Edison Battery project.

Contracted project backlog ended the year at $1 $5 billion.

Hello launched doubling.

Gradually and increasing 68% compared to last year.

And well the southern California Edison contract with a major win for the company. There are several other large opportunities with complex solution requirements.

We are pursuing and winning.

Our energy asset business, you've had 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 impacts here.

Our assets in development and construction to fall and therefore didn't Atlas.

Hello.

70, now growth has been driven by expanding addressable market opportunities both.

Related to continue industry trends as well as mris gross investments in energy experts and new technology and solution offerings, coupled with flexible financial solutions.

A good example of these expanding addressable market is demonstrated by our increased partnership opportunities, we see electric and gas utilities.

In addition to provide renewable and efficient utility industry clients to help them reach their renewable portfolio standard goals. We are now also helping them increase that is unity of their grid through the use of innovative micro grids and energy storage solutions.

Southern California Edison project the largest in <unk> history is a perfect example.

Yeah.

And then we.

We've continued to invest in people and advanced technology solutions to ensure that we are in a strong position to capture these emerging opportunities.

For instance in the last six months, we've made an opportunistic investment in hiring of <unk> syndrome.

Biogas engineers and professional managers in our renewable gas group.

More than doubling the development staff in this business unit.

With 17 RMG plants in development, we believe these additional resources, which help us accelerate the number of plants that could reach mechanical completion in 2023.

<unk> plans to potentially as many as five or six depending of course on permitting.

As a reminder.

We do not expect any meaningful revenue from this pension.

But it provides a foundation for continued visibility on future growth.

Well I'm going to here.

We have built a maresco organically and through opportunistic acquisitions.

Our recent acquisition of blood Smart is a great example of this strategy.

This acquisition expands our existing solutions in pipeline in the smart building sector.

C and rapidly growing opportunity to provide a complete portfolio of smart building solutions to our existing and future customers by integrating controls and or a mission.

Our clean Tech solutions.

And integrated Smart building is the best solution for our customers seeking to maximize employee productivity, while minimizing their cost their environmental footprint.

Our continued investment in the large and growing smart building market.

Further expands <unk> addressable market opportunities.

<unk> provides our customers with a one stop shop for their needs.

I also want to highlight that we recently published our 'twenty, one ESG report and.

And title doing well by doing good.

Vision.

Integrity.

ESG is core to our corporate DNA.

And there are many companywide efforts underway to achieve our ambitious goals.

Well, great attention is paid to all aspects of ESG.

To note some measure environmental achievements and more importantly goals that we set out in the report.

Since going public.

In 2010 in March because the renewable energy assets and customer projects have delivered a cumulative.

Offset of 60 million metric tons of carbon dioxide.

We expect this number to grow significantly and as a result of the energy efficiency solutions, we deliver and the renewable assets we placed in service.

We will also have pledged to achieve net zero carbon operations by 2044, both scope, one and scope two emissions.

Third we will establish more green Green house gas emissions reductions through the science science based targets initiative by donkeys quantified to validate net zero targets with the objective certification.

We are very proud of.

The positive impact that <unk>, and my escrow makes everyday and providing clean tech solutions to a broad range of customers and we are committed to the highest standards of corporate citizenship.

During the quarter <unk> was alpha the CPM of a number of awards and recognitions highlighting the strength of the <unk> team.

Our excellent work was again recognized by S&P Global Platts.

And by the U S Energy storage Association, which highlighted <unk> escrow strategies and accomplishments in the battery energy storage systems market.

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

Thank you George and good afternoon, everyone.

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 action 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 <unk> uniquely resilient and capable of handling the impact of COVID-19 and supply chain related issues.

While we face many of the same challenges as others are 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 strengthen rent prices.

We continued to grow our operating asset portfolio each quarter by bringing additional assets in development online.

Other long term recurring revenue stream. The O&M business also had a strong quarter of growth as we attach long term O&M contracts to our completed projects 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 but nominal year over year growth in adjusted EBITDA.

The SCE contract as a Prime example of our strong operating leverage in practice, demonstrating our ability to add gross profit dollars without substantial opex growth.

Now I'll 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 in.

Including the SCE project.

Customer interest in bidding activity remains 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 back filling 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 midpoint of our guidance.

During 2022, we anticipate placing between 60 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 <unk> business development and execution capabilities elsewhere in the company.

Our procurement techniques have allowed us to navigate supply chain issues and.

And we are pleased to report that the project is progressing as planned.

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

Thank you Darren in closing I want to again take a moment to thank the entire <unk> team for their dedication and outstanding execution.

In a very challenging target onto one.

