Q1 2024 Ameresco Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the first quarter 2024 Ameresco Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference will be recorded. I would now like to hand the conference over to your first speaker today, Leila Dillon, Senior Vice President, Marketing. Please go ahead.

Good day and thank you for standing by welcome to the first quarter 2020 for a Miracle earnings conference call. At this time, all participants are in a listen only mode.

Leila Dillon: Just a quick presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you didn't hear an automated message a box in your hand as ways to withdraw your question. Please press star one again, please standby for today's conference is being recorded.

Operator: I turn the conference over to your first speaker today military senior Vice President marketing. Please go ahead.

Leila Dillon: Thank you. And good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; Joran Holt, Executive Vice President and Chief Financial Officer; and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before we 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.

Leila Dillon: Thank you and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Soccer, Leyritz, Marasca, Who's Chairman, President and Chief Executive Officer, Doron Hall, Executive Vice President and Chief Financial Officer, and Mark support.

Leila Dillon: Senior Vice President and Chief Accounting Officer.

Leila Dillon: All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe Harvard language on slide two of our supplemental information, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included reconciliations to these measures in our supplemental information.

Leila Dillon: For turning the call over to George I would like to make a brief statement regarding forward looking remarks.

Leila Dillon: Today's earnings materials contain forward looking statements, including statements regarding our expectations.

Leila Dillon: Forward looking statements are subject to risks and uncertainties. Please refer to today's earnings materials. The safe Harbor language on slide two of our supplemental information.

Leila Dillon: And our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward looking statements.

Leila Dillon: I will now turn the call over to George. Okay?

Leila Dillon: In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliation to these measures in our supplemental information.

George: Now I'll turn the call over to George George.

George P. Sakellaris: Thank you, Leila, and good afternoon, everyone. We are pleased with our first quarter performance as the team's focus on execution drove growth across our four business lines, as well as significant results in our business development activities. The actions we have taken to optimize our organization are already driving a positive impact across our company and position Ameresco to capture the substantial opportunities in funds for life. First quarter revenue exceeded our guidance, led by strong execution for our projects group and complemented by growth in our other business lines.

George: Thank you Leila.

Speaker Change: And good afternoon, everyone.

George P. Sakellaris: We are pleased with our first quarter performance and the team's focus on execution drove growth across our four business lines as well as significant result in our business development activities.

George P. Sakellaris: The actions, we have taken to optimize our organization.

George P. Sakellaris: Are already driving a positive impact across our company.

George P. Sakellaris: And positioning <unk> to capture the substantial opportunities in funds from us.

George P. Sakellaris: First quarter revenue exceeded our guidance.

George P. Sakellaris: Led by strong execution for our projects group and complement that by growth in our other business lines.

George P. Sakellaris: Additionally, the momentum of business development has continued to show strength, with new project wins and energy as a development activity, laying the foundation for good profitable growth. Our focus on cash generation is also yielding positive results, as Doran will discuss later in this call. The current market demand for energy efficiency and renewable energy solutions remains robust across our technologies, geographies, and customer base. But this demand is continuing to stretch industry supply chains, create tight labor markets, and generally lengthen overall timetables.

George P. Sakellaris: Additionally, the momentum with business development has continued to show strength.

George P. Sakellaris: With new project wins and energy asset development activity.

George P. Sakellaris: The foundation for good profitable growth.

George P. Sakellaris: Our focus in cash generation is also yielding positive results as Doron will discuss later in this call.

George P. Sakellaris: It kind of end market demand for energy efficiency and renewable energy solutions remains robust.

George P. Sakellaris: Our technologies geographies and customer base.

George P. Sakellaris: But if demand is continuing to stretch industry supply chains.

George P. Sakellaris: Tight labor markets generally lengths and of their own timetables.

George P. Sakellaris: I am pleased to say that these industry issues seem to be leveling out, and we remain cautiously optimistic. And, as we discussed last quarter, Ameresco is adapting to the new industry environment and the tremendous growth opportunities in front of us. We continue to refine our approach to drive, increase wind rates, expand project margins, and accelerate the speed of implementation, which has reorganized our corporate structure to bring more uniformity and scalability across all of our geographies and business units.

George P. Sakellaris: I am pleased to say that this industry issues seem to be leveling out.

George P. Sakellaris: And we remain cautiously optimistic.

George P. Sakellaris: And as we discussed last quarter and more escalated adopted because they are new industry environment, and a tremendous growth opportunities in front of us.

George P. Sakellaris: We've continued to refine our approach to drive increased win rates expanded project margins and accelerate the speed of implementation.

George P. Sakellaris: We have reorganized our corporate structure to bring more uniformity and scalability across all of our geographies and business units.

George P. Sakellaris: We have also focused our business development efforts on larger contracts in our core areas of expertise and in our traditional customer base. This is already helping us to increase our project wind rates. And we are seeing early signs of improving gross margins in our total project package. We have, however, anticipated the continuation of these industry challenges in our approach to forecasting and guidance. And with our solid start to the year, plus the visibility from our contracted backlog and our energy asset and O&M revenue streams, we are pleased to reaffirm our full-year guidance. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran. Thank you.

George P. Sakellaris: We have also focused.

Doran: Development efforts on larger contracts in our core areas of expertise and our traditional customer base.

Doran: This is already helping us to increase our project win rates.

Doran: And we are seeing early signs of improving gross margins in our total project backlog.

Doran: However, anticipated.

Doran: Actually I know this industry challenges in our approach to forecasting and guidance.

Doran: And with our solid stock cause a year plus the visibility from our contracted backlog and energy asset in <unk> and M. <unk>.

Doran: Revenue streams, we are pleased to reaffirm our full year guidance.

Doran: I'll now turn the call over to Doron <unk>.

Doran: Comment on our financial performance and outlook Darren.

Doran Holt: Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplementary information that was posted to our website after the market closed today. We are off to a good start this year, with total revenues growing 10% to $298 million, and with each of our four business lines experiencing growth. Our projects business grew 11.5%, reflecting our focus on faster implementation and conversion of our backlog. While market challenges remain, we continue to take steps to succeed in today's operating environment.

