Q1 2023 Ameresco Inc Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the first quarter 2023 Amaresco Inc. earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session.
Speaker 2: To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw the question, simply press star 11 again. And be advised that today's conference is being recorded. I would now like to hand the conference over to Leila Dillon.
Speaker 2: Senior Vice President of Marketing. The floor is yours. Thank you, Carmen, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Amaresco's Chairman, President and Chief Executive Officer.
Speaker 3: Doran Hull, Executive Vice President and Chief Financial Officer, and Josh Faribault, Senior Vice President, Finance, and for Mark Chiplock, who is traveling today. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks.
Speaker 3: 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 2, and our SEC filings for a discussion of the
Speaker 3: and one of our supplemental financial information. I will now turn the call over to George. George. Thank you, Lila. And good afternoon, everyone. First quarter results.
Speaker 4: represents a solid start for the year. We were pleased to make significant progress in key areas that support our 2023 guidance as well as our long-term financial targets.
Speaker 4: The MOSCO team once again executed well, delivering first quarter revenues higher than our expectations and adjusted IBDAA at the higher end of our guidance range.
Speaker 4: We also continue to lay the foundation for our ongoing success. As such, we are particularly pleased by the addition of new project awards of $472 million in the first quarter.
Speaker 4: which increase our total project backlog by 13 percent sequentially.
Speaker 4: We are executing on our contracted backlog and expect to convert a good portion of our awarded backlog to contracts throughout the year, giving us excellent visibility into our expected project revenue ramp in the second half of this year.
Speaker 4: We have seen very strong customer interest across all our business lines.
Speaker 4: In fact, in this year's first quarter, the total value in the proposal we submitted was 50% higher compared with the same period last year.
Speaker 4: This reflects greater demand as well as a higher level of project complexity and scope.
Speaker 4: This increased activity is a function of our great value proposition, which addresses customer requirements for resiliency, cost savings, and carbon reduction.
Speaker 4: We are excited by the recently enacted Inflation Reduction Act, which provides broad and meaningful financial incentives and benefits for the range of clean energy technologies.
Speaker 4: And Maresco's technology neutral business model is preferably suited to assist customers in finding the best solutions to fit their energy needs and optimize the IRA's benefits.
Speaker 4: Well, we have seen a slight uptick in awards directly attributable to IRA benefits and Q1. We expect to see a greater impact in the coming course in the years to come.
Speaker 4: Included in the assets we brought online this quarter was the 27 megawatt solar facility in Depew, Illinois. Depew is our largest operating solar asset to date and is representative of the larger size solar, battery, and energy assets that we are pursuing. This year, we expect to add a total of 80 to 100 megawatts of energy assets into operation. This year, we expect to add a total of 80 to 100 megawatts of energy assets into operation.
Speaker 4: Doran will provide more detail on our visibility during the financial discussion. As we noted last quarter, Emoresco continues to expand into the European market, building on our successful operations in the United Kingdom and Ireland. We expect our expansion to take several forms, including organic growth, acquisitions, joint ventures and partnerships.
Speaker 4: This quarter, we entered the Italian market with our acquisition of Milan-based Energus.
Speaker 4: The joint venture has already been selected as a contractor for the 100 megawatt solar photovoltaic project in Greece, currently in construction, as well as various other smaller PV projects across commercial and industrial markets.
Speaker 4: Given the increasing importance of the European market to our future growth strategy and recognizing our large and growing European shareholder base, we are holding our investor day in London on May 11.
Speaker 4: The event will primarily focus on our European strategy and the market and policy dynamics that we believe make this a very compelling opportunity for us.
Speaker 4: MRSCO's European Expression Plan will be selective and measured, maximizing potential shareholder value while minimizing execution risk.
Speaker 4: Given the importance of acquisitions and partners to this plan, we will hold a panel discussion with executives from both Anorgos and Sunel, as well as members of our Finance Team. We are also pleased to be hosting Bristol City Council of CHI-DOT.
Speaker 4: who we will be discussing our transformation Bristol City project from the customer's perspective.
Speaker 4: We believe our European expression will be an increasingly important contributor to our revenue and even our growth in the coming years.
Speaker 4: Finally, we are always honored when our company and the solutions we provide are recognized in the industry.
Speaker 4: We recently were awarded the 2023 North American Energy Services Company of the Year by the Market Research Fund for process development.
Speaker 4: And our expertise in LED street lighting projects was also once again recognized as our Chicago Smart Light Program was awarded the Inspiring Efficiency Impact Award by the Midwest Energy Efficiency Alliance.
Speaker 4: I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?
Speaker 5: Thank you, George, and good afternoon, everyone.
