Q2 2023 Ameresco Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the M. A rescue Inc. Second quarter 2000, and twenty-three earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this conference call is being recorded I would now like to turn the conference over to your host Mrs. Leila Dillon Senior Vice President marketing and communications. Mr. Dillon you may begin.
Thank you Catherine and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sacco Leyritz Mris Coast, Chairman, President and Chief Executive Officer, Doron Hall, Executive Vice President and Chief Financial Officer, and Mark Chu.
Block Senior Vice President and Chief Accounting Officer.
Before I turn the call over to George I would like to make a brief statement regarding forward looking remarks.
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.
The SEC filings for a discussion on 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 the reconciliation to these measures in our supplemental financial information.
Now I'll turn the call over to George George Thank you Leila and good afternoon, everyone.
We had another solid quarter and I'm, particularly pleased that our positive momentum continued with a strong growth in project backlog and assets in development supported by our top tier two tier three guidance and our long term financial targets.
Second quarter revenue was well above our guidance and adjusted EBITDA was at the high end of our range.
Importantly, we ended the quarter without record total project backlog or $3.2 billion, which was up 9% sequentially.
During the quarter, we added $493 million of New project awards, bringing the total adds for the first half of the year to almost $8 billion.
This growth is even more impressive and we now have surpassed the total backlog reached when we sign the almost $1 billion Southern California Edison battery contracts at the end of 2021.
We also added 13.
13, Mega what's your message in development.
In the second quarter, which is the largest amount added in a single quarter in our company's history.
This represents an impressive 26% sequential growth the message in development.
Which we expect will provide substantial EBITDA contributions for many years once brought into operation.
Together, our project at NASA wins continue to add.
Multi year visibility of profitable revenues, well supporting our confidence in <unk> long term growth.
Large battery energy storage contract wins represented a major component of this quarter's growth in board.
<unk> backlog and assets in development.
In our supplemental slides you will see that battery assets now comprise 41% of our assets in development compared to one 5% of all just elaborate the message.
Large battery storage systems are a critical component in the replacement of fossil fuel generators electricity, playing a key role in the storage of renewable energy during times of peak production.
Most importantly, though make or the like.
It creates far more resilient and flexible.
We can provide and power when we did get to higher demand.
Weather related events and a number of others.
Outages.
These factors are driving tremendous growth in battery storage supported by the mass commercial commerciality version of battery technologies, which helped helped to drive down costs.
And then can I just say the inflationary reduction act has been a significant catalyst for the rapid adoption of this technology.
Before the passage of the federal.
Zero tax credits were only available for battery storage, where I need to watch paired with our renewable generation technology, such as solar for wind.
Now onto the Iot <unk> and similar incentives in Canada.
Standalone battery storage systems will be eligible for a 30% or greater investment tax credit significantly enhancing the value proposition or the D. C seems to work for our customers, thus driving greater adoption.
Well the thing is helpful. Here in North America. We are also proposing in women Standalone battery projects in Europe , where that need is just as great.
Even though a deep technical knowledge and engineering expertise and supplier relationships and my answer questions become a recognized leader in the implementation of battery systems.
From the transformational on southern California, Edison projects cause they recently announced United power.
River power and torque power joint venture with <unk> expertise and financially flexible business model allows us to drive boss battery project and that set of opportunities for many years to come.
And not in a very positive long term development for a basketball, which occurred during the quarter was the epa's ruling concerning the renewable fuel standard targets for 2023 through 2025.
In his final ruling the EPA significantly increased their volume obligation for RMG.
This ruling has an immediate impact on the price of the different rigs, which we generate from our <unk> operations and prices quickly morland from the low $2 range to above $3.
As importantly, the EPA also changed.
Calculate the LNG industry average rate of growth, which could support volume calculus here and see if it would be.
They see periods of his ruling.
We were very pleased with the ruling which increases our long term visibility into these important line of business. Additionally, we are anticipating the forthcoming guidance from the EPA on earrings, which could also provide a tailwind to our existing buyer.
Gas to electricity projects.
Before turning the call over to Laura I want to highlight the publication of our third annual ESG report entitled doing well by doing good transformation and purpose.
We are very proud of the fact that our operations have had a significant positive impact on the global environment is our renewable energy assets and customer projects combined have delivered a cumulative carbon emissions reduction or the 95 million metric tons, which is great.
<unk> 2010.
Our ongoing.
And project growth will continue to drive this important number even higher.
Looking ahead, we have also said that target of achieving net zero from our internal operations for both scope, one and scope two emissions by 2040.
In support of this target we have pledged to establish emission reduction targets through the science based targets initiative by 2025.