Speaker Change: Thank you George and good afternoon, everyone.

Doran Holt: For additional financial information, please refer to the press release and supplemental information that was posted to our website after the market closed today.

Doran Holt: We are off to a good start this year with total revenues growing 10% to $298 million and with each of our four business units build business lines experiencing growth.

Doran Holt: Projects business grew 11, 5%, reflecting our focus on faster implementation and conversion of our backlog.

Doran Holt: While market challenges remain we continue to take steps to succeed in today's operating environment.

Doran Holt: Energy asset revenue grew 6%, largely due to the greater number of operating assets compared to last year, improved production, as well as higher RIN prices. We brought an additional 13 megawatts of assets into operation in the first quarter, adding to our large and growing operating base of 518 megawatts, which we expect to provide decades of profitable revenue to the company. Our O&M business had a very strong quarter, growing 14% due to favorable timing on some of our long-term contracts.

Doran Holt: Energy asset revenue grew 6% largely due to the greater number of operating assets compared to last year improved production as well as higher RIN prices.

Doran Holt: We brought an additional 13 megawatts of assets into operation in the first quarter, adding to our large and growing operating base of 518 megawatts, which we expect to provide decades of profitable revenue to the company.

Doran Holt: Our O&M business had a very strong quarter growing 14% due to favorable timing on some of our long term contracts are.

Doran Holt: Our other line of business grew 3% as strong consulting revenues offset continued softness in our integrated PV business. Gross margin of approximately 16% dipped as higher than normal project cost adjustments during the quarter outweighed higher margins in the O&M business.

Doran Holt: Our other line of business grew 3% as strong consulting revenues offset continued softness in our integrated PV business.

Doran Holt: Gross margin of approximately 16% dipped as higher than normal project cost adjustments during the quarter outweighed higher margins and the O&M business.

Doran Holt: Enhancing gross margins is a key priority for us, and as George mentioned, we are seeing early signs of improved gross margins in our project backlog. That's it.

Doran Holt: Enhancing gross margins is a key priority for us and as George mentioned, we are seeing early signs of improved gross margins in our project backlog.

Doran Holt: We continue to emphasize driving incremental gross profit dollars and controlling operating expenses, in other words, using our operating leverage to maximize EBITDA. We've been laser focused on increasing the efficiency of our business development process, a key controllable component of operating expenses. In the first quarter, revenue growth, as well as cost savings and operating leverage, drove adjusted EBITDA growth of 13% to $30.8 million. As George noted, our business development activity on both the project and asset side was very healthy during the first quarter.

Doran Holt: It said, we continue to emphasize driving incremental gross profit dollars and controlling operating expenses in other words, using our operating leverage to maximize EBITDA.

Doran Holt: We've been laser focused on increasing the efficiency of our business development process, a key controllable component of operating expenses in the first quarter, our revenue growth as well as cost savings and operating leverage drove adjusted EBITDA growth of 13% to $38 million.

Doran Holt: As George noted our business development activity on both the project and asset side was very healthy during the first quarter. The company's total project backlog exceeded $4 billion for the first time in our history growing 36% year on year and 4% sequentially. This growth was led by our contracted backlog which reached.

Doran Holt: The company's total project backlog exceeded $4 billion for the first time in our history, growing 36% year-on-year and 4% sequentially. This growth was led by our contracted backlog, which reached almost $1.5 billion and grew 45% year-on-year and 10% sequentially. Our energy asset business also had a successful quarter of new development activity, ending the quarter with over 750 megawatts in net assets in development. We added over 50 megawatts during the quarter, including the 40 megawatt biofuel facility in Maui mentioned in the press release.

Doran Holt: Almost $1 5 billion.

Doran Holt: And grew 45% year on year and 10% sequentially.

Doran Holt: Our energy asset business also had a successful quarter of new development activity ending the quarter with over 750 megawatts and net assets in development. We added over 50 megawatts during the quarter, including the 40 megawatt biofuel facility in Maui mentioned in our press release.

Doran Holt: This asset represents our fourth award with HECO and is one of many projects and assets we are executing in the state of Hawaii. Turning to our balance sheet and cash flows, we ended the quarter with approximately $80 million in cash and corporate debt of approximately $280 million. Our debt to EBITDA leverage ratio under our senior secured credit facility was 3.0 times and remains below our bank covenant level of 3.5 times.

Doran Holt: This asset represents our fourth award with he go and as one of many projects and assets. We are executing in the state of Hawaii.

Doran Holt: Turning to our balance sheet and cash flows we ended the quarter with approximately $80 million in cash and corporate debt of approximately $280 million our debt to EBITDA leverage ratio under our senior secured credit facility was 3.0 times and remains below our bank covenant level of three five.

Doran Holt: Our energy asset debt advance rate, which you will remember is our total energy asset debt divided by our energy asset book value, remains at a very conservative level in the low 70% range. Importantly, our access to energy asset capital remains excellent, with many financing options available. An example of our collaborative approach to financing was our partner Republic Services' investment in our under-construction Roxanna RNG plant, allowing them to take a strategic minority interest in addition to providing site access and gas supply.

Doran Holt: Times.

Doran Holt: Our energy asset that advance rate, which you will remember as our total energy asset debt divided by our energy asset book value remains at a very conservative level in the low 70% range.

Doran Holt: Importantly, our access to energy asset capital remains excellent with many financing options available and.

Doran Holt: An example of our collaborative approach to financing with our partner Republic services investment and are under construction roxanna RMG plant, allowing them to take a strategic minority interests. In addition to providing site access in gas supply.