We also want to recognize the ongoing support of our customers and long term stockholders.

We entered don't get counted in the strongest position in our system.

$5 billion in revenue visibility and rapidly expanding addressable market.

I believe that both our near term and long term prospects have never been better.

Hi, Lee.

I like to remind everyone that <unk> will be called units first investor day in person.

<unk> City on March 20 <unk>.

During the event, we will be featuring interactive presentations and panels by a broad representation of our leadership team.

Scott just will focus on key growth opportunities highlighting our portfolio of innovative solutions, which make <unk> the industry's preferred partner with the most complex and comprehensive intense intense cleantech solutions.

The event is designed to provide analysts and institutional investors with a deeper understanding of mras.

<unk> integrated business model.

And long term growth opportunities at the necklace all cost savings energy resiliency wound footprint reduction, we look forward to seeing through their impression.

Alright.

Now to open the call to questions.

As a reminder to ask a question you will need to press star one on your telephone again star one on your telephone please limit yourself to one question and one follow up on me to withdraw. Your question are you asking a question has been answered.

Your first question comes from the line of Noah <unk> from Oppenheimer. Your line is now open.

Alright, thanks for taking the questions everyone.

Wanted to ask you.

Follow up to your prepared remarks around the contracting environment.

Underlying backlog.

George I think you mentioned several large projects with complex requirements Youre I think you said you were bidding.

So first can you give us a flavor of.

The types of applications.

Or technologies.

That you're referring to here.

And secondly.

The underlying backlog and are they up.

Sequentially.

<unk>.

And do you think you can be kind of back at 2019 level as you exit this year.

And I'm, just trying to equate in 'twenty two apologies.

There were several questions there.

Yes.

So should we I mean first should we tackle the technologies.

But we're looking at the backlog.

Yes.

Basically battery storage micro grids.

More green gas plants.

The comprehensive smart building solutions scanning to be bigger and bigger plenty of.

All of our portfolio.

Some hydrogen and you saw some announcements.

We made.

So basically a comprehensive list of what we call advanced technologies.

Yes, I mean, I think if I think about the backlog and what's been coming in on the awarded side and the conversions certainly and to Echo what George just said, we're seeing a concentration with micro grids 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 involved.

Controls as well.

And then as per usual there is the.

Traditional energy efficiency.

As well so I think.

And as is typical for a lot of these customers.

They want to fold in generation as well so we have the central plant solar.

Along with the batteries coming in.

So.

The technology question, sorry, if youll move to the next one node.

Yes.

You said <unk> got drunk.

It was on the backlog.

Operator can we move to the next question I think we had technical difficulties.

Sure Sir.

Next question comes from the line of Stephen <unk>.

From Stifel. Your line is now open.

Thanks, and good afternoon everybody.

Does that then.

Two things from me can you just give us a quick update on where.

Sure.

Our energy asset portfolio, where the rollout of the.

RMG projects stance as we go through the next.

Couple of years.

Yes, as I pointed out.

We had.

Three mechanical completion this year and then we increased we accelerated the level for the year after two five or six.

One of the biggest issue that we have with accelerated.

Those projects.

We did an excellent job building up the team and now we can we want to get built in about six months a year.

Thanks, Rob.

Next year I appropriately fully operational as we gear up to that.

But permitting some of the plant expenses couple of plants in California got delayed.

Departments.

But we substitute them with couple of other projects that we were able to get department.

Yes, so Steve I can go through the <unk>.

<unk> with you a bit here 2022, the expectation is three plants, reaching mechanical completion.

Those represent about 22 megawatts.

$1 8 million in the Btu per year.

As George mentioned, we had a couple of plants in California, where the permitting process is slowing things down.

But because of the breadth the depth of our development pipeline there were actually a couple of others that that actually caught up and pulled ahead.

And with the permitting in 2023.

Again based on building up the team we expect to.

Pulling some some additional depending on permitting but we're trying to get to 5% to six plants and mechanical completion in 2023.

And that's about 45 to 55 megawatts or $3 6 million to $4 4 million Btu.

Great.

That's helpful. Thank you and then.

As we think about the <unk>.

We're in the.

So obviously there is an inflationary.

We're dealing with and you are also dealing with high oil and gas prices.

In General I was just curious how that impacts you.

Sure.

Contracting of new projects and B sort of how you think about.

The impact of inflation on the margin front as we go forward I know labor has been tough just kind of trying to get a sense for how youre approaching that and how what kind of impact we should be thinking about.

So I'll start with on the project business. So on the project business we.

There is some important pieces of Mris goes.

