Q3 2022 Ameresco Inc Earnings Call
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Good day and thank you for standing by welcome to the <unk> Q3 earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one one on your telephone and then you'll be here the automated message advising you that your hand is rate. Please.
Please be advised that today's conference call is being recorded I would now like to hand, the conference call over to your speaker today Leila Dillon SVP of marketing. Please go ahead.
Thank you Haley and good afternoon to everyone. We appreciate you joining us for today's call. Joining me here are George talked to Lewis <unk>, Chairman, President and Chief Executive Officer.
In Hull Executive Vice President and Chief Financial Officer, and Mark <unk>, Senior Vice President and Chief Accounting Officer.
Before I turn the call over to George I would like to make a brief statement regarding forward looking remarks.
Today's earnings materials contain forward looking statements, including statements regarding our expectations.
All forward looking statements are subject to risks and uncertainties.
Please refer to today's earnings materials, the Safe Harbor language on slide two and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward looking statements.
In addition, we use several non-GAAP measures when presenting our financial results. We have included these reconciliations to these measures in our supplemental financial information.
We will now turn the call over to George George Thank you Leila and good afternoon, everyone. I am pleased to report that the mras. Good team delivered another quarter of excellent performance with growth across all four of our business lines.
Even an impressive increase in revenue and profits.
We have made great progress since we met at.
Our Investor day at the end of March we continue to expand our addressable markets, both domestically and internationally.
You will notice that an increasing number of our projects and assets incorporate more comprehensive advanced technologies, such as energy storage systems and complex micro grids and.
In addition, we are deploying smart solutions for buildings lighting and water systems.
Our recently awarded critical Microgrid projects at more.
Campbell, that's a wide sense.
Missile range, and our $92 million joint base Mcgwire energy savings performance contract.
Great examples of our latest advanced technology projects supporting the federal customers energy security strategy.
And on the asset side, we recently announced a combined five megawatt PV and 15 megawatt hour battery energy storage system.
Colorado Mountain College.
Which will be the largest subsystem in the state of Colorado.
We also continue to expand our business in Europe .
Where there is a pressing need for clean energy solutions, given the geopolitical situations and spike in energy prices.
In the third quarter, we were selected together with our local partner is the contractual.
Megawatt PV project in drama Chris.
This represents the largest project for us in Continental Europe , and we believe it's only the beginning.
We are aggressively pursuing multiple other opportunities and we expect to grow in Europe .
Organically and through strategic partnerships and acquisitions.
Recent R&D market activity demonstrates the growing interest and importance of this asset class with significant investment and acquisition activity.
<unk> is one of the most experienced players in the biogas industry with a large portfolio of operating assets.
And our robust development pipeline.
Just this quarter.
Added to our LNG plants to our assets in development.
We believe that R&D is an important clean tech solution and will continue to be a significant value driver for <unk> shareholders.
We also believe the inflation.
Inflation Protection Act, which was enacted in the third quarter.
Will be the most impactful environmental legislation affecting the company's long term performance since our founding.
The <unk> provides unprecedented.
The amounts for clean energy incentives to ensure energy security reduce carbon emissions increase energy innovation and support mental adjusted subjective.
Deal includes a wide range of clean energy provisions that support energy efficiency solar energy storage micro grid electric vehicles, and more with a goal of reducing carbon emissions by approximately 40% by 'twenty three.
This legislation not only creates a 10 year runway for many energy tax incentives, but it also fundamentally revises the tax code to create a technology neutral approach to incentivize the development of zero emission technologies.
Some specific provisions that will have a direct impact on our business include.
Production tax credits for renewable zero carbon electricity and green hydrogen.
Investment tax credits for clean electricity and energy projects, including Standalone energy storage biogas, micro grids and geothermal heating and cooling.
Clean vehicle and charging infrastructure tax credits as well as carbon capture credits.
It's also expense the 170 <unk> energy efficiency tax production.
Well, everyone is still evaluating the breadth and depth of the incentives grants and other benefits from this deal we do expected to be a great long term tailwind for our business.
We have already identified a number of ways. This deal will directly benefit our customers and <unk>.
With our customized solutions ranging from solar micro grids and battery energy storage to renewable natural gas and electric vehicle infrastructure, along with our innovative financing structures and <unk> is well positioned to be a long term industry.
Your partner in key beneficiary of this legislation.
Based on our experience with similar legislation, though we anticipate these benefits will take some time to materialize.
Now I would like to provide an update on the southern California Edison project.
We've made the continued progress.
Progress in the quarter with all battery cells and containers are on site and early commissioning steps underway.
Recently, however, southern California, Edison instructed us to adjust the project schedules into 'twenty three.
Under the terms of the contract.
We are entitled to recover costs associated with the schedule adjustments.
We are working with southern California, Edison to analyze and estimate this course.