Doran Holt: Our energy assets remain highly attractive to many financing parties interested in teaming with Ameresco, given our proven capability. In addition, we continue to pursue our develop and sell business model for a portion of our energy assets in development. Under this model, once a transaction is executed, we would convert the assets into project and O&M revenue streams without the need for Ameresco to provide the permanent capital investment or to raise additional asset debt. Our cash flows continue to be strong, with positive adjusted cash flow from operations of over $40 million during the quarter. Our eight-quarter rolling average, which best represents our implementation cycle, reached almost $30 million.

Doran Holt: Our energy assets remain highly attractive to many financing parties interested in teaming with Emaar ESCO given our proven capabilities.

Doran Holt: In addition, we continue to pursue our develop and sell business model for a portion of our energy assets in development.

Doran Holt: Under this model once the transaction is executed we would convert the assets into project in O&M revenue streams without the need for <unk> to provide the permanent capital investment or to raise additional asset debt.

Doran Holt: Our cash flows continued to be strong with positive adjusted cash flow from operations of over $40 million during the quarter.

Doran Holt: Our eight quarter Rolling average, which best represents our implementation cycle reached almost $30 million and.

Doran Holt: In our supplemental slides, we highlight the increased momentum we've seen in the rolling cash flows, and we expect both cash flow metrics to continue to improve, especially as we bill and collect on the SoCalEd Battery Project. Speaking of SoCalEd, we've completed performance testing and are working on the final checklist for substantial completion for two of the three projects. The third project, which was more significantly impacted by the 2023 rainfall, is still expected to reach substantial completion this summer.

Doran Holt: In our supplemental slides, we highlight the increased momentum we've seen in the rolling cash flows and we expect in both cash flow metrics to continue to improve especially as we bill and collect on the Socal Ed battery projects.

Doran Holt: Speaking of Socal, Ed we've completed performance testing and are working on the final checklist for substantial completion for two of the three projects. The third project, which was more significantly impacted by the 2023 rainfall is still expected to reach substantial completion. This summer.

Doran Holt: A solid start to our year, together with our visibility from our project backlog and energy asset revenues, supports our confidence that 2024 will be a year of strong growth for Ameresco. As George mentioned, we are reaffirming our full-year guidance, which anticipates revenue and adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively. We continue to expect to place approximately 200 megawatts of energy assets in service during 2024, including our large Kapono asset, United Power battery assets, and three RNG plants, one of which went COD already in January. You can find more details on our 2024 guidance in our press release. Now, I'd like to turn the call back over to George for closing comments. Thank you, Doren.

Doran Holt: Solid start to our year together with our visibility from our project backlog and energy asset revenues supports our confidence that 2024 will be a year of strong growth for <unk>.

Doran Holt: As George mentioned we.

Doran Holt: We are reaffirming our full year guidance, which anticipates revenue and adjusted EBITDA growth of 20% and 38% at the midpoint of our ranges respectively.

Doran Holt: We continue to expect to place approximately 200 megawatts of energy assets in service during 2024, including our large component asset United Power battery assets and three RMG plants, one of which <unk> already in January.

Doran Holt: You can find more details on our 2024 guidance in our press release.

Doran Holt: Now I'd like to turn the call back over to George for closing comments. Thank you Darren.

George P. Sakellaris: Ameresco is off to a solid start, with a commitment to profitable execution and growth. The company remains extremely well positioned to take advantage of the tremendous opportunities on the horizon in both our domestic markets and in Europe. Our top priority for 2024 remains execution and cash flow generation.

Doran Holt: <unk> is off to a solid start.

George P. Sakellaris: Our commitment to profitable execution and growth.

George P. Sakellaris: The company remains extremely well positioned to take advantage of the tremendous opportunities on the horizon in both our domestic markets and in Europe.

George P. Sakellaris: Our top priority for 2024 remains.

George P. Sakellaris: Execution and cash flow generation.

George P. Sakellaris: 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. At this time, we'll conduct the questions.

Speaker Change: In closing I would like to once again, thank our employees customers and stockholders for their continued support.

George P. Sakellaris: Operator.

George P. Sakellaris: Like to open the call to questions.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Noah Kaye of Oppenheimer & Co. Inc. The line is now open.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone wafer name to be announced towards your question. Please press star one again.

Noah Duke Kaye: Myself to one question and one follow up.

Operator: These standby, while we compile the Q&A roster.

Operator: Our first question comes from the line of Noah Kaye of Oppenheimer <unk> Co Inc. Your line is now open.

Noah Duke Kaye: Hey, good afternoon. Thanks for taking the questions. I'll just try to do a couple quick ones here.

Noah Duke Kaye: Hey, good afternoon. Thanks for taking the questions I'll just try to do a couple of quick ones here first talk about the improvement in conversion over to contracted.

Noah Duke Kaye: Just the dynamics that youre seeing in the market to support that where you saw the best sort of pickup in conversion and the related question is to talk about the margin profile of what's going into backlog now I think you mentioned in your prepared remarks visibility to just our.

Noah Duke Kaye: Better margin profile, but would love any dimensions around that.

George P. Sakellaris: First, talk about the improvement in conversion over to contracted. You know, just the dynamics that you're seeing in the market to support that, where you saw the best sort of pickup in conversion. And a related question is to talk about the margin profile of what's going into backlog now. I think you mentioned you're prepared for market visibility to just a better margin profile, but I would love any dimensions around that.

Noah Duke Kaye: Yes.

George P. Sakellaris: From the awarded contracts to the executed contracts.

George P. Sakellaris: Yes, the conversion, you know, from the awarded contracts to the executed contracts, it's across the board. But we had a couple of good wins, I would say, conversions in the federal sector, which is basically our bread and butter, as well as a couple of street lights, a couple of school systems, and so on. So it's in a couple of battery storage, smaller projects, but it's across the board, the conversion. And I think the fact that we reorganized the company and we focus more on converting projects from the award category to the executed, so we can build them out, it just helps. Doug has been consistent now for the last couple of quarters, and that's why we started talking about him.

George P. Sakellaris: Of course, the board, but we had a couple of good wins, so I would say convergence from on the federal sector, which is basically our bread and butter as well.

