Q2 2022 Ameresco Inc Earnings Call
Good day, ladies and gentlemen. Thank you for standing by, and welcome to the AmeriRESCO, Inc. Second quarter of 2022 are in Congress.
At this time, all participants are in a listen only mode.
Later we'll get to question and answer session and the instructions will follow at that time.
as reminds conference call is being recorded.
I would now turn the comments over to your host, Miss Leila Dillon, Vice President, Marketing Communications, Miss Dillon, you may begin.
Thank you, Valerie, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sackeleris, Amrisco's chairman, president, and chief executive officer, Doren Holm, executive vice president, and chief financial officer, and Mark Chitlock, 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.
results to differ from those in our forward-looking statements.
In addition, we use several non- GAAP measures when presenting our financial results. We have included the reconciliation to these measures in our supplemental financial information. I will now turn the call over to George. George.
Thank you, Lilla, and good afternoon, everyone. I am very pleased to report that Q2 was another record quarter for Emoresco.
both in our financial results and in our team's tremendous execution.
We achieve growth across all four of our business lines and draw the substantial increasing profitability.
If outstanding performance demonstrates the strength of our people, the fortitude of our business model, the expanding market opportunities and the operational diversity and flexibility that is part of our entrepreneurial culture.
The squalboard characteristics also enable MRESCO to better navigate the industry-wide inflationary and supply chain pressures being experienced in the market.
I wish to thank the entire Moresco team along with our valued customers. Along with our valued customers.
partners, suppliers and subcontractors who have worked together with us to mitigate these challenges.
Before we discuss the strong forum, I do like to provide an update on our Southern California Harrison battery projects.
During the second quarter, we made substantial progress on the projects, achieving a number of key milestones despite COVID, supply chain, and permitting challenges.
Just last week, I walked all three sides and our team is doing an excellent job executing. And our team is doing an excellent job executing.
I am pleased with the progress that they are making at each project site.
Approximately two thirds of the batteries for the projects are on site and the balance in transit.
We now expect 200 to 300 megawatts of capacity to be in service in September . Continue to expect completion by the end of this year.
I'm also very pleased by the extraordinary efforts of both the Emresco and the Southern California Edison teams in working around the clock to deliver this battery storage project this year. This is a true example of a partnership and together I know we will succeed in providing critical resiliency and reliability to the California grid.
Turn it back to our YouTube highlights.
Our robust revenue growth was led by our project's business.
We continue to not only execute on the Southern California areas and projects, but also we're able to execute more quickly on other large projects due to earlier than expected customer approvals.
Well, we had the benefit of great results. We also continued our new business momentum this quarter. We also continued our new business momentum this quarter.
We added 23 million of new awards to our project backlog.
But, what I am particularly excited about is that our proposal activity was at multi-year highs in the second quarter.
More than double the level of previous years.
is clearly demonstrates that customers are seeking solutions to address their increasing energy costs.
Resilience in needs and carbon reduction goals.
For example.
We have seen a total of seven comprehensive federal requests for proposals in the first half of this year compared to only five for all of 2021. We have seen a total of seven comprehensive federal requests for all of 2021.
But our proposal activity was not just limited to federal. We are developing and delivering many exciting, advanced technologies, renewable energy, battery storage and traditional energy efficiency projects across all customer segments. And all of that you're.
We also have exciting news from the energy asset site of the business.
We signed our largest ever combined baby solar and battery deal, the Componer Solar LLC asset.
We are thrilled to be partening on this bright, genuine energy, the whole young subsidiary of thebrazen car brand up behind and performing the drive of production. It has closed in almost 10,000 ms. What would you have seen if you were reproduced a cheap coffee booth recording in T?. Thank you.
Bright Canyon will also be an equity owner in this asset.
making our first, marking our first energy asset equity partnership.
The acid is designed to include 42 MW of solar energy and 42 MW 168 MW battery storage system. The acid is designed to include 42 MW 168 MW battery storage system.
It will be installed on joint base for hub income.
under a 37-year enhanced use list entered into the Department of the Navy.
Upon its expected completion, in early 2024, it will operate under a 20-year power purchase agreement with our wine electric, and will provide clean and resilient energy to the island of Oahu. And resilient energy to the island of Oahu.
We look forward to executing on this and working on other future opportunities with bright, brilliant energy. I will now turn over the call to Doran to provide some comments on our financial performance. Doran,
Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today.
The Stuart's noted that the Emirates could keen to limit excellence second quarter results. And while our projects business led the very impressive top line growth.
It's important to note that all four of our lines of business grew nicely during the quarter.
In addition, the combination of total project backlog and expected future revenues from our contracted energy asset and O&M businesses remains over 5 billion dollars.
giving us excellent long-term visibility and predictability during these uncertain economic touch.
The robust year-on-year top-line growth was led by our projects business driven not only from continued execution on the SoCal Ed projects.
but also from acceleration and other projects that mobilized faster than anticipated.