I will now turn the call over to Doron to comment on our financial performance and outlook Darren.
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.
Total second quarter revenue was $327 1 million.
About $37 million above the midpoint of our guidance with faster than expected execution on certain projects.
Energy asset revenue grew 17% largely based on the increased number of operating assets year over year, while our O&M business delivered another solid quarter with 9% growth.
In addition, our other line of business was up 4% driven by increased demand for our utilities SaaS and consulting businesses.
Gross margin expanded to 17, 9% as the lower margin Socal, Ed contract declined as a percentage of our total revenue.
We generated adjusted EBITDA of 37 $4 million in the quarter at the higher end of our guidance range. We.
We ended the quarter with approximately $49 million of unrestricted cash.
Executing on a record $285 million in financing activity.
As George mentioned, we ended the quarter with a record total project backlog of $3 2 billion.
A 9% sequential increase as we added nearly half a billion dollars in new project awards during the quarter.
Our energy asset visibility is approximately $2 three.
$3 billion.
An operating asset revenue backlog metric that includes both contracted revenue as well as a conservative estimate of the lifetime Unconstructed R&D revenues.
These metrics together with our O&M backlog.
<unk> visibility to over $6 $7 billion of future revenue.
This metric does not include any contribution from the 545 megawatts of energy assets in development and construction.
As George mentioned, we experienced record adds of 113 megawatts during the quarter.
And our assets in development and construction remain well above our current operating energy assets.
Additional visibility into our long term growth.
The timing of placing these assets into operation can be anywhere from under a year for small more simple access to four plus years for more complex assets such as R&D facilities.
Well remember that an asset has to meet very strict criteria to be included in this metric, which is much stricter than what most companies consider a pipeline.
Historically, approximately 90 plus percent of our energy assets in development and construction are placed into service and either carried on our balance sheet as an operating asset primarily with nonrecourse financing.
Or monetize through a sale to a third party.
With the changing interest rate environment, we have been fielding many questions on the impact of increasing interest rates on our energy asset business and our expectations for how this business might evolve.
As many of you are aware, we use a risk adjusted Levered internal rate of return as a key metric when evaluating energy asset opportunities.
We continue to target a mid teens risk adjusted Levered IRR on our assets.
We've been able to achieve this high yield in the solar and battery space by carefully selecting assets that are with repeat are new customers that value our flexible financing approach vertical integration and technical expertise, which means we're not always complete competing solely on price.
Or because we are developing larger more technically complex assets, such as R&D or mris, those 20 plus years in the market gives us.
Significant advantage in winning and executing on the opportunities.
We are experiencing a meaningful increase in asset development opportunities, including some assets that may not meet our risk adjusted return targets or meaningfully contribute to our net income.
That being said they are still high quality assets and we can therefore generate value for <unk> by developing and selling them to third parties with lowered yield targets.
In this case, we recycle capital and earn a profit through an EPC contract, where the assets convert to projects upon a sale.
We will also look to extract additional value by bundling these converted projects within our O&M contract.
Even with maintaining our historic mid teens IRR hurdle rates were.
We believe there are ample opportunities to continue to grow our owned assets on average by approximately 20% per year.
Both target we've discussed before <unk>.
While selectively monetizing our origination efforts in other ways.
This strategy isn't new to <unk>, but.
But in the current environment it may become more prominent.
In the end, we believe that our flexible corporate model with both project and asset business lines allows us to continue to benefit from the rapid growth of renewables by developing assets, which continue to hit our mid teens, IRR target mentioned earlier or developing and selling them as <unk>.
<unk> projects.
Moving back to our operating assets. These assets are funded by fixed or hedged debt. Therefore, rising interest rates have little to no meaningful impact on this part of our business.
Thus, even in an increasing interest rate environment.
The flexibility of <unk> business model and our opportunistic approach to the asset business should allow us to continue to benefit from the tremendous demand for renewable energy solutions.
We are pleased to reaffirm our 2023 guidance.
Which anticipates adjusted EBITDA growth of 5% at the midpoint.
Noteworthy considering the difficult year on year comparisons associated with the wind down and completion of the large SCE projects.
We have also provided a more detailed mix of our expected Q3 and Q4 results in the press release.
We continue to expect to place between 80, and 100 megawatts of energy assets in service in 2023, including two RMG plants.
Third plant, we originally anticipated to be placed in service in 2023 is expected to be at mechanical completion by the end of the year and fully commissioned in Q1 2024.
Overall additional R&D assets are in the late stages of development and construction and we continue to expect the four or five of these will come online during 2024.