Speaker 5: For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today.
Speaker 5: Total first quarter revenue was 271 million dollars, about 40 million dollars above our guidance, as we experienced faster execution on certain projects as
Speaker 5: Energy asset revenue grew 6 percent with the increased number of operating assets and greater production from existing solar assets more than offsetting the week-end prices in the first quarter.
Speaker 5: Our O&M business delivered another solid quarter with 10% growth as we continued to win O&M contracts on our completed projects.
Speaker 5: our other line of business had another strong quarter of double-digit growth, up 13%, driven by increased demand for our
Speaker 5: Gross margin increased to 18.3% as the lower margin SoCal Ed contract declined as a percentage of our total
Speaker 5: we generated adjusted EBITDA of $27 million in the quarter at the higher end of our guidance.
Speaker 5: This quarter our working capital showed
Speaker 5: We reduced our receivables and unbilled revenue during the quarter through payments from our SCE projects.
Speaker 5: The company generated cash flow from operations of $56.7 million and adjusted cash flow from operations of approximately $100 million, ending the quarter with approximately $176 million of unrestricted cash.
Speaker 5: We anticipate continued improvements in working capital during the coming quarters as the final SCE payments are invoiced and collected.
Speaker 5: Speaking of SCE, as disclosed in the press release, during Q1 we agreed on the reimbursement of additional costs incurred by Amaresco related to SCE's request to move the project completions into 2023. As part of this agreement, SCE made a 125 million dollar advance payment to us on future milestones, which is reflected in the improved working capital I just
Speaker 5: Total project backlog was a healthy 3.0 billion dollars, a 13% sequential increase as we added 472 million dollars in new awards during the
Speaker 5: Our energy asset visibility is approximately 2.3 billion dollars. This metric includes both contracted energy asset revenue as well as uncontracted RNG revenues that we expect to generate over the life of these assets. And to reiterate from the last quarter, this is only from our operating asset.
Speaker 5: We have a line of sight to even more recurring revenue potential from our assets and development pipeline.
Speaker 5: In calculating the uncontracted part of this metric, we have used conservative assumptions for asset life and merchant market pricing for RINs as noted in our
Speaker 5: Our energy asset visibility, together with our project and O&M backlog, gives Amaresco visibility on over $6.5 billion in future revenue.
Speaker 5: We are pleased to be reiterating our 2023 guidance, which anticipates adjusted EBITDA growth of 5% at the midpoint, which is noteworthy considering the difficult year-on-year comparisons associated with the wind down and completion of the large SCE projects.
Speaker 5: I'd now like to give some color around how we were looking at the 2023 Q1 to Q4 RAM with a focus on the pattern of revenue
Speaker 5: around how we were looking at the 2023 Q1 to Q4 RAM with a focus on the pattern of revenue recognition. On the project side
Speaker 5: We ended Q1 with a 12-month contracted backlog of $639 million, much of which we expect to be recognized as revenue throughout this year.
Speaker 5: In addition, we typically convert between 10 to 15% of our awarded project backlog into revenue in any given year.
Speaker 5: Furthermore, approximately 5 to 10 percent of our total revenue in a typical year comes from aged proposals, which get awarded, contracted, and converted into revenue in that same year. Our operating assets have a stable base of recurring revenue, subject to weather-related seasonality on the solar side.
Speaker 5: assets contributing for almost the full year, plus 22 megawatts of RNG and another 24 to 44 megawatts of solar and storage
Speaker 5: We expect very healthy growth from our energy assets lines of business. Our O&M and other lines of business tend to be more linear, so the Q1 2023 run rate is a good estimate for the remainder of the year.
Speaker 5: When you add those items to our already reported Q1 results.
Speaker 5: When you add those items to our already reported Q1 results, we have a clear path to our guidance levels.
Speaker 5: Recognizing that this is a high-level overview of our near-term visibility
Speaker 5: We do plan to elaborate on this during our upcoming investor day.
Speaker 5: plan to elaborate on this during our upcoming investor day. Turning to Q2 guidance.
Speaker 5: Taking into account Q1 actual performance and considering the ramp described above, we expect second quarter revenue to be in the range of $280 million to $300 million, to EBITDA of $30 million to $40 million, and non-GAAP EPS of $0.10 to $0.20.
Speaker 4: Now I'd like to turn the call back over to George for closing comments. Thank you, Doron. As we have discussed in detail during this call, we have continued to grow our long-term line of sight with now over $6.5 billion in revenue visibility and out of the world's every 10 years.
Speaker 4: over 400 megawatts of assets in development and construction. We also maintain an external line of sight to both our 2023 guidance and 2024 target of 300 million in adjusted EBITDA.