George P. Sakellaris: Couple of Streetlights couple of school systems, and so on and so.

George P. Sakellaris: A couple of battery storage smaller projects, but it's across the board.

George P. Sakellaris: Version and I think the fact that we reorganize the company and we focus more on converting moving projects from the awarded category to the.

George P. Sakellaris: Execute it so we can build them out.

George P. Sakellaris: It gives health.

Speaker Change: I think anytime you're focusing organization when a particular task things Kathryn and I think that helped it's helped a lot.

George P. Sakellaris: Syed you know one of the goals this year.

George P. Sakellaris: We choose where we target which projects we go after.

George P. Sakellaris: They are I don't know.

George P. Sakellaris: Core capabilities and the customer that we know best and we have seen a little pickup on the contracted backlog of about.

George P. Sakellaris: 30 to 50 basis points.

George P. Sakellaris: Doug has been consistent now for the last.

George P. Sakellaris: A couple of quarters and that's why we started talking about it.

George P. Sakellaris: That's really helpful. Thanks. Sorry, I don't know if Doreen wanted to add anything more to that. If not, I'll move to my next question.

George P. Sakellaris: Uh huh.

George P. Sakellaris: Okay.

George P. Sakellaris: That's really helpful. Thanks.

George P. Sakellaris: No.

George P. Sakellaris: Darren you want to add any more to that if I move to my next question.

Unknown Executive: Okay. Don't... Don't... Don't... Don't...

Doug: Go ahead Doug.

Unknown Executive: The last thing I'll add is that within the different business units, one thing that we've consistently seen is that when we do focus on business selection and the high probability wins, you actually tend to find that the margins are a little bit better on the project. So there's a little bit of a connection between business selection and margins that adds to the benefit.

Unknown Executive: So.

Doreen: The last thing I'll add is just simply that in within the different business units, but one thing that we've consistently seen is that when we do focus on business selection and the high probability wins.

Unknown Executive: You actually tend to find that the margins are a little bit better in the in the projects. So there is a little bit of a connectivity there to business selection and margins that adds to the benefit.

Noah Duke Kaye: It makes sense. Just a quick question on the asset side. I think, you know, you called out the investments by Republic in the Roxanne RNG plant. When we think about outside sources of capital for development, as well as, you know, the develop and sell model, how do we think about the kinds of types of assets that would go into develop and sell versus potentially attracting minority investments? Maybe you can kind of regiment how you're thinking about the asset profile.

Speaker Change: Okay. It makes sense just.

Noah Duke Kaye: Just a quick question on the asset side I think you called out the investments by Republic in the Roxane RMG plant when we think about outside sources of capital for development and as well as you know the develop and sell model. How do we think about kind of the types of assets.

Noah Duke Kaye: That would would would go into develop and sell versus potentially attracting minority investments, maybe you can kind of regimen to how youre thinking about the asset profile.

George P. Sakellaris: I can start on the solar side. I think because the market is so fluid and liquid, it's a better strategy to develop and sell because our return on capital, the ones we want to keep, is a little bit higher than what the street will accept. So, and then on the RNG side, though, we have started looking to develop in more partnerships where we will be a majority partner, or there will be a minority. Otherwise, we explore in various situations.

Noah Duke Kaye: Okay.

Speaker Change: I can start on the solar side, I think because the market yourself fluids and liquid.

George P. Sakellaris: Better strategy to develop and sell.

George P. Sakellaris: Our.

George P. Sakellaris: Our return on capital once we when I came in a little bit higher than what the street.

George P. Sakellaris: Yes.

George P. Sakellaris: Seth.

George P. Sakellaris: And then on the R&D side, though.

George P. Sakellaris: We have started to look into developing more partnerships where.

George P. Sakellaris: We will be a majority partner there will be a minority either way we are exploring various situations and it particular case with Republic.

George P. Sakellaris: In this particular case with Republic, you know, Roxana, they have the right. We have quite a few issues with them. They have the right to invest in any assets that they want. They picked this particular one that they wanted to invest in. And we welcome them, and we hope they continue to invest in many more. Do you want to add something to that, Don? Yeah, I really think George's comment about the liquidity of the market in the solar space, as well as the battery space. To be honest, those are the two categories of assets that really fill our develop and sell portfolio.

Don: Roxanne that they have the right we have quite a few sides with them they have the right to invest in any.

Don: Assets that they wanted.

Don: This particular, one that they wanted to invest in.

Don: We welcome it and we hope they continue to invest in them anymore.

Don: Yes, I really think George's comment about the liquidity of the market in the solar space as well as the battery space to be honest.

Don: Those are the two categories of assets I think that really fill or develop and sell portfolio and then we of course will.

George P. Sakellaris: And then, you know, we will, of course, opportunistically look at these potential partnerships, whether they be in the RNG or in the other asset classes, provided we feel like they're accretive to our shareholders and versus what, you know, we might be able to accomplish on our own.

Don: Opportunistically look at these potential partnerships, whether they be in the R&D or in the other asset classes provided we feel like they are accretive to our.

Don: Our shareholders.

Don: Versus what you know, what we might be able to accomplish on our own.

Noah Duke Kaye: Thanks for all the color. It's a nice quarter.

Speaker Change: Thanks for all the color nice quarter.

Operator: Thank you. Thank you. Thank you one moment for our next question.

Speaker Change: Thanks, Dave.

Speaker Change: Thank you Bob for next question.

Moses Sontag: Our next question comes from the line of Moses Sontag of BNB. Your line is now open.

BNP: Our next question comes from the line of most of this content of BNP. Your line is now open.

Moses Sontag: Hi, thanks for taking my question and congrats on the great execution here. First, on the SoCalEdison project. Maybe it's just, you know, some of the language of the update. It sounds almost like the two of those three projects that were already in that very advanced stage of commissioning maybe sounds similar to like two months ago, which is pretty recent in the 4Q call. Any specific tasks completed that you can sort of check off or outline that move those two further along? And then any shift in the timing of the third one? I know there was heavy rainfall, but that was already true for months. Just curious on anything more specific from either.