As we've stated in the past, executing on the SoCal Ed projects has and will continue to impact our near-term cash flows.
due to the temporary increases in our working capital needs, particularly in accounts receivables and unbuilt revenues.
This increase in working capital was expected from the onset. And as one of the reasons why we amended our senior credit facility early in the year.
went to the end of the second quarter, we collected another $33 million from SoCal Edison, which we had previously unboxed.
Unbuilt revenues, which are labeled on our balance sheet is cost, and estimated earnings and excess abilings.
Converts of Council receivables win in voice under contract terms, which usually considers passage of time or completion of contractual milestones.
On the other hand, revenue is recognized under the percentage of completion method, which does not consider contractual milestones.
Therefore, the timing of the invoicing typically does not match up with the timing of revenue recognition, which explains why the SoCal Ed project has resulted in a temporary increase in unbuilt revenues.
We expect all components of working capital to return to more normalized levels for our business with the completion of the SoCal contract and the collection of the remaining amounts owed.
Moving on to energy assets, I want to highlight our discipline as it pertains to the underwriting of new assets. I want to highlight our discipline as it pertains to the underwriting of new assets.
Our final early stage assets and development continues to show strong growth with an incredible pace of proposal and award activity.
However, recent increases in inflation and interest rates have impacted overall market returns on assets.
We therefore have been particularly coded in our capital commitment so that the past couple of quarters ensuring that our assets and development continue to align with our Herb rates.
We're also increasing focus on executing on our nearly 500 megawatt portfolio of assets in development.
You'll also note a new disclosure in our supplemental slides with respect to our assets and development this quarter. Given the partnership with Bright Canyon Energy that we announced in Q2, we're now reporting both the total assets and development as well as a pro-form of megawatt total after adjusting for our partner's equity interest.
This should help investors better understand the positive impact these assets are expected to have on our future financial performance.
For those who are newer to the Amerescos story, I wanted to provide a bit of background on how we approach our exposure to the various environmental attributes we generate in our energy assets business.
Renewable identification numbers, or RINs, are generated as part of our RNG business.
When we build a new RNG asset.
We generally sell forward approximately half of the expected brands under a three to five year fixed price to bring the retail updates and from off take contract to support our project financing.
We then will look to dynamically hedge the majority of the remaining rins during the year in which they are generated using forward sales of large blocks.
This helps to mitigate the effects of daily written price volatility on our financial results.
Near the end of the second quarter, wind pricing began to experience a pullback after multi-year increases. The wind pricing began to experience a pullback after a few years. The wind pricing began to experience a pullback after a few years. The wind pricing began to experience a pullback after a few years.
However.
We're not expecting this to materially impact our 2022 results because we are already over 90% hedged on our 2022 risks.
Renewable energy certificates are reps that we monetize are generated from our renewable electricity assets, primarily in solar, and are concentrated in a few select northeastern markets which have government-mandated renewable portfolio standards. Renewable portfolio standards.
The vast majority of the assets generate RECs under legacy Massachusetts SREC-1 and SREC-2 programs, where there are effective price floors.
This has helped to minimize the impact of any wreck volatility to our results.
So while we do have some exposure to rent and rep price volatility, the emiroscope proactively manages those risks. The emiroscope proactively manages those risks.
Back to the P&L, we achieved impressive year-over-year adjusted EBITDA growth as a result of our strong operating leverage, again demonstrating our ability to add gross profit dollars without adding direct incremental operating expenses.
Execution on contracts remains strong as we converted contracted backlog into revenue with the continued progression of the SoCal Ed projects.
Business development remains equally as robust as we backfill with new awards.
Total project backlog was a healthy $2.8 billion at the end of the quarter.
As George noted, we are seeing and participating exceptional proposal activity in the market.
We expect this will lead to further growth in awards in the coming quarters.
There's been ongoing discussion around inflation, interest rates, and energy prices.
Our customer value proposition is based on energy savings.
Higher costs of materials and higher interest rates tend to work against us, while higher energy prices work in our favor.
At this stage, the year on year increase in energy prices has far outpaced the year on year increase and Amoretsco's All-In Project Delivery Costs. The year on year increase in energy prices has far outpaced the year on year increase and Amoretsco's All-In Project Delivery Costs.
This has actually enabled even more projects to pencil.
and is driving interest and engagement in our innovative demand reduction solutions.
Our actual year-to-date performance, as well as our visibility across all of our business lines.
has enabled us to reaffirm our 2022 annual guidance despite the delays we have experienced in the SoCal Ed projects.
As to the quarterly cadence, we expect Q3 revenue to be slightly greater than Q4. We expect gross margins to start moving back to normalized levels of approximately 18% for the third and fourth quarters.
Now I'd like to turn the call back over to George for closing comments.
Thank you, Dora.
They need a demand for a more as good comprehensive for the folio of clean energy solutions. He has never been greater. There's a world faces numerous geopolitical climate and regulatory concerns.
We are very excited at the high level of customer engagement at this time.
And given the growing market effectiveness, our leadership in the market, and our portfolio of comprehensive clean tech solutions, we believe we will experience robust growth for years to come.