We are also continuing discussions regarding the applicability and scope of any force majeure relief.
Considering the schedule adjustments requested by Southern California Edison.
And the delay as disclosed earlier, we anticipate the projects to be in service and achieved substantial completion prior to the summer of 'twenty two 'twenty three.
Our relationship with Southern California, Edison continues to be very cooperative.
I would now like to highlight that in the third quarter, we were honored to become a great place to work certified company for the first time.
This designation is based entirely on employee input, making it even more meaningful as it reflects the positive experience of over 1300 employees.
Hiring and retention is critical to the company's growth and we will continue to strive to make it more ESCO.
Great place for our employees to work.
<unk> and <unk>.
During that we attract and retain the best and brightest in the industry.
I will now turn over the call to Doron to provide some comments on our financial performance.
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.
George noted the.
<unk> team delivered another excellent quarter of financial results as all four of our business lines experienced solid growth led by our projects business.
In addition, the combination of our project backlog.
Unexpected future revenues from our contracted energy assets and O&M businesses remains at close to $5 billion.
Giving us excellent long term visibility and Brazilians during these uncertain economic times.
Topline growth was led by our projects business as we continued to execute on the socal it projects.
Our O&M business line also experienced strong revenue growth as we attached to O&M contracts to our projects, especially with the federal government.
Separately, however, I would like to take this opportunity to highlight our nationwide solar O&M business units now manages over 564 megawatts almost 400 megawatts of which are for third parties.
When we acquired this business in early 2019, it had only 45 megawatts under management.
We're very pleased with the growth of this business and we will continue to focus on disciplined approach to acquisitions.
We can acquire and grow companies integrate their solutions.
And create value for our stockholders.
We also saw continued strong growth from our integrated PV revenue, which is part of the other revenue line.
This unit's performance was driven by increased demand for off grid solar systems from the oil and gas rail and other industries seeking energy solutions, where no grid access exists.
As we expected our gross margin increased sequentially as the lower margin Socal, Ed contract had a lower contribution to the overall revenue mix.
We anticipate similar gross margins in the fourth quarter.
We again achieved very strong double digit year over year growth in adjusted EBITDA as a result of our operating leverage demonstrating our ability to add gross profit dollars without adding direct incremental operating expenses.
Even with the continued working capital needs from the execution of the Socal. It projects. The company ended the quarter with $122 million in available cash having generated $35 million in cash from operations on a GAAP basis.
Our adjusted cash flow from operations was $87 million, which takes into account federal ESP C financing proceeds.
We expect that the Socal Ed projects will continue to impact our near term working capital needs.
This impact was anticipated from the onset and is one of the reasons why we amended our senior credit facility early in the year.
We expect all components of working capital to return to more normalized levels for our business with the completion of the Socal Ed contract and the collection of the remaining amounts owed.
Total project backlog was a healthy $2 6 billion at the end of the quarter.
Of note, we are seeing increased activity from the C&I sector. As this market segment focuses on sustainability metrics.
In addition, our <unk>.
Project and asset lines of business continued to grow in Europe amidst the ongoing energy crisis.
<unk> grew its portfolio of operating energy assets to 360 megawatts, while building its owned assets in development and construction pipeline to 452 megawatts.
As a reminder, we are now reporting both the total assets in development as well as a pro forma net megawatt total after adjusting for our partner's equity interest.
This should help investors better understand the positive impact. These jointly owned assets are expected to have on our future financial performance.
Even with increasing interest rates and equipment cost inflation.
Stained high energy prices continue to create favorable long term expected returns for a variety of energy asset types deployed by MRI ESCO.
We are seeing an increase in proposals and awards for our energy assets.
In particular, our newer nationwide Greenfield solar and storage development group has been originating early stage front of the meter opportunities, which once de risked would grow our assets in development metric.
For a bit of background a couple of years ago, We began investing in a team of Greenfield development experts and were pleased to see the results of this organic strategy is starting to pay off.
Furthermore, with the incentives in the IRI, we expect the pace of these opportunities will continue to accelerate.
With that being an important portion of our capital stack and we'll spend some time discussing our interest rate exposure.
About 90% of our nonrecourse debt is protected from rate increases at this time as it is either fixed rate or was swapped at closing.
The only material part of our debt structure that is variable is our senior secured credit facility.
While the balance of the facility has increased due to the execution of the SCE contract. Our funded debt under this facility is expected to decrease meaningfully following the completion of the projects and receipt of associated cash payments.
This should limit any medium or long term impact of higher interest rates on our financial results.
Higher interest rates also have a potential impact on our projects business.
The majority of our project customers fund their implementation under performance contracts with third party bank financing.
Higher interest rates have the potential to reduce project sizes as a greater percentage of energy savings is consumed by interest expense.