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 and 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 sub contracts and procurement prior to signing the contract to allow us to protect our margins. So that's one side of the second side of it is on the contracting side the origination side as these energy prices have gone up.

Overall cost of energy that we are 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 or whatever it might be.

The value of those will expand.

So there is.

There is sort of 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 it's our view that that is certainly.

Beneficial and will will help on the origination side, but hopefully that answers your question.

Exactly right. So effectively when you save in energy are saved more money right. I mean here you are the value proposition is even greater.

And that is exactly right.

Proposition becomes much better great well, thank you gentlemen.

Yes. Thank you for the color I appreciate it.

Yep.

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

Good afternoon.

Hi, there.

So the question on backlog for <unk> was.

Sure.

If you exclude southern California Edison.

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.

Yes.

We're still again showing some growth on the contracted backlog.

That we wanted.

And we watch very carefully what's happening into the marketplace is the fact that the hour awarded year to date and a 17% growth for last year. So we saw a good pickup.

And as it turns out.

I think our growth the last three years on the topline zone averaged 15%.

Our awarded growth.

For the year, 17% I think pretty much gets midst for the last three years growth.

Yep Okay.

I think we want to point out at this point.

The proposal activity is picking up and I think we have to remind ourselves that we were operating in the COVID-19 situation.

But we do not have excess to the customers as well as we could possibly have but last quarter and even though it was the.

The winter quarter, which is usually the slowest one we showed.

We saw a pickup in the proposal activity in this quarter that trend has continued.

Youre seeing a pick up because folks are emerging from the pandemic.

Okay.

Correct, and which are the early.

The energy prices going up.

Therefore, our concern about energy costs.

And of course, our valuable position becomes better and better it has improved tremendously even though interest rates have gone up a little bit that doesn't have.

And Andrew will EMEA.

It has an adverse impact but.

The positive impact coming out of the energy prices going up with it.

It's much much better for us.

Yes 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.

How should I think about that impacting.

Generally.

It impacted little bet, but it's very small.

Basis points.

What we've been able to do so far I can use an example of that.

And project.

Like in the rate, we'd like to raise this week.

Thanks.

And then we get to reprice the rates the energy prices the project group.

Otherwise, we could afford to have a positive cash flow.

The updated energy costs, and even though the interest rates went up couple of basis cut about 20 basis points or 75 million $7 million.

I mean, I think thats. The most clear example, current example.

The situation, it's anecdotal but that project.

We locked in a rate reflective of the current interest rate environment.

But then the overall calculations based on the revised energy costs and projected energy costs.

The project actually group.

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

Yes.

Alright, Thanks, guys Thats great. Thank you so much.

Thank you.

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

Hi, everyone. Thanks for taking the questions. Thanks, Joe.

Hey, so just on the energy storage the big one the contract with Socal Edison just curious what that is kind of meant in terms of.

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.

Be that 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 some smaller contracts, but you'd be in the mix for greater number of them.

That's a good question.

The activity level requests by various utilities and also by some of the smaller cooperative.

I do not have the expertise.

Just picked up considerably now whether we will get another contract.

Similar size, we would love to.

We would love to talk with them I would say this much now.

We know much much much more.

More about the projects, we feel pretty comfortable with its execution.

And feel very good, but you will see more EPC.

And as you see more and more.

Solid plans.

Wind farms and so on other ways more of the electric capacity comes from renewable resources those skills.

Backed up somehow.

And battery storage in the short term as a means to do down the road we may.

Clean fuels and so on but we will built.

Probably plants that run from 24 seven.

But right now battery storage, it's a key market for us and it this project plagued us in the different.

Now full of competitors.

<unk>.

Our expertise, which helped US a lot with this project and we have many more projects like that cyclical not the same size, but smaller size point of view and don't be surprised many of them there will be preceded with the utilities.

The company's long term.

Some of them they will be.

Assets, we own but I know, we have three or four of them that we're working on ultimately we will own.

And do you want to add any more color to that I think that's the that's the punch line is that our approach to customers is flexibility with respect to how they want to execute its execution track record that is going to get us the deals and our ability to provide either.

Stock capacity contract what have you as an asset that's on our own balance sheet versus design build contract for the customer we can provide both so.

We see we see the backlog filling with.

With both.

Got you Okay, that's very helpful.

And maybe last one for me just in terms of component shortages in <unk>.

Having to deal with what everyone else is in there.

The industry just curious.

I mean, the fact that your equipment agnostic is that something thats helpful. And then maybe just some of the steps that you've taken and how you see that going forward.

No no question about it.

We are technology agnostic.

Traction in the marketplace because people they don't want to be captive.