Now I'd like to turn the call back over to George for closing comments. Thank you Dara.
We discussed in detail during this call, which have continued to extend our long term line of sight to significant growth and in the second quarter with over $6 5 billion in revenue visibility and 545 megawatts of assets in development and construction.
Our first half performance.
With our backlog and business development pipeline supports our confidence in our long term growth targets.
This is an exciting time to be leading the clean tech solution provider.
And I know, we have the technical talent and business acumen to support the energy transition and drive meaningful change.
In closing.
I would like to once again, thank our employees customers and stockholders for their continued support.
Operator, we would like to open the call to questions.
Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from Noah Kaye with Oppenheimer. Your line is open.
Hi, all thank you for taking the questions and thank you by the way for granular outlook for the back half.
I guess it is.
A couple of quarters in a row now of faster than expected revenue conversion.
And so my first question is just trying to kind of reconcile that outlook.
And the full year I mean, just just taking the midpoint of <unk>.
Be at the high end of the full year revenue range. So I mean, you kind of implicitly raising the low end.
Full year revenue guidance.
Am I missing something or is.
Or is there something that I'm not doing correctly or is that correct.
Yeah, Hey, Noah it's March apart of the Darling yes.
Yes.
I don't think that were.
We didn't want to change the overall guidance I mean, I think we are seeing some better performance on the topline.
Because we have seen some of that acceleration, but we're also seeing a shift in some of our awards.
And the timing of signing those contracts so.
Yes.
It's not a perfect science I think what we're trying to put these ranges together I think we still expect to be.
Within within the original ranges could we do better sure, but I think we're trying to use the best visibility that we have particularly.
On the project stuff too.
Shape Q3, and Q4 I think the good news on the second half of the year, but the visibility is that over 90% of that project revenues coming out of awarded and contracted so taking we have good visibility on the timing as we've talked about in the past.
At least kind of the variables that can impact anything from a quarter to quarter basis.
Yes.
Wanted to ask about project margins in the quarter.
Yeah. It looked a little light was that was that just mix and the corollary is what drives.
The improved operating leverage in the back half.
Better operating leverage in the back half from a seasonality perspective, I'm just talking about.
Our better than typical improvement in operating leverage that's in the guide if you look at if you look at those net income and EBITDA margins.
Yes, I think the challenge is again when Youre looking last year, you've got you've got certainly higher revenue higher net income from from the FTE projects.
We do that line of business reporting remember, where we're doing it allocation.
Corporate expense is based on.
Based on revenue share and so I think our project margins year over year, they are going to decline because of the the allocation of those corporate expenses essentially a large fixed allocation of cost side.
Lower revenue year over year, we did see some cost overruns.
Certain projects in the quarter that that had a little bit of an impact on our gross margins.
But we are we would expect to see margins continue to expand in the second half of the year.
Certainly as <unk>.
Hey.
It goes out.
And we would expect.
Yes, we would expect to continue to see the trend of expanding gross margins throughout the second half of the year.
Fantastic if I could just sneak one more in RFS.
RFS decision, obviously very positive.
Our R&D assets.
Was just curious to what extent the higher Rins were seeing now factors into the reiteration of the guidance and there was no impact.
So if I understand what they're supposed to be due to hedging or really two kind of conservatism in your assumptions for the back half.
Yes, I think certainly we're pleased to see the RIN prices coming up.
It has it has some impact.
Kind of in our in the.
The second half of our numbers, but I wouldn't call it.
Significant or meaningful.
I mean, we've always kind of tried to Carey Carey, our assumption somewhere where the market is going and where we would anticipate the market going so while it has some some benefit.
Nothing that we've done.
Nothing that would kind of put us in a position to want to change the guidance that we put a credit.
Okay.
And you've got to remember in all of that.
55 actually as of today, we have 55% hedged.
We ended the quarter actually.
So it's only 45%.
Future production.
Can benefit a little bit from that.
The higher prices, but then once we get it in the forecast, it's very much a little bit.
What the market is right now.
Okay very helpful. Thank you.
Thank you and one moment our next question.
We have a question from Steven Zingaro with Stifel. Your line is open.
Thanks, Good afternoon everybody.
Good afternoon.
So two for me the first one when you think about the projects and the bidding activity in the orders and backlog build.
Any insights into kind of what that pricing environment is like.
Currently how we should think about the impact that has on project margins overtime.
I mean, the activity is very very good and Thats why you are.
See the awards and the backlog is.
Developing very very nicely, which we like to see if that's the way I extend that little bit.
In my discussion.
The project side of India to get a little bit larger.