Moses Sontag: Hi, Thanks for taking my question and congrats on great execution here.

Speaker Change: First of all thank you.

Moses Sontag: It's been project, maybe it's just some of the language of the update.

Moses Sontag: It sounds almost like two of the three of the projects that were already in that very advanced stage of <unk>.

Moses Sontag: Commissioning.

Moses Sontag: Maybe some similar to like two months ago, which is pretty recent fork you call any specific tasks completed that you can sort of check offer outline.

Moses Sontag: That moved those to further along and then.

Moses Sontag: The shift in the timing on the third one I know there was heavy rainfall, but that was already through from months ago, just curious on anything more specific provider.

Unknown Executive: I'll start with the last question. No major shifts in the timeline of the third one? Yeah. On the first two, the big difference is performance testing and direction. That's that's kind of the big hurdle that we got through, and I think that really gives us a lot more confidence on you know how close we are to the finish line, Moses.

Speaker Change: I'll start with the last question no major shifts in the timeline of the third one on the first two the big differences performance testing.

Unknown Executive: Yes.

Unknown Executive: That's the that's kind of the big.

Unknown Executive: The big hurdle that we got through and I think Thats really gives us a lot more confidence on how close we are to the finish line.

Moses Sontag: And then any updated thoughts on the storage energy assets that you are going to potentially, some of them not built on the balance sheet, if they don't hit your hurdle, you might sell them midstage, and then timelines on any of that.

Speaker Change: Excellent excellent and then any updated thoughts on on the storage energy assets that you are going to potentially some of them not built on balance sheet. If they don't hit your hurdle you might sell the mid stage and then timelines on any of that.

Unknown Executive: Um, so we're kind of regularly running sales processes. We do those internally.

Speaker Change: So we're kind of regularly running sales processes, we do those internally I think as far as categories are concerned we like to keep the ones that have really solid economics with long term capacity contracts.

Unknown Executive: I think as far as categories are concerned, you know, we like to keep the ones that have really solid economics with long-term capacity contracts. We're not big merchant battery players, but we do know how to develop those assets. So anything that we throw into the asset development metric that looks like this is likely to fall into the developing cell. And we've effectively built in our expectations for the timing of these transactions into our guidance. So that's kind of how we look at the way this converts into project business and O&M business for us.

Unknown Executive: We're not big merchant battery players, but we do know how to develop those assets. So anything that we throw into the asset develop a metric that looks like that is likely to fall into the <unk>.

Unknown Executive: Develop and sell and we've effectively built in our expectations for the timing of these transactions into our guidance.

Unknown Executive: That's kind of how we look at the way. This this converts into project business and O&M business for us.

Moses Sontag: Excellent. Thanks again.

Operator: Thank you. Please allow one moment for our next question.

Speaker Change: Excellent. Thanks again.

Speaker Change: Thank you most of it thank you.

Operator: Thank you one moment for our next question.

Eric Andrew Stine: Our next question comes from the line of Eric Stine of Craig Holland. The line is now open.

Operator: Our next question comes from the line of Eric Stine of Craig Hallum. Your line is now open.

Eric Andrew Stine: Hi everyone, thanks for taking the questions. Hey, just wondering if I could clarify. So talking about the award conversion sluggishness that has started to pick up, you know, just unclear, it sounds like you believe that's more based on steps that you are taking rather than the market improving. Maybe, thoughts on that, whether that's the correct read? And, you know, how much more, how much more is there to go, if, in fact, the market really hasn't improved all that much.

Eric Andrew Stine: Hi, everyone. Thanks for taking the questions.

Eric Andrew Stine: Alright.

Eric Andrew Stine: Hey, just wondering if I could clarify so talking about the award conversion sluggishness that has started to pick up.

Eric Andrew Stine: Just unclear it sounds like you believe that's more based on steps that you are taking rather than the market improving maybe.

Eric Andrew Stine: Thoughts on that whether that's the correct read and how.

Eric Andrew Stine: How much more how much more is there to go and attack the market really hasnt improved all that much.

Unknown Executive: I mean, it's a combination of both, to be honest with you. I don't see that it's necessarily, certainly, we're taking steps, right? We're trying to be more aggressive in terms of getting our conversions across the line. But the market has also been a little bit more cooperative, you know, in terms of supply chain delivery timelines for the execution of the implementation cycle. We haven't seen those. Well, we've seen them be a little bit more predictable now.

Eric Andrew Stine: Sure.

Eric Andrew Stine: I mean it.

Unknown Executive: It's a combination of both to be honest with you I don't see that it's necessarily certainly we're taking steps right. We're trying to be more aggressive in terms of getting our conversions across the line but.

Unknown Executive: Market has also been a little bit more cooperative in terms of supply chain delivery timelines on the execution of the implementation cycle.

Unknown Executive: We haven't seen those.

Unknown Executive: We've seen them be a little bit more predictable now.

Unknown Executive: I think that's been helpful to us.

Speaker Change: I don't know that much more to add.

Unknown Executive: And that's, I think that's been helpful to us. I don't know that much more to add. No, they haven't been extended. For example, the transformers. They were about 18 months. They're 18 months, and you can get them now.

Unknown Executive: They haven't been extended.

Unknown Executive: Sample to transform as they were about 18 months 18 months and you can get them now.

Unknown Executive: They will say 18 months, and they turn out to be longer, and you couldn't get them because I know how to source various pieces of equipment. Lately, we can do it. They tell you a certain schedule, and it seems to be holding. But as far as shortening any of the timelines, and that's what we meant by adapting to the new environment, we have not done that, and we have not taken into forecasting or the guidance any improvement.

Unknown Executive: Where before.

Unknown Executive: They will say 18 months and it turned out to be longer and you couldnt get them because they know of shorts in various pieces of equipment lately. We can do it they tell you that certain scheduled and it seems to be holding.

Unknown Executive: As far as shortening the time lines and that's what we meant by adapting to the new environment.