We can go out shop shopping.

And Thats one of the competitive advantages that we brought to the table in the southern Cal Edison project.

We have a much more flexibility than the other people they would die.

Some of it definitely is 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, thanks for taking my questions.

George I wanted to ask you question I had heard maybe six months ago that you double the size of your Green gas project development group now is that true that it's actually a really positive thing that gives them more time in the seat and it's good that you are talking about them now.

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.

These new resources.

Productive for the group to capture new projects and execute etc.

I will start from the end and going into banquet theyre productive productive unit liquidity with senior executives and.

<unk>.

And all of them had been added in the last six months.

And I would say some of them.

<unk> two months.

Don't know if you have any more color I think Craig So you guys store and we've got it.

On the engineering side the development side.

Legal finance just folks that are really familiar with these projects and the market.

Up and down.

And of course much of this is opportunistic and we.

As George mentioned a lot of these folks came in in the last month or so.

It really hit the ground running.

Okay excellent excellent that's really good to hear.

Yes.

If I wanted to add.

And specifically.

They were working for green gas plants before developing them upgrades and then built and so on so.

So it's not engineered wood tried to convert them from another filter this field.

Hi, Ed.

My remark.

LNG exports.

Understood. There is a lot of flimsy R&D startups in the market.

No.

Probably it's probably not hard to steel talent from some of those sites.

Happy to hear that Youre bulking up there. So my second question is really about the SCE projects typically construction companies now I know your performance contracting.

But typically for construction companies when they have <unk>.

<unk> that or more than 10% of revenue in the year, we'll 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.

If you could talk a little bit more extensively about what you've done to risk manage this project.

A lot of storage projects out there had been canceled in the last six months because battery costs going up.

A lot of other competition in the market.

Operating details around how you risk manage this would be it would be really useful to know thanks.

Okay go.

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.

Fact that.

There is always a quarter and so.

Equipment deliveries or.

Activities on the sites may ship kind of across a quarter here and there and as we discussed at all.

Timidly things get lost a little bit in the ranges that you might have to provide them. 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 could give.

So I think we'll leave it at that in terms of risk management on this project.

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 four there are there are other obligations technical or otherwise under the contracts and that applied to both suppliers and subcontractors.

That's the approach we've taken and Thats. The approach we continue to follow as we carried through this project because.

This.

Spotlight is on it.

So Cal Ed knows it.

I think that we.

We are executing accordingly.

Great Hey, congrats on another great quarter.

Thank you very much.

Your next question comes from the line of Jed <unk> from Canaccord Genuity. Your line is now open.

Hey, guys, Congrats and thanks for taking my question.

I guess I wanted to just ask a high level.

I guess, they're both high levels, but my.

My first question is just.

If we look at the capital intensity of <unk>.

Primary energy generation.

It's gone up such that.

Like taxes Directionally. There is there is only one way that energy costs are going.

Absent short term aberrations.

So I'm wondering in terms of the conversations that youre, having with customers.

We have come to terms with accepting the fact that.

Did that vector is directionally going up.

As it relates to the trend of Digitization in electrification.

Within the context of efficiency.

Then I have a follow up.

Yes, I can take the first one and then the follow up can close the door.

Sure.

Customers are beginning to accept you say that.

<unk>.

Rates under PPA agreements that we might be selling to a particular customer.

Because the electric rates and as your costs are going up for example, let's say before the average rates that were 15 <unk>.

We were selling.

Solar energy at nine or 10, but you can see them creeping up because people are realizing that.

Everything went up capital cost.

Going up and of course, the corresponding rates are going up so they're beginning to now 100% there yet no but.

You see a little bit understanding of where we are and what's going on in the market, but with makes them react though in fact that the energy prices are going up and up.

And Thats.

It gives them any sent to move.

No.

I feel like I was just going to say I feel like it's a little bit of scenario planning as opposed to solidly growing with higher costs.

I think it's scenario planning, but.

Certainly you are starting to recognize that it's mixed.

That.

The inflation versus other geopolitical forces theres a lot of uncertainty there that they need to plan for.

And it's a scenario plays.

Thank you.

Another example of a particular customer a large project that we get price I would say a couple of years back they decided not to move and then as I said, we want to move now we went back of course with an updated cost.

Well, what's happening here.

The weighted towards years Thats with yet.

They didn't take us out.

Thanks, David there considering that right now and most likely they will go ahead.

Yes, Thanks, and I asked the question and Im sure I don't want to steal any thunder from your analyst day.

But this seems rather apropos for.

That moment of time of how you look at your business because if you look at the business over a three year period of time.

See a very steady.