Similarly, we're looking at new proposed energy assets higher interest rates have the potential to affect the projected equity returns.
However, both our customer projects and our renewable energy assets.
Against traditional energy sources in particular electricity and natural gas.
<unk> seen dramatic price increases this year.
These increases in energy costs have outpaced the year on year increase in Amyris goes all in project delivery costs financial materials, and labor, which we believe on balance is preserving a positive economic outcome for our customers.
And ourselves in both the project and energy asset businesses.
We monitor the pace of change in these macroeconomic factors closely.
And continue to remain very disciplined with our risk adjusted returns based approach.
We are pleased to reaffirm our 2020 to annual guidance.
Our ability to do so in today's challenging environment speaks to the diversity and resilience of our business model and the hard work of the <unk> team.
As in past years, we plan to provide guidance for 2023, when we report Q4.
We remain very optimistic for the strength of our business model and end markets and we remain confident in our previously stated goal of achieving $300 million of adjusted EBITDA in 2024.
Now I'd like to turn the call back over to George for closing comments.
Thank you Doran governments and industry are now taken important steps to address the climate geopolitical and budgetary issues facing our customers around the globe.
<unk> with our portfolio comprehensive Cleantech solutions is at the Nexus of this trend position.
Positioning us for robust growth for years to come.
Once again take a moment to thank the entire <unk> team for their dedication and outstanding execution.
We also want to recognize that.
Ongoing support of our customers and long term stockholder.
Finally, following our successful Investor day in March we are once again welcoming analysts and institutional investors to learn more about <unk>.
We will be hosting a tour at our Phoenix, Arizona RMG facility on November 15th.
This plan is the largest wastewater treatment biogas to renewable natural gas facility in the U S.
We hope that it will provide a deeper understanding not only is impressive facility, but also the strength within <unk>.
<unk> business.
Operator.
I would now like to open the call to questions.
Wonderful. Thank you at this time, we will conduct a question and answer section.
As a reminder to please ask your question.
Press Star one on your telephone and wait for your name to be announced with limited time, you'll only have time for one question and one follow up question per person. Please standby as we compile the Q&A roster.
Our first question comes from the line of Noah Kaye from Oppenheimer and company.
The last couple of months following the passage of the IRI in terms specifically of.
Where it's really led to changes.
No I'll hold on one second.
Alright.
Ask your question Noah.
Thanks very much.
That again and thanks for taking the questions I was wondering since you touched on the prepared remarks, if you go a little bit further on the impacts of the IRS, maybe take us through what the last couple of months have been like in terms of where the customer focus has really picked up where the pipeline of growth opportunities. It picked up for you are there are a couple of areas that you would really.
A highlight and where do you see that potentially impacting as we look out to the next year or two.
Yes.
Yes.
It's a great real no question of ours is going to help us tremendously and that's going to take some time to get the traction if you recall back even when we get there.
The recovery plan that the Obama administration, it took something like six months 12 months to really take effect.
To get going but what are we seeing more activity.
So on the asset base.
The asset business gets accelerated we're saying at a faster pace than that everything else. Some of the other items like for example, the cogeneration ITC some of the customers know the debating whether we should own that facility and take them monetize their rebates.
Otherwise, taking that cash and therefore, whereby all of the facilities themselves.
<unk>.
It's only two months old and.
I think the customers are trying to figure out how to do.
The best advantage associated with the deal.
No.
George is right the asset side of the businesses, where the focus is going to be I would say that in the last couple of months is involved the tremendous amount of analysis, we're working with several clients on that asset question, especially with the direct pay and you know our customer base is a lot of government and not for profit.
Considering what asset ownership means to those customers and how it would alter the economics.
Certainly we expect that to continue to be a topic of conversation on our own assets.
We've got sort of the immediate.
Look forward what to do between now and when the guidance comes out and then also we have the longer term what to do with a lot of the assets that we've got in development, where you've got a lot of different things I mean, the list goes on rate solar ITC PTC the battery ITC biofuels.
The direct pay.
And then in 2025 clean electricity zero emissions right. All of this was going to require a lot of planning.
As George said, great tailwind for the business.
Okay very helpful color.
You talked a little about RMG development, adding a couple of new projects. The pipeline and you mentioned that market activity yesterday, we see of us to come out with their RFP for for RMG procurement.
Theres been a couple of high profile deals recently.
I guess, how do you assess particularly post the IRI in the biogas incentives the competitive landscape and the opportunity set now around R&D I know, we'll probably hear a little bit more about it at your investor event, but just wondering if you could kind of give us the high level in terms of how the landscape is shifting.
I think it's a great great capitalists.
Available assets for us and we have a great pipeline in development.
We've been working we will report 30 plants as we have in the <unk>.
Development pipeline developing metric, but if you look at our pipeline and substantially higher but we won't put them into the actual.