Unknown Executive: We have not done we have not taken into forecasting or the guidance any.

Unknown Executive: That's the availability and sticking to the schedule that we have seen so far. I'm looking through here. We had a hard time finding switches and so on. Lately, we've been finding them, so. But the time, it hasn't been a short time.

Unknown Executive: Movement, that's the availability and sticking to the schedule that we have seen so far.

Unknown Executive: We had a hard time finding switches so on lately, we've been finding them so but.

Unknown Executive: The timing hasn't been to shorten it.

Unknown Executive: As George said in his prepared comments, cautiously optimistic. We're continuing to forecast that we're going to, you know, keep seeing these pressures. We're not going to get too excited yet.

Unknown Executive: As George said.

Unknown Executive: Prepared comments cautiously optimistic.

Unknown Executive: We're continuing to forecast that we're going to <unk>.

Unknown Executive: Keep seeing these pressures, we're not going to get too excited yet.

Eric Andrew Stine: Got it. And then maybe just on the gross margins, you mentioned the project cost adjustments. Can you provide a little more clarity there? I mean, it sounds like that's just kind of the normal course of business, or were there any items that were one time that we should consider as we think about that? Yeah, Eric, this is Mark.

Unknown Executive: Okay.

Speaker Change: Got it and then maybe just on the gross margin you mentioned that the.

Mark: The project cost adjustments I mean can you provide a little more clarity there I mean, it sounds like that's just kind of normal course of business or were there any items that were one time that we should consider as we think about that.

Mark A. Chiplock: Eric, this is Mark. I think you said it. Part of the normal course, because we review these projects all the time, this just happened to be an unusual quarter where we had four projects where, as part of that normal course review, you know, we identified some additional costs where we made some adjustments to the cost budgets. You know, in any particular quarter, these adjustments, which can go both ways, aren't really material to the results.

Eric Andrew Stine: Yeah, Eric This is Mark I think you said it.

Mark A. Chiplock: As part of normal course, because we review these projects all the time. This has happened to be an unusual quarter, where we had four projects that as part of that normal course review, we identified some additional cost where we made some adjustments to.

Mark A. Chiplock: They're standing out a little bit more because we had some larger than normal adjustments. And these have been some legacy projects that have been around for a while that are getting relatively close to completion. But we saw some true-ups, some write-offs, some that were impacted by, you know, one that was impacted by delays, and just some unforeseen events that, and the timing of these projects and those adjustments all just happened to be in the quarter. So it's part of the normal course, but it was unusual in that they were larger than normal. Okay, thank you.

Mark A. Chiplock: The cost budgets in any particular quarter. These these adjustments, which can go both ways arent really material to the results, they're standing out a little bit more because we had.

Mark A. Chiplock: We had some larger than normal adjustments.

Mark A. Chiplock: And these have been some legacy projects that had been around for a while they are getting relatively close to completion.

Mark A. Chiplock: But we saw some true ups some write offs some.

Mark A. Chiplock: They were impacted by weather that was impacted by delays in just some unforeseen events that and the timing of these projects and those adjustments I'll just happened to be in the quarter. So.

Mark A. Chiplock: As part of the normal course, but it was unusual in that they were they were larger than normal.

Speaker Change: Okay. Thank you.

Eric Andrew Stine: Thank you, one moment, for our next question. Our next question comes from the line of Joseph Osha of Google NAMM. The line is now open.

Speaker Change: Thank you.

Speaker Change: Thank you Ron for next question.

Eric Andrew Stine: Our next question comes from the line of Joseph Osha of Google and Ann Your line is now open.

Joseph Amil Osha: Hi there, guys. Thanks for taking my question. Can you hear me? I can't use my phone.

Joseph Amil Osha: Hi, there guys. Thanks for taking my question can you hear me.

Joseph Amil Osha: Yes, yes, sorry.

Joseph Amil Osha: And I apologize if you touched on this. I may have missed it. On slide six of your deck, thanks for putting those advance rates in. It's really interesting. Is the implication that as these assets go from development to operation, that you think you can probably take them to a kind of 885% advance rate? And I had one other question, but I'm curious about that.

Joseph Amil Osha: Look my thought.

Joseph Amil Osha: And I apologize if you touched on that I may have missed it on slide six.

Joseph Amil Osha: Thanks for putting those advance rates and it's really interesting is the implication that as these assets go from development to operating that.

Joseph Amil Osha: You can probably take them to kind of 80% to 85%.

Joseph Amil Osha: Advance rate.

Joseph Amil Osha: Hi.

Joseph Amil Osha: And I had one other question, but I'm curious about that.

Unknown Executive: I think that's right, Joe. I think that, you know, certainly, as we've talked about in the past, some categories of assets can carry higher advance rates than others. So depending on the mix of what's in that pool of energy assets and development and construction, the advance rate may move around a bit. But once you get up to the operating rate on average, I think we are at that kind of 80 to 85. And it is a little bit of a jump from where the construction lines and the construction lenders will advance.

Speaker Change: I think thats right, Joe I think that.

Unknown Executive: Certainly as we've talked about in the past some categories of the assets can carry higher advance rates than others, depending on the mix of what's in that pool of energy assets in development and construction the advance rate may move around a bit but once you get up to the operating on average I think we are at that kind of 80 to 85 and it is a.

Unknown Executive: A little bit of a jump from where the construction lines and the construction lenders will advance yes.

Unknown Executive: Yeah, and especially if they have long-term contracts or shorter ones and so on. That's right.

Unknown Executive: And especially if you have a long term contract so.

Joseph Amil Osha: Right, and that makes sense. And just on the back of that, I mean, given what's kind of been happening in the bank world, I'm curious. Have you guys ever thought about trying to securitize some of this stuff? Or are you happy with the options that you have?

Unknown Executive: Or a shortened and so on that's right.

Speaker Change: Right and that makes sense and just on the back of that I mean, given what's kind of been happening in bank world.