It's.

What would be.

A steady growth versus sort of the moment in time, which seems rather appropriate.

Because.

Of this big contract that you have with Socal Edison.

Yeah, again, I'm sure you'll be addressing that just one my follow up if I could sneak this in.

The largest generator backup generator company talked about.

Virtual power plants, and kind of energy as a service with the in the context of <unk>.

Existing equipment, that's out there in the field and about 40 Gigawatts that's out there.

Utilities are faced with the squeeze of.

Having to go through a rate case and the process to bring new assets online.

It would seem like that.

Business of turning on.

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.

The discussions that you may or may not be having around has that started to.

To be something Thats that.

That's seen as attractive by your by your customers either on the selling side or the buying side of the utility.

Okay.

We are looking at some of Israel, Powerplant renewable power plant solar cells, where various customers they will be buying it for a particular.

Solar plant.

Down the road to Green gas plants. So we are looking into it no question about it and I think you could see it evolving.

A couple of industrial customers commercial customers that.

Basically the <unk> facilities around the country.

We'll develop.

Solar plants.

Central location, who will deploy two of them.

Virtual.

Our scenario.

I think the only thing I would add there is that we are relatively consistently approached by a number of parties that want to.

We're looking to partner with us who provide the kind of software solutions associated with <unk>.

The approach of <unk>.

Using <unk> in the in the markets, where they can add value economic value to the customers. So we are of course, considering that the second piece is that of course, we have a business that consults utilities on DDR programs and Theyre, certainly seeing an uptick in their their activity in that space.

Our 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 GM Marquez from Baird. Your line is now open.

Hey, guys. Thanks for taking my question.

Andrew Rogers.

I'd like to ask a little bit about if theres been a lot of regulatory disappointments.

But underneath the surface I think by the administration signed the directive.

Executive order around the federal purchases of renewables and I am 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 would wish.

A considerable pickup associated with that and whether that.

<unk> built.

Planned passed it would you.

Help us even more but even without that we see a considerable activity.

The executive order.

No question about it every base now they're more interested in.

During not only renewables and energy efficiency, but.

Resiliency and so on so.

And maybe as a follow up.

Please go ahead.

Well basically considerable uptick.

It takes some time for those guys to move but on the other hand, though in the long term no question about it.

It's a considerable pickup.

Even after the executive order.

Ill.

Adding the people before but we increased the increased our capabilities through personnel in order to take advantage of that opportunity.

And then maybe as a follow up 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 darn will add something.

Look.

We have non about 'twenty two acquisitions with the company 22, 23, and we did a small one.

Great.

And not only that but it helps us a lot in this month's built in technologies and taken advantage of that expanded the market opportunity, but we are looking at seven.

This is a point, we can talk with any one of them, but you will see us.

Growing organically at the rates that we have talked in the past top line, 10% EBITDA line on a 20%.

Don't be surprised that we will complement that with accretive acquisitions. We all are in the market.

I'll just close it as opportunistic.

Now the business has to make sense the story has to make sense.

The management team has to make sense for our organization.

And.

And the strategy needs to be clear as to how we're going to make it part of the <unk> story.

Okay. 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 on your stepping in for Julian. So my first question is.

What should we expect in terms of update at the analyst day, specifically, okay disclosures improve relative to what you provided.

Provided historically.

So.

You want me to take this.

Yeah, Im 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.

Little bit better of a face to face view with a number of executives inside the company. So they can see kind of how how these folks tick.

We don't anticipate making that a date 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 R&D pricing is factored into your 2022 EBITDA guidance and then how hedged are you not present for this year.

Thank you.

So entering the year were right about 70% hedged.

Slightly okay yep.

And we're somewhat conservative in terms of determining our guidance but.

Not meaningfully away from current market.

Prices on those <unk>.

Okay perfect. Thank you very much.

Thank you.

Your next question comes from the line of Belleville Malkin from Raymond James Your line is now open.

Okay.

Question first one.

Dovetails a little bit.

You were asked a few minutes ago.

The the White House Executive order I'm, asking about the U S Army.

Net zero strategy and given that federal revenue I think is still one third of <unk> sales.

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

It's very hard to quantify it 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'd tell you some better.

Couple of the science that we're really working on it.

By 'twenty four we will have them net zero.

<unk> benefited storage solar.

Energy efficiency management, and so on and so forth. So it's doable and many of those sites as we know they have <unk>.

That plan was we can put a substantial amount of solar and the battery storage.

And what's going on.

<unk> see.

Whether it's.

<unk> fifth dose colleges universities.

The base is just about every base that we are talking to right now not all new net zero, but the wound resiliency.