The margin is if it's an EPC design built otherwise project like we said before they are lower than their performance contracts margins, but on the other hand, they contribute more in.
The profitability because we.
The leverage in.
The company.
The other thing that has happened.
Capital, a little bit and that's why the opex a little bit higher.
Since after Covid, we wanted to push.
The organization has spent a little bit more money in developed in order to develop a good pipeline and capture market share.
I'm glad to see that.
The proposal activity and our win rate is very very good.
I would say the environment is good.
And just the last couple of quarters that we had.
Great. Thanks, and just as a follow up to that any other thing on the order flow flowing out of Europe , yet just what's the what's the quick update on how your traction is in Europe .
This is a very very good.
David.
It's very well, we're having a hard time keeping up with it and that's why we spent a little bit more.
Company grows it sometimes.
Okay.
It's very hard to.
To control your Opex, but the other hand, the opportunities are very large Italian group that we acquired we are very very pleased the way you think I've turned out.
They're doing very very well.
So we have done a couple of projects and I think.
The likelihood that we will give some more there is very very good.
K again.
There are a few things down the pipeline that they come in along that it is going to help on that said a lot. So the activity over there in door and I spent some time that you might want to say a few words.
And I've been going back and forth.
<unk>.
I'm pleasantly surprised how active is that market.
Yes, I think I would only add that it's coming from all technologies.
Lot of the project business of course.
We're getting utility scale EPC opportunities and like George said, Greece is looking very strong.
For us and the UK, we've come through with some some really good wins in advanced technologies that.
Is allowing that business to move beyond traditional energy efficiency into the advanced technologies, just like we've done here in the United States.
Great. Thank you for the color gentlemen.
Yes.
Sure.
Thank you.
And our next question.
Comes from Joseph Osha from Guggenheim Your line is open.
Hi, there everybody.
Hi, Joe.
Yes.
Yes, just some questions on this storage business, which is growing so robustly first.
Wondering if you can talk a little about little bit about what it's been like handling self procurement I know there were some more some learnings from SCE. So I'm just wondering if you can update us on how those learnings inform how youre handling the procurement process for all of these new storage products our projects and then I do have another question.
Yeah, I'll start with the first one Joe so the.
The procurement, we're continuing to expand our number of relationships with battery suppliers. You know as you know that market remains fragmented and so we've got to be very very selective when it comes to who our partners are with.
The integration side of that the software side of that it's not just the cells, it's really everyday and so while we.
Okay.
Took a close look at the data due to competitive process. When we were putting together the SCE project given the timeline constraints we.
We went with who is going to be able to deliver on time.
Now I think it's fair to say, we can be more picky.
And we are running competitive processes.
More a lesson in all of the projects that we announced that George talked about it in his script and we're ensuring that our suppliers are.
Wrapping up to the plate in terms of pricing quality degradation, you haven't scheduled delivery timelines everything.
And I am excited about the market because there is there is there is more and more companies kind of come into the come into the Fray. Yes. There is still a limited number of battery cell manufacturers. However, they are continuing to supply more different types of companies and it's those <unk>.
Gil sets in terms of their ability to execute deliver on time Commission.
Commission projects everything soup to nuts.
Just the batteries.
Certainly, okay, and then I'm actually going to going to switch my my follow up then.
In response to that.
So is it fair to say then that as you are.
<unk> companies like stem or a blackstone or whoever that then it's their job to go for himself or are you still involved in that procurement process I just want to understand how how exactly this is working out.
Yes, we're directly involved.
Yes.
I mean, some of them like to work with certain manufacturers more than others.
But some of them are actually a little bit more flexible like we are.
And wanted to get the best solution for the customers. So we remain heavily involved in that process.
Okay. Thank you I'll go back in queue.
Thanks, Joe.
Thank you.
Yeah.
Our next question.
Is from George.
<unk>.
From Canaccord Genuity your line is open.
Hey, everyone. Good afternoon, and thanks for taking my question.
Okay.
I'd like to ask about your focus on free cash flow generation I know, you've only guided to 2020 for EBITDA, but there was a lot of discussion around potentially.
Selling assets.
Or or concentrating a little bit more on projects I'm curious as to whether that becomes more of a focus as we move into 2025, and 2000 26 billion and free cash flow.
So George I'll, just take a stab at that.
My gut reaction was as you look forward past 24, and 25 is that.
There is not a prescriptive strategic move on our part to move towards project.
Project revenue and cash flow.
We we maintain this flexibility when we approach customers. So if the customers happen to be looking for more project business that is the direction of our company will go for the customer and if theyre looking for more asset business. That's the direction. We will go as we said with the asset business, we've got a.