Joseph Amil Osha: I'm curious I mean have you guys ever thought about trying to securitize some of this stuff.

Joseph Amil Osha: Or are you happy with the options that you have.

Unknown Executive: We're always looking for new options, Joe, as far as, you know, decreasing spread. But when I take a look at spreads in the securitization market, I think that the granularity and diversity of the portfolio probably isn't there in the similar asset type with the standardized documentation in order to really fit the securitization criteria that would attract the kind of spreads that you see in the market from some of the other companies that are asset-focused that use securitization as a tool. Our, you know, the assets just get a little bit too lumpy.

Speaker Change: We're always looking for new options, Joe as far as decreasing spread but when I take a look at spreads on the securitization market.

Unknown Executive: Think the granularity and diversity of the portfolio probably isn't there in the similar asset type with the standardized documentation in order to really fit the securitization criteria that would draw the kind of spreads that you see in the market from some of the other.

Unknown Executive: Some of the other companies that are asset focus that use securitization as tool.

Unknown Executive: Sure.

Unknown Executive: The assets just get a little bit too lumpy. So what we have is a number of financing facilities. When you go through our debt footnote you can kind of see all of those.

Unknown Executive: So what we have is a number of financing facilities. When you go through our debt footnote, you can kind of see all of those. Many of them are dedicated to certain types of solar or battery assets. You know, some are sale leaseback facilities, which are usually done one at a time. That's a relatively efficient financing vehicle for us, and others are used when we're going to use the tax credit ourselves or sell it.

Unknown Executive: Many of them are dedicated to certain types of solar or battery assets.

Unknown Executive: Some are the sale leaseback facilities.

Unknown Executive: Which are which are usually done one at a time extremely efficient financing vehicle for us.

Unknown Executive: And others are used when we're going to use the tax credit ourselves or sell it and I think we do feel good about where our spreads have been versus the market and so we're pretty happy with what we're what we're looking at we think through competitive processes. When we go to.

Unknown Executive: And I think we do feel good about where our spreads have been versus the market. And so we're pretty happy with what we're looking at. We think through competitive processes, when we go to borrow funds against assets, we are seeing kind of the best of what the best of what's out there.

Unknown Executive: Borrowed funds against assets.

Unknown Executive: We are seeing kind of the best of the best of what's out there.

Unknown Executive: Okay, thanks. And then you actually just raised an interesting point. I wasn't going to ask, but since you raised it, I'm going to ask. How much of the credit volume that you guys are creating are you retaining versus placing either in regular tax equity, or are you guys out there actually transacting? I'm curious.

Speaker Change: Okay. Thanks, and then you actually raised an interesting point I wasn't good at but you said you raised I'm going to ask.

Unknown Executive: How much.

Unknown Executive: <unk>.

Unknown Executive: Credit volume that you guys are creating.

Unknown Executive: Are you retaining versus versus pointing either in regular tax equity or are you guys up there actually transacting.

Unknown Executive: I'm curious what you're doing.

Unknown Executive: Well, we haven't disclosed the proportions if you just break down entering into a tax equity transaction like a sale leaseback versus taking the credit ourselves for our own effective tax rate versus selling credits. We do all three. But we haven't come out and provided guidance with respect to any.

Speaker Change: Well, we haven't disclosed the proportions. If you just breakdown entering into a tax equity transaction like a sale leaseback versus taking the credit ourselves for our own effective tax rate versus selling credits, we do all three.

Unknown Executive: We haven't come out and provided guidance with with respect to any we've executed one tax credit transfer. This year. So far we've got another one underway I expect that we will have more.

Unknown Executive: We've executed one tax credit transfer this year so far. We've got another one underway. I expect that we will have more. It all depends on the volume and what we expect our tax liability to look like as well. If you dig into our effective tax rate, you see the impact of ITC and 179D, and given the transferability provisions, we love the flexibility of that tool.

Unknown Executive: It all depends on the volume and what we expect our tax liability to look like as well.

Unknown Executive: As you dig into our effective tax rate you see the impact of ITC and 170 to 90 and given the transferability provisions.

Unknown Executive: We love the flexibility of that tool.

Unknown Executive: So yes for sure.

Operator: Certainly. Thank you one moment for our next question.

Speaker Change: Alright, thank you.

Speaker Change: Certainly thanks Jessica.

Operator: Yes.

Speaker Change: Thank you Juan for next question.

Speaker Change: Our next question comes from the line of Lee Ann Haden of Canaccord Genuity. Your line is now open.

Speaker Change: You may everyone. Thanks, so much for taking my question and congrats on the progress made throughout the quarter just a few questions from me sorry.

Operator: Sarah could you. Please educate us on how you plan to capitalize on that emerging data center opportunity.

George P. Sakellaris: Yes, actually, we are working on several of them, and it's going to be a great, great market, no question about it. And we have several that we are working on, and actually, as you probably know, we have several bases with the United States government where we have what we call the enhanced use leases, and we have some of the major data center people or companies that they would like to team up with us on.

Speaker Change: Yes, actually we are working on several of them and.

George P. Sakellaris: It's going to be a great great market no question about it.

George P. Sakellaris: And we have several that we are working on it and actually again as you grow.

George P. Sakellaris: No we cant several basis, the United States government, we have what we call the enhanced usually says and we have.

George P. Sakellaris: Some of the major data center people or companies that they would like to team up with us.

George P. Sakellaris: So, as everybody knows, it's a huge market, and, you know, with AI and so on, the energy needs and the resiliency that they will need on energy, it's a perfect fit for what we have been doing. Basically, for the federal government on every base right now, here's the resiliency. That's why they have better storage, combined heat and power, solar, and then, of course, the microgrids associated with them. So, each data center basically has the same needs.

George P. Sakellaris: Execute on that.

George P. Sakellaris: Okay.

George P. Sakellaris: Yes.

George P. Sakellaris: As you properly everybody knowledge.

George P. Sakellaris: It's actually can bucket.