And because of what's going on with the climate change and like I said before.

Whether we'll take out all this solar will take all of that.

So we have to have some kind of a backup as well.

How can I say.

Recognize that suddenly do something about it but to quantify them.

It certainly does.

On the other hand.

We know we get them up to 50%, where they want to deal with the way we've been doing it in the past.

They're willing to accept.

Contributed some of their own money, we get them to 100% much sooner.

No question about it that would accelerate.

Good thing that I would say.

We are number one in that market.

Market, So we will capture our good percentage.

So the federal market.

Yes.

<unk> that let me turn to the other side of the Atlantic.

Even before.

The war began we had record natural gas prices $25 an mcf.

Europe record electricity prices.

Europe has never been a big.

<unk> of your revenue, but I am curious Dave.

Youre going to see uplift both from an efficiency contracting standpoint, and potentially as an R&D developer.

If you're displacing $25 gas that seems like.

No brainer in that context.

It's a good good question and I think I will say as much as I can even in the UK business, we still have a tremendous pickup this last year they had excellent excellent year.

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 getting to be very very good and for the reasons, we articulated energy prices are going up.

Can we.

We are looking to expand the European operations, especially in UK and the southeast part of Europe .

Thank you very much I appreciate it.

Thanks, Paul.

Your next question comes from the line of please go wrong.

Your line is now open.

Hey, guys. Thanks for taking my question here I was curious given the big win with SCE can you give us a sense of the battery pipeline for projects.

Gigawatt.

Standpoint.

Just the one that you guys are kind of bidding on it sounds like youre not necessarily the same size. If there is multiple ones that you guys are looking at it and then within the energy asset development pipeline.

Any color you can provide on the 259 megawatts that are in there as far as standalone storage or.

Yes.

Solar plus storage.

The storage breakout would be helpful.

Sure So just to tackle the assets in development.

<unk> piece first.

No.

We've got about 266 megawatts of solar and battery.

And.

There is probably 60 megawatts of battery in there.

45 of which is standalone.

So again thats the megawatts not megawatt hours.

To be clear because sometimes those are two are some of them are to some of them are for some of them.

You get the point, there and importantly again.

Socal is obviously that's a project that's a design build project has nothing to do with our assets in development metric.

It is important to make that make that clear.

And I.

I think that if you talk about pipeline.

Theres proposals those proposals from large and small.

I'm always a little bit reticent to talk about the.

Sure.

<unk>.

The.

The kind of huge whatever the funnel is because it's something that we don't measure like when we measure this asset development metric, we've got 90% plus confidence in those things being placed in service everything that goes before that.

Is the stuff that's in proposal stage.

Even even an award stage, where we're still working through.

And permitting et cetera, So I think it's important to point out that we'd like to stick with that as far as publishing measures.

George if you want to talk about.

Yes.

The depth of that funnel, though I mean, it's a big it's very large it's several or magnitude of what we have on the development backlog.

Yes, it's in development, but like I said.

It's very hard.

To give a specific numbers EQT has not gone we haven't done all the screening to go into the awarded category, but the pipeline it's several magnitude.

Larger than data.

Right now many of the assets in development.

One last thing I'll add and I mentioned it before is that.

When we're in the early stages of negotiation with these battery projects.

Theres still quite a bit of discussion as to ownership of the battery.

So.

If the ownership of the batteries sticks with us than it ultimately becomes part of our assets in development, but if it doesn't then it just flows into our project backlog, so theres sort of two different business lines working in the same with that technology.

Okay, no that makes a lot of sense and then just a little bit on project size obviously.

The big battery as an outlier, but the.

Scope of what you guys are doing on some of these projects has been increasing and Gary.

The average project size has been increasing pretty significantly for you guys with some of the large streetlight projects military base work.

Is that something you guys are tracking as far as the.

<unk> of that or are we starting to get.

A lot more small projects in the pipeline any awards as well.

It's it's increasing no question about the projects that are getting larger and larger and because.

And that plays right into our our strength.

Because they are more complex they are uniquely.

Micro grids battery storage combined use of power.

The full spectrum of energy efficiency measures.

But the specific number I don't know if you have any.

Overall, I think we're probably still in that 7% to 10 range because of the increase in smaller projects by project count right.

And some of these you could almost call. It pilots we've just.

There are certain markets, where we take smaller projects that are 1 million bucks or less even sometimes.

Just so we can get one on the books.

<unk>.

To establish a track record and a technology.

<unk>.

We're still seeing kind of 7% to 10.

Okay. That's helpful. Thanks, guys.