Relevant pool and deal we negotiated some gas agreement is gets some more rights with Atlanta.
One is how far do risk but.
Look 40%.
Reducing the United States as natural gas somehow some way we'd have to decapitalize that pipelines, what I call and Thats why you saw the next startup, making a big step to get into this business.
Our bets from.
Back when we decided we will in the first companies to build the first the R&D facility down in San Antonio.
Well.
We haven't.
We think it's a great great catalyst for our business and what's going on that.
<unk> is going to help us even more.
And what's going on in the market as it raises the visibility.
We have the breakfast in the marketplace.
Sure Kevin a good backlog.
Okay.
Okay.
Operator, we can move to our next question and good luck.
Hi, Steffen go ahead and ask your question now.
Okay.
Oh can you hear me, Okay, yes, yes.
Great. Thank you Hello, everybody.
Two things from me, maybe maybe if you wanted to start with.
Tell us a little bit about the SCE project.
The complete delivery is delayed into 'twenty three.
How does that impact how that project hits the income statement.
So we looked at the looked at the overall project and what we're going to be accomplishing before the end of the year and then what is going to move to 2023 in terms of placing those assets into operation we're still.
Kind of.
Substantial amount of the profits I think we make the statement in our queue.
Sorry of the revenues are going to be generated in 2022.
I think we're talking about maybe a pusher.
30% to $35 million worth of revenue out into 2023 out of the total so.
Got it.
Not a tiny number but not.
Not not a substantial portion.
Okay great.
Helpful.
Gathered that from the guidance, but I was just curious if theres anything else behind that within the guidance that changed.
The other quick thing is on the Orange you Frank can you give us an update on.
Facilities in operation and the timeline for that.
Next year to come on stream in 2023 and four.
Yes.
<unk>.
I think.
One of the plants, most likely we will have mechanical complete by the end of the year.
They will be the first quarter of the year.
23.
We want to point out, though once we get them mechanically complete it takes three to four months to really go through the commissioning is somewhat.
So when you put them in generating revenues and income, whereas it's three four months. After they are mechanically complete we did encounter some.
Even though we had the environmental performance.
Building permit delays and then some so that the equipment did not show up on the site for some time.
And then as far as we have.
Said before we will have five to six months.
Yes, mechanical complete by the end of attempted 33, we continue to maintain that visibility.
Our next question comes next question ex sign from Craig in Heartland.
Alright, thank you.
Sure.
Okay.
Can you hear me.
Okay.
So I'm wondering if you could just talk about.
The Bristol project, maybe just an update on that and I think on the last call you had talked about too.
Potential similar projects in the U S. One in Europe .
Curious how the initial project is going but then update on these new ones.
Yes, I mean look at one of the most exciting projects that we have and.
We are talking to several other series.
Then after some.
Clutches.
In order to get going but that process is.
It's a long term it takes a couple of years.
We took over two years to get.
Where we are today one of the Bristol facility.
<unk>.
Well I'd like to point out on that particular, one is that if you talk to your concession so even though we have identified over a $1 billion.
The British 1 billion.
<unk> investment.
Duncan videos so.
<unk> seen some projects showing up.
Some of it will be.
The EPC side.
It will be asset, we will not showing up until the second quarter of.
Okay.
But things are moving along with transfer some.
People over to our unit now that we're operating.
We are working for the series now they start working for us.
We move it along but we're not going to have any.
Seem to talk about it early next year.
Yes understood okay longer.
And this particular project, even though as large.
It's all going 1 billion pounds.
Total year horizon, so we're not going to be talking.
As much about it every quarter like we did the southern California, because southern California was over $800 million, but we've got to implement within one year. So that was it.
So much more.
Understood.
Yes.
Okay.
And then just.
Interested in your discussion obviously the wins in Europe .
Organic but also acquisition.
Potential there I mean, maybe just talk about.
Kind of what Youre seeing just thinking through the energy landscape there.
What the implications are in terms of what's out there.
What the valuations you might be looking at I mean, I would assume these are going to be more strategic and bolt on rather than large, but maybe just some thoughts on the acquisition side.
Eric I mean, I think so our strategy isn't any different than it is anywhere else as far as Europe is concerned we're looking for ACA.
Acquisitions, where we're not going to be pushed into overpaying for an asset when we watch the multiples. We look for businesses that we can fold in that are accretive to EPS.
We believe strategically fit well, we like the management team and I think that we are.
Sure.
If we had something we'd be talking about it.
At this point in time.
We're just.
Evaluating all different types of opportunities across all of our business lines over there.
Okay.
Okay Alright. Thank you. Our next question is coming from George <unk>.
<unk> from <unk> Genuity.
Hey, George.
Hey, good afternoon, everyone and thanks for taking my question.
I had a just a follow up on the recent M&A activity in this space I'm curious as to how you think about your portfolio of assets.