Little bit of a regulator here, where we can actually monetize the development pipeline and convert those into projects as needed based whether it's on return criteria or the risk adjustments that are part of the.
Determination of the return criteria, but we're not making a.
Our strategic move toward or away from the.
The project business now.
No we will continue to emphasize the project business as much as possible.
I don't know if you saw the international energy.
Agency in the paper today, they announced that.
The least cost alternative to net zero energy efficiency number one clean fuels is energy efficiency. So we will continue that but we're trying to take advantage of the full spectrum all the clean tech sector.
And I think that's helping us a lot.
And then as far as the assets are concerned in selling some of the assets.
We are very pleased that we assigned and much more than we can chew really.
And Thats why we would take some of that.
Maybe not.
Rate of return that we would like to but somebody else likes it so let's say great.
We will take them two of them, but.
No we're not getting away from the business actually we will focus as much as we possibly can.
Thanks, and as a follow up I'd like to ask about this RMG asset thats moved to being fully commissioned in the first quarter of 'twenty. Four you reiterated your four or five that will come online in 24 are those in addition to this.
Other one that's been pushed into the first quarter correct, yes.
Correct.
And listen to what's happening on this one.
It's a pleasure to deliver.
Some of the equipment in April then.
June .
Ladies July I think it was delayed.
It just got delivered so that's why some of the projects that.
Due to the weather or delivery schedule. After what we've seen the biggest bottleneck and then we have some problems with the transformers in electrical.
Switch gear and so on but at the end of the day.
As far as the LNG business as we've been in it for about 20 years now.
I think the theme that we have is the best in the business and we might Miss a quarter or two here and there but overall.
We will deliver top quality products.
Projects in a timely efficient.
Yep.
Thank you.
Thank you one moment for our next question.
We have a question from William Griffin from UBS. Your line is open.
Great. Thank you very much and good evening. My first question here is just wanted to ask.
How youre thinking about your approach to RIN monetization now just given the final EPA RVO and we have three years of visibility and obviously pricing has been a lot better.
So how are you thinking about hedging versus <unk> versus <unk>.
Open market.
I think the strategy that we've been using in the past.
Hedging 50% of the output and then.
The rest of it in the open market now that we have a three year visibility, we feel even much better with this strategy, but we're always very optimistic about.
Yeah.
<unk> market and from the beginning because not only are.
The rains that they have.
Great value, but in the long term I think the voluntary market for renewable natural gas because we have a great place and we have seen by the way.
The three to five year contracts that we sign.
On.
Of the output the prices are coming up.
So I wouldn't be surprised over the next as we develop more and more.
Our energy facilities that we will not.
As much at risk I would say down the road.
C S executing longer term contracts as soon as the economics dictate in every year by the way we do our analysis for the board and we determine pretty good analysis, what will the cost will be for us if we were to catch.
More than what we have.
In the past.
Look it's a very very important.
Part of our business lines, and we pay lot of attention to it and we think we've developed great assets, we want to maximize the value of those assets.
Yes, well sorry, just if you want to get micro between now and the end of the year.
Sort of dynamics of hedging versus waiting we are kind of watching the market. We do this right after the RVO.
That came out as we expected there would be a lot of people going to sell so we didn't go straight into <unk>.
Sure.
Ill, let yourself.
We'll continue to keep our ear to the ground in terms of production estimates and see what we think is going to happen with the with the market. We've got our feelers out everywhere in that market and so we will continue to hedge dynamically and opportunistically for the rest of the year on the 2023.
Production and I know that you are relatively new to the coverage, we generally don't go over 90%.
The current year generally speaking to leave a little bit of gap for production variability.
Yeah.
Got it and just my follow up here just on the implied fourth quarter earnings ramp in the guidance.
Outside of the range of kind of seasonality that we've seen over the last several years could you just speak to the drivers of that is it really just projects coming online in the fourth quarter that are contributing.
I think I believe I think a large part of that revenue is.
Yes, again partisan seasonality, but we are having a little bit of a shift on the award timing. So again I mentioned that we have some real good visibility of revenue coming out of the project backlog between awarded and contracted.
But I think some of the timing of it we're seeing that's maybe pushing something out from Q3 into Q4 as the timing of when we anticipate.
Some awards converting the contracts what I think is important to remember with that is that we are.
We're capitalizing what the projects and the awarded state. We are capitalizing project development costs for that project as soon as it converts to a contract. There is an immediate pickup in revenue as we move those costs into the construction phase and as part of that cost budget, because we our revenue is on a percentage completion basis. So.