Your next question comes from the line of Chip Moore from Es Hudson. Your line is now open.

Hi, Hi, guys wanted to do.

Follow up there.

The pickup in proposal activity, you've been talking about with regards to visibility on timing, obviously way too premature for any sort of swing from your outlook.

There will be something of a tough compare and this might be more for the <unk>.

Yesterday, but just at a high level, how to think about some of those dynamics.

I think we will focus more on what's the market opportunity saw but and we'll probably break it down by.

We are charging stations and so on battery storage.

It has been.

You might comment a little bit about the activity level, but I don't think it will be giving any specific numbers.

To that effect.

But we will give a good.

Idea of what is our market share is and how we stand against the competition and I think from that you can extract what we would be able to achieve.

Very good to what the market is going.

Our position in the marketplace right now.

And yes, there could be.

I spoke about this a bit before but just to be clear.

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 the executives.

Absolutely.

That's fair.

If I could sneak one more in.

Just supply chain Covid delays I think there was $30 million or so pushed out last quarter. You. All caught up there are you still seeing any sort of <unk>.

<unk> are you embedding anything in the outlook.

Yes, wherever it gets pushed out we get them doing it.

In later quarters.

Typically with our business, sometimes reaccelerate some contracts, but because of COVID-19, COVID-19 situation I would say more we pushed out rather than being accelerated but theyre going to.

I want to reemphasize. The fact that we will see those revenues in later quarters.

The other thing.

On the first quarter, especially some of these states and helping.

Up in Canada.

There is still the first couple of months they had the issues with access on their various facilities and the same with northwest a little bit.

Sure.

Yes.

We've seen some push out but not losing the business.

The value proposition doesn't change.

Okay.

Great well congrats on the momentum seen in New York. Thanks. Thank you.

Your next question comes from the line of <unk>.

Z Kolsky from leverage 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.

Could you talk a little bit more about the labor constraints or lack thereof, and how it has or how it could affect each of your business lines.

And particularly the particularly around the SCE deal.

How you've been able to avoid any project slippage there as it relates to any sort of labor constraints.

Yes.

I will talk about the internal which is our labor and so far so good the fact that we're doing and innovative.

Project.

Kevin Great Great culture, we have been able to get the talent that we want and next the experienced talent as I pointed out Tim.

The.

Our LNG business and that go into the C battery storage.

Great great.

Experts coming into our company.

As far as other labor I will let.

No.

About it, especially the southern Cal project, because he has immersed in it.

Okay.

So.

I'll just compare it because if you think about us as a 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 like something like what we have with Socal Ed.

Requires.

Multiple of the number of people on site that we require for.

For energy infrastructure is not as labor intensive from a dollar cost perspective.

<unk>.

A building a building right and I think that Thats, a differentiation that sometimes has lost some people with MRO scope because 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 sub contractors are smaller then.

A lot of the labor force issues that are facing the broader construction industry because of the fact that this is energy infrastructure that doesn't actually require as much.

Onsite laborers as others in fact, it's a fraction.

It's probably the best way for me to.

To answer that question.

That's helpful. Alright, Thanks, guys.

Your next question comes from the line of Kashi 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 in development and under construction I was wondering if you could just maybe refresh us on how to think about.

EBITDA per work for these opportunities by category, how to think about the capex per watt as well, Okay and then finally.

You had indicated that 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 debt too.

Yes.

The energy assets, maybe on a more long term basis.

Yes.

I'll, let Darren.

So.

They haven't changed much from the previous numbers, let's start with the.

Kind of Capex figures, so solar average is around $2 a watt.

R&D somewhere between five and $6 Award.

Battery also similar to solar kind of couple of dollars a lot obviously battery.

Reising themselves.

There is ups and downs of the battery pricing that you have to consider there but thats.

Just a general indication so across our entire assets in development metric that's updated now youre talking about.

Approximately $1 $2 billion of Capex.

That cycle for assets in development metric.

That's four years, probably maybe five four.

<unk> plus between important fiber so that's the way to think about the cadence I think that we're.

Sort of on average between 80 and 85%.

That so think about it is 15% to 20% equity over the long term.

So thats.

Those are the nothing's really changed in that sense from our perspective.

Same numbers, we've been giving for a while in terms of EBITDA contribution.

So batteries and solar are similar probably talking about 200 to 250000.

Of EBITDA per megawatt per year.

That's kind of in the 75% EBITDA margin range for solar and batteries.

On the R&D side.

It's higher per megawatt of which.

The higher Capex.

So something between 750000 to one 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 are talking about a $1 million and a half to $3 million of revenue.

Per megawatt.