Speaker 4: There is no better time to be in our business given that tremendous opportunities. Boy, in the U.S. and internationally, as governments and institutions around the world, invested solutions, addressing carbon and cost reduction, grid reliability and volatile energy prices.
Speaker 4: Again, we look forward to seeing investors in lockdown and upcoming conference events.
Speaker 2: And in closing, I would like to once again thank our employees, customers and staff holders for their continued support. Operator, we would like to open the book to questions. Thank you. And as a reminder to ask for questions simply press star 1-1 on your telephone and wait for your name to be...
Speaker 2: Any comments from the line of NOAAK with Openheimer and Company please proceed.
Speaker 6: Good afternoon. Thanks for taking the questions. No, first I need to say hi. First of all, you know, nice to see the milestone payment acceleration on Tocque-Ledison contract. One has to about other EPCM bid activity.
Speaker 6: and you had a press release out around some of that activity, not so long ago.
Speaker 6: I don't know if that included in your comment George about the 50% higher dollar value on bid proposal yield to date or if that was.
Speaker 4: No, they are talking about the traditional project business and maybe clarify that. Yes, no, that was included in the other 50% increase in the activity level that we have seen. So, what am I adding? The business is picking up and we wanted to make sure we pointed out.
Speaker 5: Yeah, when you're talking about the press release for Chanel though, no, that's, yeah, that's not, that's not, that's not in that 50% No, that's, that's, that's upcoming, upcoming bidding activity that we strategically worked with them.
Speaker 5: to decide we're going after with an aggregate dollar and bag of water about there for the market to see.
Speaker 6: Okay, excellent. So the big activity that you talked about is apart from that. Can you maybe characterize the $472 million you received in awards and some of what you're bidding on just in terms of mix or key trends. I think investors are going to be interested to get a flavor of what post IRA has maybe more pull or more focus.
Speaker 4: increases across the board.
Speaker 4: the activity level across the board is picked up. And I would say more on the battery storage and the microgrids, pretty good traction on the CNI and some of the festivals as well.
Speaker 6: Yep, just in consideration of time, one more question if I could. Maybe there's not many bearing on your near-term RNG development. I did see a report from Reuters today that EPA might split off the rulemaking for E-Rins so that it could basically wrap up the RVO rulemaking timely for 2023. Is just any comment on how you're looking at that sort of the regulatory environment?
Speaker 4: to electricity assets, which down the road it could be an upside. But we have to negotiate the contracts, see how EPA defines earrings and so on, and the path to it. On the other hand, you know, but.
Speaker 4: If they just EPA focuses on the RVO, it might help.
Speaker 4: Because we did provide them quite a bit of data showing to them that the analysis that they were using, it wasn't represented, it wasn't current. And we are cautiously optimistic that they might increase that number that they come up with. Yep, thanks very much for the call.
Speaker 2: Thank you. One moment for our next in queue.
Speaker 2: Any content on the line of Stephen Gengaro, which Diffel, please proceed?
Speaker 7: Thanks, good afternoon everybody.
Speaker 7: Excuse any background noise from traveling. So two things for me, where I would start with this first, when you're talking to customers and you're looking at various projects, how has inflation impacted the discussion? I mean, it feels like.
Speaker 7: From your order flow and commentary, things look very strong.
Speaker 7: what you're seeing on that front these days, if you see it, you've flown down a bit as far as the inflationary impact.
Speaker 4: The inflation works both ways, you know, but what has helped the valuable position is that the energy prices have grown up as well at the faster pace than materials and so on and so forth.
Speaker 4: So the ventures position is still very good and the activity level they want to reduce their cost. So there are more conscientious about the energy cost and the infrastructure of rates and so on.
Speaker 5: Yeah, I think it's the same theme we've talked about before, Stephen, and I don't think we've seen it change.
Speaker 5: in conversations. Okay.
Speaker 7: Great, thank you. The second one for me is when...
Speaker 7: When we think about the sort of the road map to 2024, and I'm sure you're gonna talk a little bit more about this in London, which I'm looking forward to, but can you just give us some sense how much of that target would have to be driven by incremental acquisitions from where you're sitting today and how much is...
Speaker 4: You know, sort of based on existing operations. No, it's most of it. It incremental acquisitions is yeah, we never counted too much, even though at the original plan we had a couple of small acquisitions that we had in the plan, but. It's it's I would say not very material not a material, not Steve.
Speaker 7: Okay, great. Thanks, I'll get back in one.
Speaker 2: Okay, great. Thanks, I'll get back in one. Thank you one moment for our next question, please.
Speaker 2: And it comes from the line of Tim Mulroney with William Blair. Please proceed.