You're closing. I want to once again take a moment to thank the entire and Moresco team for their dedication and outstanding execution. We also want to recognize the one going support of our government, their long-term stopholders.
Operator, I would now like to open the call to questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 11 on your touchtone telephone. Again, if you would like to ask a question, please press star 11. We do ask that you please limit yourself to one question and a follow-up. One moment, please.
Our first question comes from Julian Domalen Smith of Bank of America. Your line is open.
Hey, good afternoon. Thanks for the time here. I appreciate it. So maybe just to jump right in, I'd love to hear a little bit more on the IRA and your thoughts about the opportunities that this would unleash for your business. Specifically, I heard your comments about REN's here, but as you think about the RNG business here, what kind of opportunity exists as it pertains to the tax credit that might open up for you, both in terms of projects that you've already originated and are actively in development?
as well as for the opportunity that this might enable. Again, I don't focus on R&D, but what's left to hear is, you know, where else you see the opportunity emerging if you want to see the opportunity that you want to see. I hope you like it. I hope you like it. I hope you like it. I hope you like it.
Sure.
Yeah, sure Julian. So, first and foremost, I would say that the expansion of the credits, the extension of the credit certainly is going to work in favor of the industry overall. We're continuing to analyze the provisions that relate to the qualified biogas property. So, we've been assessing the way that the law is written. We have to see what happens between now and when it passes to see how much clarity there is for how that might apply to
when the technology neutral provisions kick in, that matches quite well with our business and we're very excited about it. Furthermore, I think Amor Esco has opposed to many others, I think in the industry, we are quite familiar with the elements of the law that will provide the uplift of the credit from 6% to 30%. Namely, for bail and wage.
union, domestic content, those things, this is an area that we're quite used to working in, in terms of our space. And so we think we can work with those provisions and really carry out the intent of the legislation that Manchin and Schumer have put in front of us. But again, back to it's not signed yet, it's not passed yet, we're still working to analyze it. But if it does get signed...
No question about whether it's tremendous upside for the company. When it's all the battery storage or RNG, and especially in the RNG sector, we don't have over 18 projects that will be built over the next few four years. And we work in a quarter a few hours. So it would be tremendous. I believe in the company. So it would be tremendous. It's a very successful year for the company. It's a very successful year for the company.
And George, just to clarify,
Capture the task for it considerably on everything already that's underway even if it wasn't contemplated right again I think that's a key nuance here
No, that's right. If it hasn't been built yet, it's all going to be new assets that we put in service after the effective date.
And sorry, one more clarification if I can here. Obviously good stuff on getting some clarity in line of sight with FTE here. With respect to that progress, can you talk a little bit about any incremental costs to you all as it pertains to the slight shifts here? How are those conversations evolving if you can characterize those at all? Obviously it's dynamic. Obviously you guys are coming to some degree of resolution here. It's not too meaningful in terms of delays. So just the incremental costs.
and to frame that, et cetera. Yeah. Well, the incremental cost, you know, in.
And that's one of the good things about the battery supplier, it's held its price. And that's one of the advantages actually that Southern California have because we executed that contract basically before we signed the contract with Southern Cal. But the delay though, right after we announced the quarter last time, about late that week, they came back and they gave us an updated schedule which basically we lost four weeks.
on the battery delivery. But the good thing about it now is that we, we have about two thirds of the battery soldered is on the sides and the balance is on ships. And we feel much, much better than we thought before that we have controlled now over that. And as well as all of the rest of the materials associated with that particular project, that's why we feel pretty confident that they will be done this year.
Actually, what happened this last quarter, especially the last 6 weeks, I would say it increased our confidence of delivering the project this year. And Julian, the only thing I'll add is there's been no change in the nature of the dialogue and the relationship we have with so far as finishing these projects. So the focus is on finishing the projects, compressing time schedules and doing it in a safe, safe manner.
Got it. All right, fair enough. I'll leave it there. Thank you guys.
All right, fair enough. I'll leave it there. Thank you guys. Thank you, Jillian.
Thank you.
Our next question comes from Stephen Jingero of Steve Ful, you'll find it open.
Thanks and good afternoon everybody.
Good afternoon.
So two things for me, one is just on the number of energy assets that were put into service in the quarter, and the outlook or the cadence for...
Energy assets in the, in the back half of next year just seemed it was all below our expectations in the actual quarter. I was curious if there was anything going on there or just timing of projects coming.
Yeah, it's more of a time in issue and some projects, you know, they get delayed because of the interconnection or whatever the case might be. But as far as we concerned, we did say to the streets that we will install between 60 to 80 megawatts of assets this year, we maintain that guidance. this year, we maintain that guidance.
And the only thing that has become, you know, a big issue is the utility interconnection.
I mean, we have some projects already finished, but we haven't been able to interconnect them because they have schedules. There is so much demand for them to do work that it has become a big bottleneck.
Great, thank you. And then, just do the follow up and...