Are you willing to trade mix and match take capital from a sale and redeploy that in other directions. How does how should we think about your portfolio management strategy.
I mean, we always.
Evaluate all options available associated with the assets that we own, especially some of them.
Our LNG the prices that people are paying out there and so on but at this point in time, serving the high merger.
Margin recurring revenue.
Our revenue for us.
Very good EBITDA and have that tremendous backlog associated with the assets.
Combined.
Power or solar or green gas.
We feel the better stay where we are right now.
That doesn't mean that.
We want to evaluate all options.
They come to the table.
Open mind.
We refinanced some of the projects that we have and maybe.
I want to add more color to that.
Some pretty good cash.
We did a refi a review of the operating plants I think.
One important point.
Ill add to George's comments is the optionality of being the asset owner and controlling those assets going forward as you see the developments of incentives as they go <unk>.
Year ends are coming.
We've had a variety of different strategies that we're looking at on the hydrogen front that relate to renewable natural gas. There's a lot of really exciting developments, there and we like to own the asset so that we can pivot and deploy them in the most.
And the most accretive way for our shareholders.
Thanks, and just one follow up if we get a lot of questions on the potential changing complexion of Congress I E more Republicans and Democrats and the risks associated to renewable elements of the inflation reduction accurate can you just share with us your thoughts on how.
Any change in Congress could change.
Certain elements of the installation reduction act in 2023.
And again, you might get scale many of them during <unk>.
Look.
We are not the politics, but I will say this much we did very well under the previous administration.
But with each installation of reduction.
Yes, I mean, that's a lot right now and if Congress.
Let's say, it's place or whatever it might happen as long as new President is that I don't think youre going to see any changes to that so we have a pretty good runway for where we are.
What are the adjustments of the federal government the state's board and more.
The combination that climate change is impacting everyone in our commercial and industrial.
Good morning.
No.
I mean, if we think about it a lot and we are cautious as to what we are doing but we don't think thats going to be material change okay.
And some more color.
I agree with George we're not we're not going to crystal ball, the politics of the election, and what's going to happen post election, but.
The breadth of the provisions in that bill that apply to us.
No.
Stair to page, if I cross out two or three lines.
Still have it doesn't lines left are the areas that we're going after so I don't think were.
We're thinking too hard about that right now I think we're focusing on what's what's in there that's going to work.
Well.
Thanks.
Our next question comes from Christopher Souther hold on one second.
Alright, Christopher your go ahead excellent. Thanks for taking my question here.
Maybe just you mentioned.
Infield solar is kind of a new front of the front of the meter area that you'd be kind of going after.
Maybe just high level on kind of the strategy as far as are these assets you try to own on your balance sheet balance sheet.
Maybe some of the regions geographies you are looking at at.
The specific projects.
Yes.
Working capital needs be for that if that became a more meaningful part of the business here.
Sure. So I think because it's greenfield theres a lot of early stage, we are going direct to site control interconnection queue position. It's a variety of markets. We are focusing on the ones that we feel like have really solid either community solar or some other tariff program that we think.
Creates.
The right amount of value the <unk>.
Approach generally speaking as with anything is that ultimately we'd like to bring those assets into our assets in development metric and grow the asset portfolio.
We are not going after large utility scale, we're still sticking with the sort of.
D G Thats why I mentioned in community solar.
Being said.
If those opportunities arise we can create substantial value.
The assets ultimately aren't going to meet our return hurdles.
We're all aware of there is a substantial market for those types of assets.
Out there and we would of course consider monetization.
I would say.
Our working capital on the development front working capital is not not so substantial and so youre early stage development going through permitting going through interconnection.
Establishing revenue contracts, that's all fairly reasonable to working capital really kicks in when you go to build the assets and no different than the assets that we build now we would expect to deploy construction facilities bank facilities to help us finance.
That working capital on a nonrecourse basis.
Got it okay that all makes sense. So looking at the 50% to 70 megawatts started for the year.
We need that first R&D facility to be completed to be included in there.
I wanted to get a sense of whether there was any.
Potential some of the solar projects might be slipping into 2023 and in order to get a little bit more juice on the ITC and the like or.
If there was any kind of momentum.
On that front thanks.
Yes, nothing specific to talk about there. The RMG is not included in that figure. So we're we're just looking at the other assets there.
But I couldnt pinpoint any that we have specifically identified as.
Wanting to delay for any reason.
Currently with the sort of pre guidance construct of the IRS, but we feel like we're going to just plowright, adding complete what's already.
Perfect. Thank you. Our next question comes from Tim Mulrooney from William Blair Go ahead, Tim.
Hey, good afternoon can you guys hear me.
Yes, Hi, Jim.
Hey.
So that it was really interesting data point that you gave last quarter. When he said blended energy costs were up kind of 40% year over year, but blended project costs for your customers were up more like only 10% to 12%.