Yeah, hi, Doran George. Thanks for taking my question. On the 23 guide, you know, you guidance, I think assumes 60 to 65 million in EBITDA on the first half of the year, implying that you'll need to generate about 150 million in the back half of the year. That's a significant ramp over a short period of time. Can you just help?
Bridge that a little bit for investors by segment. You were helpful in your prepared remarks, but how much of that EBITDA ramp do you expect to come from the project segment versus the energy assets out of the business for the 2nd, half of the year? Tim, I think you logically moving the question from.
my discussion about revenue ramp into the EBITDA ramp. And I think we're going to save that for the investor day, where we're planning to give some more color about the ramp.
Okay. All right. Well, we'll leave it for the investors. I mean, I think, yeah, when you look at the, when you look at the breakdown on the revenue side, I think we've talked about generally speaking what our margins look like in those segments. So I think that you can probably do a little math to get to get some clarity on it. But I think we'll, you know, we'll hold that for...
for now. Yes. The only thing on my head that on the ramp that they're anticipated that you see the ramp there, even though it looks a little bit ambitious, we have done it for.
And yeah, okay, thanks George. And then.
You know, sticking on that energy side, you know, the three RNG plants you expect to be completed this year. Can you just help us out with our models by outlining the expected timetables for the mechanical completion of these three plants?
Yeah, well, one of them, it's actually very mechanically complete. And we are in the commission stage right now. It just started in the commission stage, so it should be fully operational in the next couple of months. The second one, we anticipate to go in the mechanically complete early third quarter.
And on that particular one, we saw a little bit of the delay, slight delay and some delivery of some equipment. So it's about the month of June . And so you will be in commissioning this mechanical early and commissions during the third quarter. And the other plans will be in mechanical completion early the fourth quarter.
and then fully commissioned before the end of the year. And on that particular plan, that's the California plan, that was impacted by the unprecedented weather down there, the floods and so on, so we had about three months delay on that particular project. But the point we want to point out here is that
MRS has a very diversified business model. So if we lose, let's say, three quarters of production on a particular plant, it's not as impactful as it would be. We have other levels we can pull in the company and project construction and so on, or the solar plants, the ones we put in service.
A couple of them, they were ahead of schedule. So it gives us a little bit more flexibility rather than relying on any one or two individual plan.
I got it. Thanks. And if I can just sneak one more and real quick on the RNG, yeah, after the three this year and the four to five you have slated for next year, how many RNG plants do you have in the backlog aside from us?
We're still 20 years. Yeah, total. Yeah.
We're still 20 years. Yeah, he's total. Yeah. Yeah. Yeah. I think we're going to go. Yeah. OK. Thank you.
Thank you. One moment for our next question, please. Any comments from the line of Jolou and Dumoulin Smith with Bank of America? Please go ahead.
Take an afternoon theme. Thanks for the time to appreciate it. In fact, if I can, I'm just...
Hey, afternoon, guys. Listen, if I can just follow up on the last question quickly. Look, obviously you've announced some incremental larger-scale renewable opportunities in Europe . You're scaling up Europe nicely. RNG is what it is on timeline with e-Rans, but how much latitude are you effectively creating here against your 24 guidance? I mean, folks have tried to prod you in a couple different ways on this, but...
Just curious if you could talk about how much incremental latitude this is versus solving for the 24 plan with the incremental European announcements principally.
Julian, this is Josh. I want to make sure I'm understanding your question. Were you talking about when you say incremental European announcement, did you mean the Sunel announcement? There was another mark in the Moongoonary of the payback when the cuts dramatically influenced the roundtable Conv? reservals.
Yeah, sorry, indeed. And the suggestion that there was more to come. Yeah, so when we gave the 23 target, it was it was a reflection of the earnings power of our business for 2024. And we are constantly proposing activities, some of which we knew about at the time, some of which we had a feeling would come and some haven't come yet. But at the end of the day,
been awarded yet we think we have a great shot at a lot of them but the timing is a little uncertain and be not fully incremental a lot of that was kind of built into the plan.
And then maybe if I can talk about extending the plan and perhaps as part of the rate case, how do you think about the timeline here, whether ERINs or just frankly executing it for the 20 odd projects you have in flight, you know, giving a longer dated target, obviously 24 is around the corner here. What kind of duration can we look to? Can the updated plan Just wait a minute the! Well, okay, two to three, wait a minute.
include kind of the plurality of projects already in flight here when you think about getting some degree of certainty on your RNG program more holistically. I think for this quarter is certainly we're focusing on the 23 ramp the 24 guide that we've given before. You know, to the extent we get to a point where we're ready to talk about.
what things look like beyond that, apart from what we put in our kind of traditional slides about our overall revenue and EBITDA growth over time, then we'll do so, but we're not talking about it today.