I know Doreen you probably don't want to go into a ton of detail here, but the gross margin guidance that you suggested for the back half of the year, it seems to indicate that you recognized a larger chunk of the SAE revenue already than maybe we had expected. Is that accurate?
I don't think the larger amount, no, I think it's on pay to say. I think it's within our expectations. That's why we really think that. And that second half just reflects the kind of the mix moving back toward the normal business, but not different than what we were expecting. But not different than what we were expecting.
Okay, it's the mix of the other projects again, a little bit greater percentage.
Great, thank you, that's helpful.
Thank you.
Our next question comes from Noah Kay of Oppenheimer. Your line is open.
I want to pick up on your comments around these record levels of bidding proposal activity.
I know you highlighted the federal, but it would be helpful to get a sense of more broadly where this demand is showing up what incrementally seem to be sort of the focused areas. And I think critically how to think about this. And I think critically how to think about this.
the contracting and sales cycle for these, you know, we might think of federal projects as having a longer conversion cycle, for example, than, you know, other types of customers. And so as we look at the award and backlog trends, you know, how can we be kind of mindful of that going forward?
Yeah, well, you know, the normal cycle is between 12 to 18 months once we make the proposal to get the award, but especially when the federal government. The federal government, tremendous, tremendous activity, but we're not going to see that pick up most likely till next year as far as showing up in the awards and the contracted. But some of the CNIs that we see, they have a shorter turnaround time.
maybe six months or so and sometimes even less.
we see very, very high activity on that level. I mean, the Canadian group, tremendous activity, especially when they see a high market. One of the activities that we're picking up a lot, it's from the utilities or the cooperatives, some of the battery storage projects that we have become a known entity now into the marketplace. So we are proposing quite a best proposal now that is associated with battery storage.
So
I would say no, probably you will see it six months to 12 months now in the road that the award and the accident of the contracts will show a very, very healthy increase.
It's a great, but the activity, but the activity level, that we feel I'm very excited about it. I mean, the activity level is much better that we get encountered. And the other thing going with it though, we have not added about 100 people during this year in order to keep up with this kind of activity level.
Yep.
And how much of this activity, you mentioned federal Canada, how much of it could be in Europe ? I mean, we're heading into a potential winter energy crisis for the EU. It seems like a door.
has never been wider open for your value proposition. What's right is being there and...
can it be matured in terms of?
Business wins and adding to the backlog.
I mean, many, many customers, you know, they are concerned about their, but they're the carbon footprint, look at Bristol city, you know, if that is becoming more of a blueprint, and now I think last time, last quarter, we're talking to one, now we're talking to three potential, new, new, new, go down the direction. But, uh,
The energy costs.
being as high as they are. It has become a catalyst. And many people are specially?? here.
This year and I, or even the other, whether the federal government, all institutions, they are concerned about their higher energy costs. And as Doran pointed out, even though we have seen probably around 10 to 12% increase on the project costs, and some what they increase in the interest costs, the energy prices from the average is over 40% on the valuable position as increased.
The other is whether the federal government, all institutions, they are concerned about the higher energy costs. As Dora pointed out, even though we have seen probably around 10 to 12 percent increase on the project costs and some what they increase on the interest costs, the energy prices from the average is over 40 percent. So the available position is increased. So, the other is whether the federal government is concerned about the higher energy costs. So, the other is whether the federal government is concerned about the higher energy costs.
Thanks so much for the call.
Thanks so much for the call.
Thank you.
Our next question comes from Eric Stein of Craig Hallam. Your line is open.
We're taking the questions.
So back at the investor day in March, you gave a 2024 outlook, I believe 300 million plus in EBITDA. You know, just would love to take your temperature, confidence in those goals and maybe thought that how you get there. I mean, do you need another large storage contract or is the momentum and pick up in both new awards and proposal activity is that kind of what you were assuming to get you?
well, a step up in 2023 and then ultimately to your 2024 goal.
a step up in 2023 and then ultimately to your 2024 goal. Yeah. Yeah.
I will address it first and then Dorian might want to add some more color to it, but we're still very confident about the 300 EBITDA by 2024. As far as having another big contract associated with the battery storage like the Southern Cal, no. That is not in the plan as it was back then or as it is right now. I think the development of our assets, whether it's renewable natural gas or the solar plants,
the increase of the O&M and what I would call the normal line of contracts that you have seen that's in the past. We feel pretty good that it's going to get there. And then of course energy prices being escalated the way they are, it's helping our cause better than what it did way, way back when we did that particular plan. And the only concern is the supply chain issues and as soon as those things get away we get over them.
we would be in a better position to execute. We're still very confident about it. OK.
That's great. That is helpful. And then maybe just following up on commentary from your prepared remarks. But you mentioned that the award or the first project kind of partnered project and energy assets with Bright Canyon. Maybe you could just talk a little bit about the pipeline there and how you see that developing over time.
Now, you know, we, that particular one, it's interesting that we get to evolve, you know, we got the award to do the enhanced use list for the Navy in Hawaii. And then, bright-canon energy, they had the PPA already at one through the Hawaii electric.