So that gap is pretty compelling.
And if so I was wondering if you could provide an update for what.
You see for what a blended project cost would be for your customers right now given some cost may have flattened out while maybe others like interest.
Interest rates continue to go up.
Yes, I mean, I think I put in my comments, the fact that it's outpacing.
We've we've taken a look at the numbers.
I think this is something that we are continuing to track internally, but we're not expecting to start publishing on a regular basis.
As we as we move forward.
Data point and the importance of the of the trend.
I think critical for folks to understand that the economic value proposition that were putting in front of our customers and putting in front of ourselves on the energy assets was still valid and in fact, it remains that way.
With the with the movements recently.
But we're.
I don't have any statistical updates for you today.
Okay, No update to the 10 to 12, Dorian, which can't blame a guy for trying.
I'll try a different question.
Are you seeing higher interest rates have any material impact on project demand today right now I'm just curious if youre seeing any signs whether I don't know longer sales cycles or changes in customer behavior that would suggest maybe a tougher environment for the projects business until.
Inflation is under control and interest rates can can come back down somewhat.
Okay.
Hi.
Kevin the only thing Thats.
We have seen lately wants to build it.
Okay.
At the right time.
To figure out which way they're going to go.
How are we going to make maximum utilization of that and I will tell you. This much.
With the projects.
A couple of co Gen project before didn't pencil out now with the ICC.
All the way up to 30%, maybe a little bit more.
They pencil out so but now they're trying to figure it out we gave in particular proposals we havent they want a particular customer which way they're going to go for the project.
Uh huh.
We haven't seen it but what we are seeing on the C&I side.
Because of the.
Climate change and people wanted to Decarbonize, we get more traction.
In that market.
Thank you for your question.
Alright, and just to remind everybody is that if you do have a question and you want to be put into the queue. Please press star one on your telephone.
Your name to be calm and again, we have time for one question and one follow up.
Our next question right now comes from Pavel <unk> from Raymond James.
Go ahead Adam.
Yes, thanks for taking the question.
As we look back at the Socal Edison.
Effort.
It's pretty obvious there have been issues surrounding the project through no fault of your own of course to supply chain.
Is this a less than that.
Taking kind of.
Low margin very high volume projects.
Projects such as that.
Maybe not the best idea for the future.
I'm going to I'm going to say a resounding no on that.
I think it's these types of things when we take on those types of numbers without increasing in any substantial way our opex space, we're reflecting the operating leverage so when we're seeing proposal activity, which we are seeing here in similar projects maybe not quite.
The size, but certainly we're seeing some chunky ones come across our desk.
We're going after those with conviction because we know the supply chain now we know what's possible we know what's realistic and we're we're feeling very very comfortable with our ability to the.
It costs up.
Risk and execute projects like that for multiple types of utility customers and developers alike around the around the country.
Well my head I will underline that particular project.
That has a great reputation in the industry.
And a few other utilities they are talking to us because of that project.
And in addition until that now with the ATC come into play.
Or a standalone battery storage project.
C cornerback going into our balance sheet over the next few years because of that project.
With the increase in other renewable resources intermittent resources in the grid the offshore wind that's coming here on the east coast everything storage is really picking up I mean that is going to be a critical part of our overall cleantech integrator industry.
Going forward and I think that we'd be remiss to not go after it.
Okay.
So up about Europe , Europe was 4%.
Our revenue in 2021, obviously before the war and the energy crisis, what do you think that number will be by the time.
This year is over.
For 2020 to Mark and just do you have any specific statistics I don't know that were going to expect anything substantially different for 2022.
Give me one second one second of all we're going to take a quick look here.
Let's see how it goes.
We will see and you will see an increase but it's not a substantial increase.
Timing, but we're seeing some growth year over year from 'twenty, one to 'twenty two okay. So a little bit of growth year over year 'twenty, one to 'twenty two modest increase in 'twenty two.
23, we're going to start seeing our share of the revenue from the PV project that we announced to come through.
A good portion of that is 2023 so.
The Bristol Bristol City.
We will also see some.
Some of that start to kick in and then we have a pretty good backlog on the rest of it.
K operation so.
We're seeing it pick up next year.
Okay.
Very good thank you guys.
Thank you.
Okay. Our next question is from.
From Julien Dumoulin Smith from Bank of America go ahead Julien.
Hey, good afternoon. Thanks for the time can you guys hear me.
Yes, absolutely and high.
Alright, Thank you guys Hey.
Listen I wanted to follow up on the R&D conversation throughout here can I ask you to elaborate a bit we've seen some of the transactions of late here.
And looking at.
Landfill to electric potential conversion leveraging the ITC I mean, given the portfolio that you stand on today, how do you think about maximizing and.