Got it. And analysts they know, right? We'll let you know. All right. Fair enough. Totally noted. Well, stay tuned. Thank you, guys. Next on Good News on the climax offlows, who will Kershaw's might mediator who will
at Analise though, right? I think the question will let you know. All right, fair enough. Totally noted. We'll stay tuned. Thank you guys. Thank you.
Thank you, ladies and gentlemen, as a reminder, we ask that you please keep your questions to one and one follow-up. One moment for our next question. Any comments from the line of Eric's time with Craig Hallam? Please go ahead. Everyone, thanks for taking the questions. Thank you.
So we're revisiting the joint venture with Chanel. You know, just curious on the 1.5 giga lots of bids.
that you're participating in, how that brings down small medium large. And I'm trying to get at it. I would assume that the large ones may move slower and be chunky, and the others might be a little quicker just any thoughts on how we might see that play out.
So, I'll just I'll just speak to this for a second. The, for example, the 1 that we're executing on in Greece currently with them. Probably around a 12 month implementation for a 100 megawatt project. So I think a lot of what we're seeing and what we're going to propose with them is in a similar size range.
some bigger, some a little bit smaller. And so they're a little bit more granular. You know, clearly we focus a lot on execution risk there. And I think also we're pleased to see those spread out amongst the jurisdictions mentioned in the press release. George, I don't know if you want to add in. Well, it's a, it's a, of course, a board. And most of them, it's with customers, as we know, they are on the other side.
That's the one with the first project we build with people that we have relationships for with. But they still have to go through the competitive process. That's right. And may the best person win. We got it. And maybe just on the follow up and I'll keep it to two. But.
What is the competitive environment like? It sounds like you're being selective as to the beds that you're...
So you're participating and just curious if there are any differences in the European market versus what you've seen in the US I guess still early days? Well you know it is, there are some differences obviously jurisdictionally speaking that however so now it's got a good track record of executing in there and then in addition to that.
These are customers that Amor Esco is a known quantity. So that's what gives us the confidence. And I think we're really focusing in on the ones that we feel really good about winning, right? I mean, we're not going to just go out there and just do a shotgun blast to as many as we can see in a bunch of jurisdictions where we have an operator before. You know, we're really focusing on these areas where we feel highly likely to success as it hans. Welcome to Health Organization mmm
traditional kind of government customers like we see here in the US, but it's not like there's no competition, so we still have to come in with some strength.
Thank you. Thank you. One moment for our next question. Any comments from the line of George Gianna Ricas with Canapura Generated? Please go ahead. Hey, good afternoon, everyone. Thanks for taking my questions.
So can you just talk about any impacts you've seen from the financial system stresses that we saw over the last 90 days on your business and any projects? Yep. Yeah, sure. So on any projects, none. You know, we've seen no kind of direct impact, no direct exposure, across any of the banks that have been talked about by name in the, you know, with the FDIC taking control. So that's kind of step one, right?
You know, lenders are starting to get a little bit more careful, but we have disclosed that we, you know, we've actually increased one of the covenants in our credit facility. We closed the very large construction loan. We've closed multiple sale lease backs, and I think it's.
You know, the kind of the strength of our history and our profile is continuing to carry us through a week. You know, the last thing I would say is that our lenders on the non-recourse side for our projects or the assets that are actually going under a balance sheet are not just banks. We've got a diversified funding pool. We've got insurance companies in there.
we do have banks, we've got non-bank lenders involved and so that still there's the impact of what is facing kind of just the banking industry specifically.
Thanks. And you alluded to this a little earlier. But are you seeing any supply chain impacts, any equipment delays, any permitting issues that you referenced over the last six months? Are they?
Are they continuing or has there been any improvement in the availability of transformers? Is there any electrical equipment that you've seen in short supply? We would say some elements we've seen a little bit of improvement. Other elements are remaining relatively stable as manufacturing capacity keeps trying to keep up with demand. Not going to go into specific types of equipment necessarily, but broadly speaking, I think there's been mild improvement.
with some others just remaining kind of exactly where they were before. We're watching it very closely as you can imagine, and we manage those time for herding very closely.
Thank you. Thank you. One moment, please, for our next question.
Any cons from the line of Kashy Harrison with Piper Sandler, please proceed.
Good evening everyone and thanks for taking the question.
Yeah. So, you know, last quarter, you know, you highlighted that it was taking a little bit longer for projects to convert from awarded to contracts, just due to interest in great volatility. But in the press release, you indicated that you expected convert a substantial dollar amount of awarded to contract during 2Q.