So I think Q4 looks a bit heavier than it normally would.
That is going to be.
Shifting our cohorts converting to contracts.
And then the rest of it is just the visibility we have coming out of our contracted backlog, obviously, we still need to execute on that but we feel pretty good based on that visibility.
Great. Thanks very much.
Yes.
Thank you.
Our next question comes from Hashi Harrison with Piper Sandler Your line is open.
Good afternoon, and thanks for taking my questions.
So maybe just a follow up to the last question.
Can you maybe it sounded like you Mark it sounds like you use.
You suggested maybe there's a little bit of the awarded conversion taking a bit longer than you expected can you can you speak to maybe whats the driver.
Behind there and then I have a follow up question.
Yes.
Yes, it's a good question because quite honestly I think the trend that we're seeing is our awards are actually converting a bit a bit faster, particularly out of the design build.
And so generally those take those take anywhere from 12 to 24 months to convert we're actually seeing it a bit on the lower side.
Some some larger projects that have.
We have taken a little bit longer that we see shifting out it could very well be that that pulls back in but I think in terms of just providing the shaping.
We're trying to trying to maintain a little bit of a conservative view in terms of when those will convert but still give us confidence in being able to achieve the full year numbers.
Got it. Thank you and my follow up question is on the R&D side.
Can you can you discuss.
The progress on the four five R&D projects that are expected to come online in 2024, how are those.
How is construction is tracking to our relatives tracking relative to expectations.
What's the risk of delays on those four or five projects and then finally just in light of the RVO ruling can you give us some sensitivities.
For 2024 from the higher deeply RIN pricing.
Okay.
Okay I'll start off on the construction progress the development progress actually.
Feeling very good about the four to five.
As we've talked about those are in relatively late stages of development or already in construction and therefore, we have we have a couple of them that we feel very good about the timelines and the others are moving along.
And the pace, where we expected them too right. So I think we feel pretty good about that that piece of it.
As with the.
Ren.
And the 2024 I think the.
Here is that we're not selling our 2024 months yet.
Right, we are watching where that market sits vis vis.
What we expect production to look like overall across the market, but that fall straight into the category, where I talked before about we're keeping our ear to the ground, we're going to see those numbers come out in terms of the supply.
What we see finishing in the market and what we see not finishing in the market and then we'll.
Well hedge hedge accordingly, but I don't think we.
We're prepared to start providing sensitivities to the overall business.
We're very diversified business R&D is one piece of it.
We're ready to start providing sensitivities on RIN prices.
For 2024.
Okay.
Okay. That's it for me thank you.
Thanks Kathy.
Thank you.
Our next question comes from.
Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, good afternoon, Tim. Thank you guys very much for the time appreciate it look I wanted to follow up on a couple a couple.
Hey afternoon guys.
But just wanted to flag a couple of things so on 'twenty three if we go back to that really quickly.
Im here a couple of things from you guys, but first can we talk about the SCE and just understanding the full extent of the impact. The Edison 10-Q, you had some commentary about some shifting timeline just want to make sure. We understood and you guys had kind of a clear definitive view about what that financial impact was.
And then also just on 'twenty three altogether it sounds like.
Given the <unk> dynamic we started talking about it at the top of the call here. It sounds like Youre still on balance net quite comfortable in 'twenty three and the reason why you Wouldnt raise 23 is more about a timing issue that things could slip into <unk> is that the right interpretation.
I'll start with Socal.
Maybe kick the other piece of Mar Julien.
As far as Socal is concerned because were 95 plus percent complete with that project.
Natural impact of the other movement in the substantial completion dates is not anything that we're concerned about for 2023.
As you might expect we are heavily focused on finishing the projects and therefore, we don't have any updates as far as.
Negotiation of open open items with Socal Ed.
The revenue amounts are kind of down to the down to the wire.
And the final commissioning.
Two out of the three projects as we mentioned in our <unk>.
Disclosure.
Mark maybe I'll throw it to you about the yeah sure I mean.
I think the answer to your question.
Yes, like I feel like we have we have really good visibility on to the second half of the year with respect to revenue.
A large percentage of it is coming from are awarded and contracted backlog project backlog. There is still a portion of that.
That we still would need to to what I'll say book and burn.
But it's a relatively small piece and I think there we talk about the project business can.
Can be heavily impacted by timing and so I think.
Some of the awards we anticipate.
Signing in Q4, because the timing shift.
Absolutely, but I think right now based on the visibility that we have.
We're maintaining confidence in the in our original estimates for the year.
Got it and then on 24 itself I mean, just to understand what the mark to market increase in the.
<unk> prices et cetera.