Is there kind of the round figures for.

Per megawatt.

That's super helpful. Thank you all my question for the 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.

[music].

Gives me and thank you for attending by and welcome to the Q4 2021 and the rest co 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.

During the session you will need to press star one on your telephone attached dokey.

Be advised that today's conference is being recorded if you require operator assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Leila Dillon. Thank you. Please go ahead.

Thank you Nicole and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sacco era, <unk>, Chairman, President and Chief Executive Officer.

Dorian Hall, Executive Vice President and Chief Financial Officer, and Mark to block 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 could 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.

Fourth quarter, GAAP, and notwithstanding growth and profits for MRO scope.

As I was there any case employers in cooperation with our customers exit.

<unk> operating environment to deliver record results.

We achieved <unk>.

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 $5 billion in revenue visibility across our lines of business.

Over $3 billion.

Total project backlog.

This coupled with over 400 megawatts of Ventas and development supports our tremendous confidence in <unk> multi year growth trajectory.

We continue to see proposal activity picking up as customers seek solutions that address the increasing energy cost.

And carbon reduction goals.

With the addition of the Southern California, Edison Edison Battery project.

Contracted project backlog ended the year at one $5 billion.

Hello, launched doubling sequentially and increasing 68% compared to last year.

And well the southern California Edison contract with a major win for the company. There are several other large opportunities with complex some promotional requirements.

We are pursuing and winning.

Our energy asset business, you've had 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.

Our assets in development and construction to 414 megawatts.

The rash.

Rationally know growth has been driven by expanding addressable market opportunities both.

Related to continue industry trends as well as mris gross investments in energy experts and new technology and solution offerings, coupled with flexible financial solutions.

A good example is expanding our addressable market is demonstrated by our increased partnership opportunities, we see electric and gas utilities.

In addition to provide renewable in the utility industry clients to help them reach their renewable portfolio standard of goals. We are now also helping them increase that is unity of their grid through the use of innovative micro grids and energy storage solutions.

Southern California Edison project the largest in <unk> history is a perfect example.

Yeah.

And then my ESCO, we've continued to invest in people and advanced 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 of attractive Cynthia biogas engineers and construction managers in our renewable gas growing.

More than doubling the development staff in this business unit.

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

As a reminder reminder, we do not expect any meaningful revenue from these plants into 'twenty three.

It provides a foundation for continued visibility in future growth.

Okay. Thank you.

We have built in more ESCO organically and through opportunistic acquisitions.

Our recent acquisition of blood Smart is a great example of this strategy.

This acquisition expands our existing solutions in pipeline in the smart building sector. We.

We see it.

Definitely growing opportunity to provide a complete portfolio of smart building solutions to our existing and future customers by integrating controls and automation with our Cleantech solutions.

And integrated Smart building is the best solution for our customers seeking to maximize employee productivity, while minimizing their cost their environmental footprint.

Our continued investment in the large and growing the smart building market.

Other expands <unk> 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 top tier one ESG report.

And dialogue doing well by doing good.

Version.

Integrity.

ESG is core to our corporate DNA.

And there are many companywide efforts underway to achieve our ambitious goals.

Well, great attention is paid to all aspects of ESG.

To note some measure environmental achievements and more importantly goals that we set out in the report.

Since going public.

In 2010 in March because the 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 solutions, we deliver and the renewable assets we placed in service.

We will also have pledged to achieve net zero carbon operations by 2044, both scope, one and scope two emissions.

Third we will establish more green Green house gas emissions reductions through the science science based targets initiative by target quantified to validate net zero targets with the objective certification.

We are very proud of.

The positive impact that <unk>, and my escrow makes everyday and providing clean tech solutions to a broad range of customers and we are committed to adhere to the highest standards of corporate citizenship.

During the quarter <unk> was also the recipient of a number of awards and recognitions highlighting the strength of <unk>.

Our excellent work was again recognized by S&P Global Platts.

And by the U S Energy storage Association, which highlighted <unk> escrow strategies and accomplishments in the battery energy storage systems market.

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

Thank you George and good afternoon, everyone.

These 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 action with all four of our lines of business contributing to our robust revenue and profit growth.

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

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 strengthen rent 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 attach long term O&M contracts to our completed projects 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 as a Prime example of our strong operating leverage in practice, demonstrating our ability to add gross profit dollars without substantial opex growth.

Now I'll 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 in.

Including the SCE project.

Customer interest in bidding activity remains 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 clean tech integrators in the market.

During the quarter, we placed 26 megawatts of assets into operation, while also back billing our assets in development with an additional 33 megawatts, including both solar and batteries.