So it was a perfect relationship. They said to us, and actually the base, they said, you know guys, you were the contractor for the lease, but these guys have been working with us for a long time and they have won the contract at PPA. What you guys team up, and so we team up with them, and they have great partners working together so far. And we are looking at some other deals that we could potentially work together with them. It's an excellent relationship so far. And look.
Sometimes we haven't done it too much in the past, kept some general parties out there, partners out there. I think it's gonna help us in accelerating the business down the road. I mean, we did get the partner, to do a couple projects in Greece and the relationship has worked excellent. And that's going back to what Noah asked the question. We see great activity in Europe .
And we have great traction in the UK and also in some other parts of Europe that we're not ready to talk about yet, but don't be surprised that we will have some good news to report down the road. nothing bad happens, but if you have any support help, I think, you can continue before that. Coming back upon ??ad46 is the great fight for the group with the most important people, with the likes of a great team. I think all launching these today is the beginning of this tournament in Europe , which I don't mind, I want to continue, but we have another CINGé today. Counting 1000 which we're still going on another pitch. you
in the UK and also in some other parts of Europe that we're not ready to talk about yet. But don't be surprised that we will have some good news to report down the road. Governor, I'll stop there.
Okay, thanks for the caller.
Welcome.
Thank you. Our next question comes from Tim Mulrooney of William Blair. Your line is open.
Yeah, thanks for taking my questions. Two quick ones, George. I want to make sure I heard your comments correctly or earlier in the Q&A. You said you were talking to a few more cities about signing the type of contract that you signed with Bristol City. Are those all isolated to European cities? Or are you also having some of these kind of conversations with US cities as well?
Now actually, that's a good question. One is that other you're appearing in two other American.
Okay, that's good to know. Thank you.
It's good to know it on the side of the pond as well. And then, you know, just one more probably for donor mark, you know, it sounds like there's some noise. You know, it sounds like there's some noise. You know, it sounds like there's some noise.
In cash flows this year primarily due to the BSE project, after we see normalization, so I'm looking out a year or two here, what is the right range for cash flow conversion rate you think this business can support as we look out in those future years?
But I think, you know, so...
You know, we've looked at working capital, and we talk about a normalized level of working capital. Without SoCal, we've been running between 10 and 15% more annualized revenue basis. So, you know, we haven't only seen a whole lot of volatility there. So, you know, I think you'd expect to get back to those levels. And from a capital perspective, I think we're trying to provide some more metrics to help with the free cash flow calculation. But...
Again, we've been showing some pretty consistent positive free cash flow on a traveling 12 month basis. And I think when we get on the other side of SoCal, I would expect to get back to that and continue that going forward. So, you know, we're going forward. So, you know, we're going forward.
Okay, thanks very much.
Sure.
Thank you. And next question comes from Cassie Harrison, a Piper family lens open.
Thanks for taking the questions and congrats on the results.
Co.
So my first question relates to the backlog. It's become kind of difficult to evaluate it just given the impact of the SE project. I was hoping you could help us.
quantify how much of that current backlog is associated with the SE contract. And then I have a follow up.
We don't break it out, you know.
The only thing I will say that the overall backlog we contemplate in signing this quarter and next quarter, it's gonna put this in a great, great position to give another great year next year.
Yeah, I think the the way you can look at that is taking a look at the revenue estimates and the recognition of the revenue during the quarter as well as prior quarters on the SDE contract versus the total contract size. But that's, you know, we haven't gotten into the discussion of
What would it look like, you know, ex the SoCal Light contract? I think primarily because, you know, the
The SOCALA contract did happen. We're continuing to add awards, we're continuing to backfill as we burn off that revenue. So as you see sequential and year on year increases in the awarded and contractor of the total project backlog, I think that just kind of supports the fact that we're maintaining our visibility and able to backfill the backlog with awards that you see the actual revenue from SOCALA or you kind of burning off.
Again, this backlog.
It still remains the 2.8 billion.
represents something between, you know, two and five years worth of revenue, right? And so that hasn't changed.
That's helpful. Thank you. And then my follow up question. I wanted to maybe dig in a little bit to the RNG business. In early June , the EPA reduced the RVO for D3. As you mentioned, that impacted prices temporarily. However, prices have since begun to recover. And so I was just curious what you're doing from counterparties in terms of RNG industry supply growth. Is it under performing expectations?
And then maybe part and parcel with that, do you have any market insights on how the EPA might set the RVO as we think about 2023? Thank you. Go ahead Jeff Dungeons Thank you. Thanks Jeff.
Sure, Cassie. I mean, the latter, I think the answer is kind of going to be no, I don't think we're going to express our opinions on what we think they might do. The market overall, I think that we have been, as you might expect, internally focused on the 18 projects that we've got in development and construction, right? The way that the supply...
I mean, the latter, I think the answer is kind of going to be no, I don't think we're going to express our opinions on what we think they might do. The market overall, I think that we have been, as you might expect, internally focused on the 18 projects that we've got in development and construction, right? The the way that the supply works.