And the open position that you guys alluded to here earlier, I think 45% I mean, why not be more constructive on 24 again I get timing issues are clearly seem to be part of this but can you explain a little bit more of the puts and takes here as to why it would not be overall more constructive or again is this just you guys.
Holding back if you're willing in some respect.
Yes, Julian I think it's exactly that I think the full year 2024.
<unk> will come when we release Q4.
<unk> is the beginning of the year.
At that point in time, we'll be happy to talk more about it.
Got it but theres no other offsetting or mitigating factor or starting point assumption on the $300 million that wants you to be aware of right. I mean, obviously, we're all looking at this higher price I just want to make sure that we're not missing something about this.
And it seems like its $15 million in EBITDA.
On a dollar of.
Dollar move here.
Okay.
Julien I appreciate your math.
We are really just not going to comment on the 300.
We've had that out there for a long time, I think we're going to leave it.
Address it at the beginning of next year. After we report the full year.
Alright fair enough alright. Thank you guys very much I appreciate it.
Thank you.
Our next question comes from.
Tim Mulrooney.
With William Blair. Your line is open.
Yes. Thanks, most of my questions have been answered at this point hi.
Just stepping back kind of bigger picture thing here I mean, I think we've all seen a considerable increase in the dollar value.
<unk> that you are bidding on and winning these days just wondering if you could help us understand is that a reflection more.
More of larger projects being proposed or is it a reflection of <unk>.
Purposely targeting larger projects and maybe you wouldn't have bid on in the past.
I think both Beth but the average size of the project group of oil right now it's almost.
To me, if I'm wrong does that 50% up.
Yes, yes.
So.
And does any of the nuclear projects are getting more complex and they incorporate it.
<unk>, not only energy efficiency, but solar battery storage micro grids, and so on and so forth are getting larger and larger and then of course.
I think that southern California, Edison projects helped us a lot.
So we had three good wins.
Battery size, which is a pretty good sized projects.
Okay. Thanks George.
Can I just as a follow up different subject, but can I get your.
Opinion on.
The state of the M&A environment your pipeline and your appetite.
At this point.
In mid 2023 here.
Our appetite continues to be good we continuously look at them and we're looking at right now in Europe of course, a little bit more aggressively but in the United States as well, but they have to be accretive.
We are disciplined.
On the other hand.
To grow your footprint, especially as you go overseas.
Much easier to get 30, 50, or 75 or 100 people.
Wanted to time zone.
They pay for it it's worth doing it.
Got it thanks, so much.
Thank you.
And our next question.
Comes from.
Molson <unk> with Raymond James Your line is open.
Yeah. Thanks for taking the question, let me ask about Capex, if we annualize.
Your capex from the first half the full year figure will be well over.
$500 million is that the way, we should be thinking about the math or what was the capex kind of overly front end loaded.
Yes, I think.
It's fair to say that it probably was pretty heavily front end loaded as we talked about the <unk>.
LNG plants that we have coming in this year end and even the one that's going to be mechanical complete by the end of the year.
The actual amounts of Capex already spent on those and not surprisingly weak.
Got a tremendous amount of nonrecourse financing that would be great.
We've talked about in the script as well so I don't think it is.
Even Steven look it at the two halves of the year.
Because.
Simon on the implementation, especially if these larger projects are LNG and so on it just changed than what it was before because in order to get the equipment on time. If you have to go through the put is down much earlier that you would do otherwise.
I'd have to do transform.
Transformers all kinds of.
Equipment.
Do you have to make the down payments. So that's the way they are skewed a little bit.
The first half of the year.
Okay, Let me turn to Europe . It was just over a year ago that you guys announced.
The project in Bristol, which I guess, then just nominal dollar terms is the largest project in <unk> history can we just get an update on what year one of that has been like.
Stay well.
We are doing work with him.
I will say that.
Them, a proven projects a little bit slower.
What do we hear the anticipated, but you will see it picking up considerably.
Next year, but the fourth quarter of this year and next year, but we have a debt.
If I at least I think we've mentioned it before.
And there.
The projects in which we have.
Following the financing associated with them too but.
Again, you're dealing with the government it takes time.
On the other hand there.
Very happy with us.
This is to several others.
It is in the UK that they might be interested in doing something similar.
Alright, thanks very much.
Yes.
Thank you.
Our next question.
Comes from Christopher Souther from B Riley Your line is open.
Hey, guys.
Thank you.
I had a question around that.
Yes.
Power.
Or are those reflected in project awards for the quarter was interesting press release came out in July and then I just wanted to clarify that those were projects not asset and development right.