Creating the most efficiency to garner the ITC first off and then secondly to convert existing projects to qualify for RMG as well given the newfound economic.
Well so the short answer is we think about it a lot as you mentioned that you basically laid out all of the various optionality elements that I was talking about before.
There is certainly some programs that are going to be interesting for some of our pre existing assets, but as far as new developments are concerned I think that we.
We see.
The ITC the potential for R&D, where the returns are going to go introduction of <unk> for that matter.
We see a lot of different paths for the portfolio of assets and given the fact that we've got a funnel of assets behind the 20 that we kind of already talked about that are in our assets in development metric.
We're going to continue to work on the development front to sort of increase the.
Increase the number of assets that we're actually focusing on moving through permitting.
We're talking about evaluation of sites.
From a valuation of sites to negotiation of gas contracts and tight control on some of these areas where those we haven't talked about in the 'twenty that we that we previously announced we feel very good about all of that Optionality and we're looking at these sites.
One by one when we take a look at how to draw upon.
Pro forma for where we think the economics will go.
And when we take into account all of these different potential alternative ways to make those projects profitable.
And that like I said it applies to some of the existing assets, where the PPA is may be rolling off to the new ones that we're developing now.
And especially if the hearings come to pass and if the <unk>.
Lastly existed.
Plans as we have done already some of them they have excess gas.
It would be an optionality for us to add a couple more in general on whether that's the case might be or wait until the expand and grow.
Zero.
It's a great time to own some of those assets.
Marine comes in wings come to pass I think it will be a great.
Great value creation for us.
Got it if I can ask you to clarify a little bit I mean, presumably when you guys came with your analyst day earlier this year that was prior to the IRA passing.
When do you think youll be in a better position to update the forecast given the numerous R&D projects you had in your forecast already.
<unk> reflect the outcome of these negotiations as you will inclusive of some of those credits, but I understand that you may not fully benefit from the 30% or 40% ITC as it goes but you might have to share some of that but seemingly that would be a pretty sizable delta relative to the analyst day earlier this year that would be.
For the R&D specific piece of growth.
Julian I think that's that is probably content for when we come out and talk about 2023 guidance. When we report Q4.
As we announced we're going to do the tour and do some Q&A and presentations on the R&D plant, but at that point in time I don't think were expecting to provide any any particularly new information we need to see.
Our regular cadence through in terms of providing guidance.
When we report Q4 and Furthermore.
As you know.
The guidance under the IRA is expected by the end of the year as well, which I think is you might not be surprised to hear that's something we'll be very interested to see.
Perfect Alright.
Just to remind some folks that you need to I would like to ask the question to you. Our speakers today to please press star one one on your keypad and you will be put into the queue to ask a question.
The next question comes from Greg Lukowski.
He is calling from Webber research go ahead Greg.
Hey, Good afternoon, guys can you hear me okay.
Yes, hi.
Perfect.
Thanks for taking my questions.
Not to beat a dead horse here on Socal Edison, but just a point of clarification.
It sounds like all the adjustments where it got there.
Their sole discretion, but do you think if there werent any adjustments made to the scheduler strategy. Do you think you guys would have 200 to 300 megawatts service now with expected completion by the end of the year, which was kind of last last quarter's update.
Yeah.
Great.
We're going to.
So there with respect to what could have been.
The nuances of that type of discussion is really.
Can a speculative.
And then across multiple projects so yes.
I don't think we're going to.
Comment on that.
Understood totally fair enough.
Switching gears more of a technical question could you guys speak a little bit about what youre seeing when it comes to EV charging and solutions for alternatives to.
I think you got the strain on the grid.
Whether it's battery integrated solutions are incorporating alternative fuels like R&D or hydrogen and fuel cells or maybe just like a smarter software solution is that something thats on the top of minds of your customers and what are you seeing as the most elegant solutions that are out there right now.
Well right now in the electric vehicle charging stations reincorporate them. Both in every project, we do on the federal government.
Paul.
Well along and.
Going back to what.
We did with this greenfield development or would we ire.
A specialist from them.
Years ago, and now we have a real great group, we did hire somebody from Tesla.
So great great experience.
Sure.
These sessions and so on but we again to be very active in that area. And then we have won a contract will convert part of the RMG to children's.
She was in session for hydrogen.
That's going to happen over the next slide.
To 24 months.
I think the.
On the R&D front away from her hydrogen a lot of that connectivity to our the bio biogas or landfill gas to electric vehicle charging might be driven by by the year ends.
Not surprisingly.
<unk>.
We are looking at not just federal projects, but also many in the regions where.
We've got some fleet opportunities, yes, the integration of batteries, yes, the integration of renewables, we consider ourselves to be.
Kind of at the forefront of our ability to put those projects together.
However, the development of that overall business at a scale that's beyond kind of deploying the technology as part of our solar installations are carbon carport installations is is in its early stages.