You know, the supply chain has slowed things in terms of implementation for many of the folks on the street that are developing and building RNG projects.
So, I think that that's something that we face and we continue to see our, I mean, I hate to call them competitors because
It's not like we're actually chasing after the same exact assets, right? I mean, you know, what I think you'll probably see is trendwise, we're continuing to see an increased focus by parties on voluntary purchases of renewable natural gas. I think that trend is actually looking positive for the industry overall that certainly could be for us. I mean, I outlined our modernization.
Strategy pretty clearly this time in the script and I think that we We we feel we feel very good about what the economics look like on the assets that we have in development And then what we're planning on putting in the ground over the next several years
I mean, if I may add, we continue to be very bullish in that segment despite some of the drop on the prices on the rings and so on.
Even when the
Like we pointed out on the inflation point of view, still the economic spends a lot very quickly, so I left that in essence.
The only issue is, we're going to get in the equipment and get in there one time in the execution and getting the permits. Hmm.
Thank you. Questions come from George D'Anorikis of Canaccord Genuity. Your line is open.
Thanks so much for taking my question. Just quickly to dig in a little bit into the momentum in Europe , can you just expand a little bit there and tell us which technologies are gaining traction? And second, do you feel like you have the assets on the ground to take advantage of the momentum you're seeing? Should you expand it through additional sales offices or through acquisition? Just that you can highlight to us what you're thinking about there. Thank you.
We're looking all of the above. Basically we are looking for acquisitions, we are looking to add more assets. Actually we have a couple of headhunters to help us out to build our infrastructure, the assets people. But some of the projects that we have seen, they are getting to be more sophisticated, similar to what we see over here, comprehensive.
I mean, I visited one of the jobs that we did at South University of London, and they had the geothermal heat pumps. So they, we pretty much across the board, solar, micro-grids, better storage, lights, everything else that we are doing over the United States, they are doing it there, and more. One of the things that they had done on the solar, they also, they had the solar panels, but also, they provided the work.
for the dorms. You've sold into it.
And the energy prices being what they are in Europe , I know we're trying to do on the southern part of Greece to do some solid installations. And then I guess the government there, what you think the likelihood is of them happening. And they said, we desperately need every KW, KWH, we can generate. So it's, but we need help in building up our infrastructure there. And we are working on it.
Can I ask one follow up on supply chain? You've mentioned pain points there several times during the call. Can you help us dig in as to what exactly those pain points are? It sounds like battery cells may have improved a little bit. Is it more labor related? What sorts of equipment are you still having a hard time getting your hands off? It's not like having a hard time getting your hands off.
And thank you.
Well, on the barriers as far as we're talking about the projects that we have right now, we need to live in a week of them.
But sometimes getting some other equipment, especially with the RNG plants, it has become even more difficult to get into the transformers, for example.
We like it, we have the transformation for the Southern Cal projects, but for some other installations that we are looking at, that can become a bottleneck. And basically what happens now is it extends the implementation of new projects. The timelines are the key issue. Yeah. Right? It's all about delivery timelines. Yeah. You know, we've – luckily we work in a market where in public procurement we can –
lay out realistic timelines from the get go when we're talking in terms of proposals so that we
Realistic timelines from the get-go when we're talking in terms of proposals so that we
Kind of factor in the expectations and timelines compressed, then we can deliver early, right? But we're not expecting timelines to compress until we actually see it start that happen. So we're trying to be realistic about that. And then at the same time, look to... And then at the same time, look to...
To be honest, we've continued to expand the number of suppliers that we have in any category of equipment. So, we are ensuring that not only are those folks having to compete on price, they're competing on customer service, delivery timelines and quality right across the board. So, we're certainly investing resources in additional procurement management.
practices within the company.
down the company..
Thank you. Our next question comes from Chip Moore of EF Hutton. Your line is open. Your line is open.
Thanks for taking the question.
I want to follow up on European activity specifically. Obviously, that played a pretty big role in Bristol. Can you maybe just talk about the types of discussions you're having with some of the in-country partners?
for some of the larger potential projects, I have those from picking up, since you've gained a little more notoriety. Thank you.
We've got a few jurisdictions outside of the UK where this is happening. Certainly the UK, while Baton Falls is a big partner there, you know, by and large, a lot of the efficiency business and a lot of the proposal activity that we're seeing over there, we're going on our own, much like we do here. Right, you know, as Amaresco continues to push itself as a one stop shop, we tend to propose these things on our own. However, when you go into other European countries, oftentimes it makes a lot of sense to have a local.
partner to work with in order to secure additional business. And with the uptick in the energy prices, we're starting to see that and we're starting to see those opportunities. So we, you know, technology speaking, George mentioned solar, wind is certainly relevant, street lighting is certainly relevant, but we also believe the broader energy efficiency that we're seeing in the UK will equally be showing up in some of these other countries. So I think that we...