Can you speak to the drivers of that confidence? Are these products already converted? Or what's driving the confidence that we're going to see a big change in Q2?
Yeah, these weren't projects that converted in Q1. I think the ones we talked about at the end of Q4, we had mentioned that it was likely and if Q1 beginning of Q2, or early Q2, so we're expecting to see those come through as well as...
you know, kind of just the ordinary pace of award to contract conversions. Yeah, and our confidence comes because, you know, we see talking to the customers, which stage of the process are we, how many more approvals do we need, and so on.
A good number of this is good size contracts. They were what I would call advanced stage of execution. That's helpful, thank you. And then just maybe a quick follow up, just a housekeeping item. It looked like your net assets.
in development declined to 432 megawatts from 470 last quarter. Did you sell some projects or did you cancel some projects? What was the driver of the sequential decline in that asset in development megawatts? What was the driver of the sequential decline in that asset in development megawatts?
Well, Cassie, the biggest change, of course, was in place 34 MW into service. I want to make sure that you're comparing apples to apples because we kind of have a gross number and a net number, net being taking out our partner joint venture partner share. And so the quarter and last or at the end of Q4.
I think we were at 460 and we ended this quarter with 431. So we had you take 460 minus 34 and we added a couple. That's how that math works. So now 860 minus detailed 274 stack of ARWoken durable's 4 LIN slightly of 440. So I see the system has 40. So now 860 minus detailed 274 stack of ARWoken durable's 440. So I see the system has 40.
We were at 460, and we ended this quarter with 431. So we had you take 460 minus 34, and we added a couple. That's how that math works. Got it. Thank you.
Thank you. One moment please for our next question. And it comes from the line of Joseph Oscha with Guggenheim. Please proceed. Hello everybody. Thank you for taking my question. I have two. First you all have indicated to me recently that you felt like particularly in your asset portfolio, the solar plus storage portion of
projects that are solar plus storage, but as far as the rest of it, if I'm looking forward to the remainder of the year, I do actually expect to continue to see that mix of solar and storage increase versus the overall mix.
for certain George and I both have been directly involved in a number of things that are out there. And you know that we look forward to talking about. But I think that we'll see that mix continue to increase. Yeah. As you know, we have very...
very narrow standards for what we'll put on the balance sheet in terms of return hurdles, in terms of risk, risk-adjusted returns, but we're still seeing some really attractive stuff.
Okay, and then – Sorry, go ahead. I was just going to give you a quick statistic on the storage. So we have about 68 megawatts of batteries attached to solar systems and then about 57 megawatts of just stand-alone storage. And that gets to my second question, right? Obviously as people –
that I could put the kind of predictive analytics out there, Joe, because, again, we're looking at the opportunities on an item, you know, investment by investment basis. So the development is continuing across the board, without question. And, you know, plenty of solar in development, standalone solar, as well as solar plus storage.
and the storage stand alone. It's coming from across the board, really comes down to what are we going to devote our resources to. Yeah, and the only thing on my add is that the storage portion.
it's growing in relation to the soil. And our, you know, doing that large project in Southern California and getting our reputation out there, it has helped us get good traction on even just better storage alone projects. All right. Hey, can I sneak one more in here? I'm sorry. Nope, nope.
Obviously, you flipped the positive cash flow from ops from negative and obviously kind of SEs been swinging it both ways. But I'm curious, given this outcome, I mean, do we feel like we have line of sight towards sustainable positive cash flow from operations, say, towards the end of this year coming into next year?aina-|
Look, I mean, the short answer is yes, because of the adjusted cash flow from operations in general. When you take that before allocating how much we're going to invest in new assets, which as you know, we do invest our excess cash flows in those new assets. We have a small maintenance capex piece.
As the SCE projects go on through to their full completion, then what we've been seeing for the last several quarters is going to reverse itself, and we feel quite comfortable about that. Okay, thank you very much. Thank you, Joe. Thank you. One moment, please. All right, and our next question comes from Pavel Molkunov with Raymond James. Please go ahead. maintaining ultra contextual and
Thanks for taking the question. Back to the partnership with Sunel in Europe , when you talk about 1.5 gigawatts, is there a timetable?
For that, in other words, is this going to be 50 megs a year, 100 megs a year? What kind of run rate are you anticipating?
I would say about a couple years, maybe three years at most. Couple of them, I know they will be shorter period time horizon within the next 18 months or so. But generally, in these large institutions, even though the...