Sorry, Christian you had mentioned United power in Middle River.
Yes Middle River.
Okay. So youre not in power is actually an asset.
So thats reflected in the battery piece, where you look in the supplemental slides.
And then the Middle River as a project.
Got it okay.
So that would be in the <unk>.
Project backlog.
Makes sense so when we're looking at it seems like.
You guys are going to be pursuing some of these larger size lower our candidate mostly on the storage side of things like.
I'm curious at what stage of development would you guys be looking to sell their how much capital do you think.
You would need for whatever it is in the backlog.
Development pipeline there for ones do you think that you would probably end up selling at some point in construction.
And how much of that kind of development pipeline is larger projects that are not necessarily the IRS is looking for yes.
Yes, so so I don't know that there is a capex number that I would put it put it in there for that kind of category again, we're going to be relatively opportunistic about this to ensure that we get the right.
Results in what we think adds the most value for <unk>.
I would say optimal point, probably pre construction.
However, we have also.
We've also varied from that theme as well.
In terms of when when we would we would sell that.
On the misery power.
Yes.
We are not.
Buying the batteries the customers buying the batteries.
Design built that particular project.
Yeah.
That project is very much I will say it will probably start construction in the next couple of months.
Got it okay very helpful. Congrats guys.
Yes.
Power is pretty advanced development.
Thank you one moment our next question.
We have a question from.
Eric Stine with Craig Hallum. Your line is open.
Hi, everyone.
Sneak one in here at the end here on energy storage now that you're it looks like youre going to own. Some of these going forward can you just talk about the decision or maybe what you would see as kind of an ideal project just because you've got different value streams from.
From these assets versus some of your others.
And maybe multiple value streams versus either selling the power of selling the gas.
Anything that you could share along those lines would be great.
Sure I mean.
Keep it short we like capacity contracts.
That's really the fewer merchant revenue streams, the better for us.
We like the fixed capacity contracts.
And if we can make the numbers work by virtue of looking at Capex looking at transportation implementation speed with which we can get these things underway with a capacity contract that's a better looking.
For us we're getting long term service agreements from our battery manufacturers that help us with.
Managing degradation <unk> augmentation and when you've got a fixed long term capacity contract that really helps keep us comfortable so I think that's that's.
That's the ideals and.
And the return good return.
Obviously meeting our return hurdles and the return into and so it's not necessarily size I mean, if it if it checks all the boxes and you've got that the capacity contract you wouldn't shy away from something just because its a particular size.
That's right I think our assets in development metric with solar and storage or just storage standalone.
Going to see a variety of sizes of projects.
Some of these some of the battery storage that we're buying for our behind the meter solar plus storage as a megawatt or less.
And then as you saw from United Powers.
Quite a bit larger so we're good with the range, it's more about the metrics.
Thank you.
Okay.
Okay.
Thank you one moment.
Okay.
We have a follow up question from <unk>.
Joseph Osha from Guggenheim Your line is open.
Hi, yes, thanks, I had a follow up we talked a little bit about E. Rins and what is or is not going to happen.
Depending on what happens this is going to be a new RIN market. I'm wondering do you guys think there will be yes.
From a market to hedge it initially or is this basically going to be.
Something where youre, just going to kind of monetize them as they become available I'm. Just wondering what how would you think that market is going to evolve assuming we get what we wanted to DPA.
Yes, Joe I think Theres, a lot of wood to chop there still for the EPA, but our understanding is that those returns will be rents they will be the <unk> rents.
And that will be needing to introduce an additional amount of RVO associated with that piece of it.
But I don't know necessarily at this stage that they're going to create a separate market for the <unk> versus the <unk>, we don't know.
But.
But.
I don't think we have enough clarity at this point.
The thing that we know that they definitely will do it.
They are very serious about it serious and they grow more and more they want to electrify the vote everything.
And.
We are in a great great situation, because we have.
Many assets.
Landfill gas to electricity.
So it will be a good.
Sure.
Tailwind for us.
Yes.
Sorry go ahead.
And then they say it will be done.
Sooner than what people think it will be done.
Does that people when they say it will be late next year.
We anticipate there is going to be done much sooner than that.
But I guess, if I, if I, what I'm trying to get at how long after that.
Do you think that gap between when they announce and when you get an actual functioning market given all of these additional questions.
Based on what we know right now it's 25%.
Joe I think that's going to take some time.
Okay, because they're going to do.
You're going to need to align it with the cycle of the calendar.
Okay.
At least quantify yes.
Okay. Thank you. Thank you.
Okay.
Thank you.
This does conclude today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.
Yes.
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