Yeah, we're pretty both showing the opportunity over there. Go ahead, George. Not that basically. And some of them, for example, that might have some shoulder rest as they develop your men, they need financial practice and to bring them over the hump or wind farms and so on. So we get all kinds of different.
proposals, you might call it potential partnerships and so on. And that might accelerate our development there, which is we do not have the air enough legs on the ground. on the ground.
Got it understood that's helpful. All right. Thank you.
Thank you.
Our next question comes from Christopher Sutter of B-Reilly. Your line is open. How would you describe the
but the 2024 and how things are shaped and the ton of things are still pretty on track. Yeah, I just want to get a sense. When do you think we'll have like, you know, visibility of kind of the energy asset portfolio that can give you confidence like, hey, it's, you know, 80% 100%, you know, based on kind of the backlog of projects and the energy asset portfolio. Like what would be the timing where we could expect you guys to say, hey, this is when we should have it kind of in the bag. Yeah.
speak. You're a red door. That's a question for you.
Yeah, that's, you know, open by saying not today. Yeah, so we, as you might expect, we just talked about Europe , we talked about, you know, the potential for additional asset expansion over there, as well as here in the US and in Canada. So the, you know, the market and the type of assets and the energy as a service category still evolving, we're building it up as we stand today. I don't think that there is a plan of any sort to.
you know, we can revisit your question at some point in advance of the 2024 guidance. We just want to see whether we want to talk about that or maybe we...
Besides do another investor day, you know, we'll let you know. But at this point, I think we're going to probably be sticking to our cadence that we've done in the past. But, Tim.
A couple units, which is important since CO2 emissions aren't – and from the Spotting Creator group to theelling bodies being concerned that they're working, but
I know you called out that you got a $33 million cashier post-the-cue, which is good to see. But I'm just curious, can you provide the total to-date cash collection on the project? And then on the accounts receivable – or accounts payable, excuse me, can you talk about any impact on the SEE that's also related to the cash collection?
Peace, Rome.
When we file the queue, you can take a look and see what you can see there in terms of disclosures about cash collections. Mark, do you have anything to add? Yeah, I mean, I think we, what I would say, Chris, that we've continued to collect, you know,
timely from SoCal, right, as we've invoice them, right? So we haven't disclosed now, which is in AR, although we have disclosed kind of subsequent receipts and they're paying like clockwork. So I think that's the positive there. We're invoicing as quickly as the contractual milestones allow us to and they're paying us within terms. And so that's, I think,
That's the positive direction that we're heading in and that's pretty much all they can say on that. Yeah, I mean, I think as we said before, we expect the normalcy to return once everything's kind of flowed through in that contract. You know, 10 to 15% of 12 month revenue, that's our working capital.
Okay, got it. That makes sense. And then just last year on the inflation reduction act that you all owned.
Maybe it's too early to tell that it seems like there's some new ways for nonprofits that could potentially utilize the investment tax credit more directly. I'm curious. I think that might change the mix of those customers preferring, you know, owning the projects versus using BPA. We're not owning the projects versus using BPA.
Could you give any breakdown to be there? Did your current industry asset portfolio or the pipeline that you know nonprofit versus kind of TNI day customers? Is that you know nonprofit versus kind of TNI day customers?
So I think at this stage, it's premature to provide any kind of breakdown in terms of how that would look. I would tell you that numerous customer conversations are ongoing with respect to those specific provisions regarding the limited direct pay that they put in the bill. As I said before, we need to see how this bill turns out. We need to see what happens to that between now and when.
It actually gets signed. The, as you may expect these things tend to move around as people start to make noise. So, by the, nevertheless, it will, if it were to pass in its current form.
That provision will be very relevant to us, as the thing we talked about, and we said in our disclosure, 70% or so of our revenue comes from government type entities. We do a lot of business with municipalities, not for profits, schools, hospitals, and we'll be evaluating the way that those projects, in particular solar and other energy, and qualifying energy projects are financed.
given the fact that that direct pay alternative will allow us to pursue projects without employing tax equity. Right? And so of course, we're looking at it very closely and we do think it will be relevant to the extent that it stays in there.
Okay. And then just on the labor piece, it sounded like, you know, that wouldn't be much of a lift for you guys to be taking in a lot of the, um, you know, ways that they kind of go around. I'm just curious that, you know, you know, 75%, you think that you already are kind of hitting those types of milestones they would need to see today that, you know, basically a hundred percent, like how, how kind of in line with like how the business operates today with hitting those different targets, you think.
Well, you know, without throwing out any particular percentages, I think that we just have such a familiarity with the, with the, what those requirements mean. I think the devil will be in the details when you get into the nuts and bolts of the apprenticeship requirement and et cetera. But nevertheless, that's just going to simply turn into a contract, you know, a contractor discussion. We, you know, we've got to consider what our subcontractors are doing, how they're actually,
considering union or non-union or prevailing wage, et cetera. But again, it's area that we're quite familiar with. And most of our work is covered, prevailing wage or unions.
Okay, thanks guys.