They are in the same business. We are in the same business. They take time, evaluate the RFPs and then go into the production which takes a year to two years anyway. So I would say two to three year horizon. But some of the smaller ones, that's why I wanted to do my commentary. Some of the smaller ones, projects for some industrial and commercial customers, we're doing with that particular partnership, which feels very good.
they will be completed within the next year or so. Yeah, those potentially could be faster, the smaller ones. You mean you've got a little bit of time for proposal, converting to a ward, and signing contracts, but since you're dealing with more private and commercial customers and not government customers, that cycle is shorter and we move into construction and then it's all about timelines to construct.
which I think takes us to that two to three year period.
About a month ago you announced that you will be buying batteries from Redflow in Australia and I think that's the first time you've purchased none lithium ion batteries.
Are you confident that commercial institutional end users will be comfortable with what is after all a kind of a novel battery chemistry?
Are you confident that commercial institutional end users will be comfortable with what is after all kind of a novel battery chemistry? So short answer is
With Redslow specifically, actually, we had a customer who had analyzed the technology and requested that we do it because they wanted to use it. Interestingly, I will correct one thing that you said. This was not the first non-lithium battery that we purchased. This was the second manufacturer. So, we've got experience with it before.
We do look very, very closely, as you can imagine, at the data, at the ability for these batteries to be deployed commercially before agreeing to do so. And I think as I've kind of commented on, I think in an article recently,
what we like to do is get ourselves into a position where if we feel good about the product, then our expanded demand for the product will actually kind of trace the expanded manufacturing capacity of a lot of these battery suppliers because they tend to be a little bit smaller, right? And so they're
they're gaining traction as we're gaining traction, but we do feel comfortable. I was recently on a an internal expert call with some of our folks talking about those technologies and yeah we've done a lot of learning
of what these batteries are good for, what they're not good for, what the right use cases are. And it's all about deploying them in the right place, at the right cost for the right customer situation. And this particular customer has done so much research on them. And that's what they wanted. And like Walter said, customers, we will do what the customer wants us, but on the other hand, we're going to make sure that what we're doing, it stands, it performs well.t
Understood. Thank you again. Thanks, Lola. Thank you. One moment for our next question. Any comments from Christopher Sother with B. Riley? Please go ahead. We'll be right back.
Hey guys, thanks for taking my questions here. It's nice to see an accelerated payment from SAE. Can you give us a sense as to what has been paid to date or what is remaining from SoCalEd? It sounds like they're agreeing for some of the cost stuff you've talked about previously as potentially being an option. Can you give us any sense of the overall margin profile?
for those projects and where we think we should be penciling that in at this point would be helpful. Yes. I mean, you know, the expectation is we'll end up with completion kind of this summer, right? I mean, you kind of follow the cash from there. I would expect our unbuild to come back down to a normalized level.
sometime in Q3, therefore. That's probably the best pattern I can give to you. Not stating specific dollar amounts, of course, but you would have seen the increase in unbilled as we got close to the end of 2022 when we have stated in our Q that we, in our K, that we as a majority of the revenue from that contract in 2022.
And so therefore, that should give you a fairly solid un-billed number to compare against. Okay, now that's really helpful. And then on Europe , I imagine a lot of this could be covered next week, but could you just frame what the revenue contribution is expected to be for 2023 there? It sounds like there's still a lot of moving pieces that could impact 2024, but.
I wanted to get a sense of how you think the European investments are going to shake out for this year. You called out Europe as one of the drivers of increased top-backs. I'm curious what the magnitude is there and how much we're spending in Europe .
Our numbers got there. Yeah, so Europe is currently about 5% of our sales and I think that'll the growth there at least in the near term will largely be driven by the Bristol City LEAP project. So that may go to something like 10% in the next year or 2. The acquisition of Enercos is a nice acquisition, very excited about it, but isn't quite as material as Bristol for instance.
Okay, let's all go up in the queue. Thanks guys. Thank you. One moment please for our next question. And it comes from the line of Chip Moore with EF Hutton. Please go ahead.
Hey, everybody. I wanted to ask one about that—hey, I wanted to ask about that increase in dollar value for proposal activity. You're saying great to see that up nicely, but around this trend in growing project complexity, I guess more so around your confidence in the ramp for the back half of the year and then.
perhaps that 300 million EBITDA target next year. I mean the proposal activity, it's helping us a lot, but as you probably know, it takes six months to 18 months to get from the proposal to actual
First you have to win the contract and go to the awarded and then six months to a year later we get the actual contract where we can build it out.
It's a good indicator that our team, and that's why we get a little bit pick up on the development expense going out there and developing these projects, and we need a good share of the projects. So basically, it gives us even more confidence for that particular number, for the 300 million Yibata number. I think a good part of the proposal activity came out of federal as well.
year or that's well embedded in your outlook. Thanks. As far as the site, from going from the award to the contract, we have very good visibility. That's why we feel very good about the number 2023. And where we think we're going to end up for the end of the year on contractors back, well that's going to help us a lot for the next year.