Yeah.
Wonderful. Thank you for the question.
Next question comes from Joseph Osha from the Guggenheim Partners go ahead Joseph.
Hi, there thanks.
So everyone. A couple of questions first just a simple enduring you alluded to your project hurdle rate, obviously very cost financing is going up I'm curious do you all think about.
Your business in terms of.
Ed over your incremental cost of capital I'm, just wondering if I can get some insight into how how that hurdle rate is evolving and then I've got a couple of follow ups.
Hi.
We've seen interest rate fluctuations over the years and I think that our hurdle is remaining relatively constant.
Kind of a mid teens Roe.
Target for assets that are on the balance sheet.
As you might expect with different types of assets in the battery the solar their R&D.
Those tend to move around quite substantially when you look at Levered returns in situations, where youre getting very very high advance rates on sale.
Sale leaseback for tax equity.
Those those hurdles.
Tend to tend to move around when you look like an asset class by asset class basis. So on a portfolio basis has the kind of way we are thinking about that.
Okay, but the idea that if not.
That rate stays the same in your cost of funding does what it does.
But over time, it normalizes youre not youre not moving your hurdle rate up year in response to your cost of funding necessarily.
No not necessarily nausea.
Okay. Thanks, and then the second question.
This is what Julian was getting at it a little bit one of the things you brought up in the past that.
Pricing you get out of a kind of a 20 year utility grade offtake or for for R&D.
They're right in one.
One of the nice thing that you have is the ability to put a different and perhaps more favorable capital structure around.
R&D project right, so as things evolve here or is it possible that one outcome could be.
20 year off take with.
Utility grade automaker in your capital structure of the business, maybe a little more favorable relative.
We can now.
Hey, Joe at the right at the right price and yes, that's right.
Everything has to be taken into account, though of course right. So as you can see a lot of developments a lot of different incentives floating around a lot of different parties coming to the table.
Seeing the kind of the five year the 10 year.
Contracts away from the transportation market those arent the same as a 20 year now when Youre looking at project financing and leverage obviously, the higher interest rate environment, we have to consider that.
So it's it's a calculation, but we.
We still watch that market very closely the long term market so that.
If the right contract comes along and we talked about it before.
It will come the currently utility with the guest.
To decarbonize their pipeline so.
It's a matter of time, we feel that.
The prices will come up and then we will actually get long term longer term contracts, but we constantly monitor without the market.
Because like we agree with you that we.
It will give us better financing.
Okay.
Great questions Alright, just a reminder to R.
Our audience here, if you would like to ask a question. Please press star one on your phone to play into the question queue.
Our next question comes from Ben <unk> from Baird Go ahead Ben.
Hey, good afternoon, everyone.
Steve.
Thanks, Greg.
Hey, guys good.
A question I get a lot is just.
As the complexity.
Sure.
The.
More complex.
You get a higher margin or how do we deal with.
I'll just speak about.
<unk> Park project.
Sure.
And maybe that breakthrough.
Hey, guys.
Execute.
Yes, so so.
It depends on the way that complexity translates into risk Ben.
Yes.
We look at pricing on a risk adjusted basis. So I think theres a lot of different factors. In addition to just the complexity of the technologies that are going into it's not just a direct relationship as the more complex the higher the margin.
Complexity risk associated with.
Timelines performance guarantees.
Whatever it might be that's part of the part of the overall project and we kind of take all of that into account and then of course, the customer and customer type competitive nature of the business right. If we need to sharpen our pencils on pricing to win deals that we want then sometimes we do it right. So it's more of that.
Just the complexity, but.
Generally speaking if you think about more complex projects that might have a little bit more risk and the execution then yet.
The complexity is.
I would say a competitive advantage the cookbook dominion.
We can provide the holistic approach on that particular project, but.
One is the margins the gross profit margin.
As much.
Uh huh.
But what's happening as the projects get larger.
And the contribution to <unk>.
The overall profit gross profit this base is very very good.
How do we think about your backlog.
And with IRA.
Gross.
Zero.
Pause right now.
Thank you.
Okay.
Yes.
Increase.
How do we think.
Yes.
I wouldn't call it a pause I will tell it people evaluating.
Which options to go lot of activity.
I think we're making more proposals I'm talking to more customers than ever before but they've taken at that time in order to to get to yes.
We're going to go.
But.
We are used to that kind of environment.
Usually it takes six to 12 months to move a customer from one stage to another and then once they get the order. It takes another 12 months to go through contracting.
But like we said earlier, though the.
Is it part of the business.
Got it.
But the clear which way they're going to go.
It's moving faster there is more traction on that right now.
I wanted to follow up thank you again for your participant host participation in today's conference. This does conclude our program you may all disconnect now. Thank you for your time.
Thank you very much.
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