Thank you. Our next question comes from Joseph Ochsner of Guggenheim. Your line is open.
Hello everybody, just a couple of questions. Starting again with the RNG business, the way that business looks now with the relative, which we're contracting to RINs and everything is kind of a function of where it is. But given the way the world looks, I'm wondering if we could imagine you potentially managing to do some RNG projects that would be maybe 15 or 20 years with sort of utility grade offtake, because that would make that business a little bit different. And then I have a follow-up.
Yeah, and that's why one of the reasons right now we do not aggregate of long-term contracts because we are of the opinion that eventually, you till it is that we're talking to some of them of colleges, universities where they have co-generation plans in order to get to carbon neutral they will need long-term contracts. But the price now, the discount that some of them, the 10 or 15 year contracts are, it doesn't.
It's not attractive, but down the road, I'm very confident that you will see long-term contracts and we will execute some of them. It might be 10, 15, it might be 20 years, which of course will give us much, much better.
predictability to our numbers and so on. And better project financing. Exactly. And so we have very carefully monitored that. We spent a lot of time.
And at the end of the day, we envision a day that we will be executing those long-term contracts.
The issue right now is just that the ex-rIN pricing isn't there yet.
Yeah, and look, I mean, the way that we've been working the market, I mean, you saw we're over 90% hatch for this year, even though the prices went down. It didn't have any material impact on us. And we have done great analogies on the board, that's those kind of questions looking forward. You know, what kind of discount we will get if we were to execute long-term contracts and so on. And we felt more comfortable using the strategy that we can.
energy storage has been with the Amaion, is there any potential that we could see you perhaps looking at deploying some other types of storage technology in particular because one wonders whether there may be an addition to all the credits we've been talking about potential wisdom, some DOE alone financing out there. I'm just wondering how you think about that.
We think a lot about it. We've got some kind of a central sort of repository of new technology review that goes on. We're constantly looking at new technologies. We do have a project in Nova Scotia that we've disclosed and that one without talking about the specifics of the manufacturer or the chemistry type is not lithium ion. We are putting a battery in that as part of an installation.
currently under construction right now. So we do and we will provide that we feel good about the quality of the product and we can stand behind the installation the same way we do with all the rest of the products. But that results in a chemistry that is either more efficient, less costly, has better degradation tables, longer duration, whatever it might be.
All that does is give us more options in terms of what our customer is looking for. Yeah. And then just on the DOE front, I'm curious whether you're thinking about whether the LPO could be a factor here or newer technologies, whether that's relevant for you at all.
It certainly could be, yes, for sure.
Yes, that's not a pressure. Yes.
I think the quality of what you've done is so. Thank you. Yeah. Yeah, the LPO, sorry, just to be clear, you know, like the way that they're approaching things for the size and scale of the type of projects that we do, you know, it isn't glaringly obvious. However, especially given the direct relationship we have with the federal government in so many different places, it would be, we'd be remiss if we weren't in regular conversations with them.
about what they're doing it for, who they're doing it with, and where it fits within our business. So yes, those conversations are going on.
Thank you.
It's
Thank you!
Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
That concludes today's conference. Thank you all for participating. You may now disconnect. Have a great day.
The conference will begin shortly. During Q&A, you can dial star 11.
Good day, ladies and gentlemen. Thank you for standing by and welcome to the AmeriRescow Inc. Second Quarter 2022 Earning and Confidence. At this time, all participants are in listen-only mode.
Later we'll get the question and the session and the sessions will follow that time.
As revised, the conference call is being recorded.
I will now turn the conference over to your host, Miss Leila Dillon, Vice President of Marketing and Communications. Miss Dillon, you may begin.
Thank you, Valerie, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakelaris, MResCo's Chairman, President, and Chief Executive Officer, Doran Holt, Executive Vice President and Chief Financial Officer, and Mark Chiplock, Senior Vice President and Chief Accounting Officer.
Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties.
Please refer to today's earnings material, the same carbon language on slide two, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking state class.
In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliation to these measures in our Supplemental Financial Information.
I will now turn the call over to George. George.
Thank you, Lila, and good afternoon, everyone. I am very pleased to report that Q2 was another record quarter for Amaresco, both in our financial results and in our team's tremendous execution.
We achieve growth across all four of our business lines and draw the substantial increasing profitability.
If outstanding performance demonstrates the strength of our people, the fortitude of our business model, the expanding market opportunities and the operational diversity and flexibility that is part of our entrepreneurial culture.
This corporate characteristics also enable Moresco to better navigate the industry wide inflationary and supply chain pressures being experienced in the market.
I wish to thank the entire MRS Co team along with our valued customers.
partners.
suppliers and subcontractors who have worked together with us to mitigate these challenges.
Before we discuss the strong forum, I do like to provide an update on our Southern California, Arizona, battery projects.
During the second quarter, we made substantial progress on the projects.
Achieving a number of key milestones. Achieving a number of key milestones. Achieving a number of key milestones. Achieving a number of key milestones.