Yeah, I mean that's a very granular exercise for us when looking at what the conversion rate is going to look like before it's contracted for the remainder of this year. That is not a general feeling. That is really based on some hard data on the – for our awarded backlog, which projects, where do they stand, how far along are they?
Thank you. One moment for our next question, please. And it comes from Craig Shear with the Two Wee Brothers. Please proceed.
Good afternoon. Thanks for taking the question. I really want to do a bit of a follow-up to Chip and Tim's earlier questions.
And it's three-part but really quick, so I'll just blurt it out. So first, continue applying on the level of confidence in that updated 2023 RNG rollout. Second, are there any assumptions around improving RINs into the second half built into guidance?
And third, if you meet the guidance implied second half of this year, given that's a run rate already meeting your 24 guide.
doesn't ongoing growth suggest you'll beat your 24 guys? I wouldn't say that. Confidence, we start with confidence in the construction schedule. I think confidence is very high in the schedule. With respect to RINs.
So, we don't really talk about specifics on the RIN numbers. I would say that what we're using is following what we believe is our expectation for what we see the outcome for 2023 RINs to look like. Everyone knows we're kind of circling mid-June for the final rules, but—
that's kind of where we are with that. And I think that with respect to the 2024, look, we feel very good about that 2024 number. If we felt like there was some sort of material adjustment that needs to be made, we would make it. Based on what's going on, we feel like there's
There's a lot of contributors there that we feel like we're going to be bringing to bear to deliver that number. I don't know that I'm going to jump into any adjustments to that at this time. No, no, no.
Well, I actually want to think that the positive things that we've been seeing in the marketplace is reinforces that number. Right. I guess my point is you're implying a second half 23 that is basically a 2024 full year run rate. And you're saying that business continues to grow. No, because the third and the fourth quarter are the strongest quarters that we have.
in many lab construction schools, colleges, universities, and so on and so forth. And then the first couple quarters of next year, they will be considerably slower than the fourth quarter of this year. So you do not have that run rate, you know? If you look back over the years, this has always been the cycle.
So slower Q1, Q2 versus Q3, Q4, correct? But you cannot extrapolate Q3 and Q4 into the following year. No, that's right. Again. Understood.
Thank you. One moment for our next question, please. And it comes from the line of Ben Kado with Baird. Please proceed. Please proceed.
Hey guys, maybe could you talk about the move internationally and what's driving it? Because it seems like in the US with the IRA we have some of the biggest tailwinds.
And so, you know, what's the emphasis?
to move internationally? Is it returns, is it less competitors, or what? And then just going back to the previous question where we talked about seasonality in the business, one of the things that y'all emphasized is as your asset ownership increases, you know,
that we should have better visibility every year because the EBITDA comes from those assets.
So why wouldn't it go from a run rate the second half to next year? I'm going to forget, 75% of UPDOT or something like that coming from the assets. Thank you. Yep, okay, so I'll start with Europe .
So Europe is really exciting. There's a lot of areas of Europe where we actually do believe we can compete very very well. It is and has been primarily on the project side, right? I think the asset side will come but the project side of the business, it's it there's a significant amount of incentives and funding pushed around.
by the EU. They've got extraordinarily aggressive targets, corporates, industrials, and governments alike looking to go to net zero, just like the Bristol situation has led to multiple conversations with other municipalities around the region. So we do see it as an opportunity for a volume game. Again,
significantly increasing operating base. We're not talking about going out and hiring hundreds of people that we'll just put on the ground to go chase stuff in Europe , right? We're using our high operating leverage organic business growth model, the exception of the acquisition of intercourse which of course was opportunistic but we feel great about.
That's the approach we're taking to expanding in Europe . I agree that the US has a tremendous amount of incentives that is going to increase business volume in the United States as well, right? And again, that too is a volume gain. More funding for our customers so they would like to do more work. However, we're not.
taking away from the US to expand in Europe . That's not a zero-sum game. It's all a little bit of a magnifier on the expansion capabilities that we have as a company, given the way that we operate. So then moving on to your second question.
Which I've already forgotten. Yeah, I think I can answer it. So I think you're asking kind of why wouldn't that be the run rate on given the energy assets? So I think you have to break our business up into our 4 lines of business. The energy assets would be the run rate, but the project businesses George was talking about with the previous caller has some pretty significant seasonality to it. So the energy assets that would be the run rate. So when you see that, that's a reasonable run rate. There's a little bit of solar seasonality.