George P. Sakellaris: With AI and so on the energy needs and the resiliency of that they will need or the energy. It's a perfect fit for what we have been doing basically for the federal government on every base right now is the resiliency.

George P. Sakellaris: Battery storage combined heat and power.

George P. Sakellaris: Sure.

George P. Sakellaris: And of course, the micro base associated with it so each data center basically has the same needs and I think.

George P. Sakellaris: And I think you hit the nail on the head. It's a market that we want to focus on and expand further than what we have been doing so far. I would just add back to the comments that we made about being selective in our business development.

George P. Sakellaris: You hit the nail on the head is at market as we want to.

George P. Sakellaris: Focus and expand further than what we have been doing so far.

Unknown Executive: I would just add to the comments that we made about being selective in our business development. You know, we've got a real stronghold in the federal government market when it comes to winning those enhanced use leases. We're going to take advantage of that as our way to really enter this market. We're not going to go shotgun blast and try to capture every data center in the world. We're going to be smart about where we go and pick the profitable projects and projects where our expertise is strong.

Unknown Executive: Add back to the comments that we made about being selective in our business development. We've got a real strong hold in the federal government market. When it comes to winning those enhanced use leases, we're going to take advantage of that as our way to really enter this market. We're not going to go shotgun blast try to capture every data center in the world.

Unknown Executive: Going to be smart about where we're going and pick the profitable projects.

Unknown Executive: And projects, where our expertise is as strong and in addition to that ensuring that we've got a real key.

Unknown Executive: In addition to that, ensuring that we've got a real comfortable view of our counterparty, the developer, their creditworthiness, who's on the other side of these contracts. Because we're cognizant of the fact that there are a lot of players in this space and a lot of new ones in this space, and we're being smart and selective about it. A great, great growth opportunity.

Unknown Executive: Comfortable view of.

Unknown Executive: Of our counterparty the developer kept their creditworthiness.

Unknown Executive: He was on the other side of these contracts because.

Unknown Executive: We are.

Unknown Executive: We're cognizant of the fact that there are lot of players in this space and a lot of new ones in this space and we're being we're being smart and selective about the great great growth opportunity.

Speaker Change: Right, Okay, yes that all makes sense.

Speaker Change: And then just Ken Janke Lee to that do you have any interest in nuclear power.

Unknown Executive: We haven't we haven't moved into any of the implementation phase of that. I think within the same group that kind of looks after the federal government and some of our large projects, we do occasionally get involved with NREL and others on certain pilot projects and things, and I think we've got our eyes on a few ideas, but nothing major to talk about yet.

Unknown Executive: Uh huh.

Unknown Executive: We haven't we haven't moved into any of the implementation phase of that I think within the same group that kind of looks after the federal government and some of our large projects.

Unknown Executive: We do occasionally get involved with Enbrel and others.

Unknown Executive: Pilot projects and things that I think we've got our eyes on a few a few ideas but.

Unknown Executive: Nothing nothing major to talk about yet not yet.

Unknown Attendee: Got it. Got it. Thanks so much. I'll jump back.

Speaker Change: Got it got it thanks, so much I'll jump back in queue.

Speaker Change: Thank you.

Operator: Thank you one more for our next question. Our next question comes from the line of Pavel Molchanov, of Raymond James Associates. Your line is now open.

Speaker Change: Thank you one moment for our next question.

Pavel S. Molchanov: Our next question comes from the line of Pavel Mark enough.

Pavel S. Molchanov: Raymond James Associates. Your line is now open.

Pavel S. Molchanov: Thanks for taking the question. It's been a year since UN acquired ENERCOS in Italy. Can we get an update on the... European Opportunity and how that business is tracking?

Pavel S. Molchanov: Thanks for taking the question it's been a year since you.

Pavel S. Molchanov: Acquired <unk> in Italy can.

Pavel S. Molchanov: Can we get an update on the European opportunity and how that business is tracking.

George P. Sakellaris: Actually, they are doing excellent, much better than we get forecasted. It's a great group, and I think with our help, it's growing, and I don't know if you know, but we have teamed up with a great, great contractor for solar projects in Greece, and it was very small, and right now, I think we have over one gigawatt of potential solar projects we're going to be building together. The market is very good, and don't be surprised that we might have some more tech acquisitions in Europe.

Pavel S. Molchanov: Actually theyre doing excellent and much better than we get forecast it.

George P. Sakellaris: It's a great group and I think with our help is growing at and I don't know if you know, but we have teamed up with the great great contractor of the solar.

George P. Sakellaris: Projects in Greece, and it was very small.

George P. Sakellaris: Now I think we are.

George P. Sakellaris: One gigawatt potential list of.

George P. Sakellaris: Solid project is going to be building together the market is a very good don't be surprised that we might have some more of that gain the acquisitions in Europe.

George P. Sakellaris: The market over there is exploding. On the other hand, you know, we've got to be careful how we go about it, but the Anarchist Acquisition has worked out excellently for us. Actually, the board of directors, one of the people that probably gave me the hardest time to buy that company, said he loves Italy now.

George P. Sakellaris: The market over there is exploding.

George P. Sakellaris: But on the other hand, we are going to be.

George P. Sakellaris: Yes, if we look out we go about it.

George P. Sakellaris: But.

George P. Sakellaris: The Anadarko acquisition worked out excellent for us.

George P. Sakellaris: Excellent.

George P. Sakellaris: We'll go directly to one of the people that properly gave me a call at this time to buy that company. He said he loves Italy now.

Unknown Executive: Yeah, Pavel, I think the joint venture methodology with Solar EPC is really, really good leverage for us. We're able to leverage off that organization, not just in Greece, the company is based in Greece, but we're also building projects in Italy and the UK through that joint venture. And that's a very good way for us to add incremental business and help them grow and, in fact, help Intercoast grow because we're building projects in their home turf. So it's a pretty exciting jurisdiction, to be honest. I think the UK is continuing to grow and continuing to show strength, so we'll be continuing to invest our time there.

George P. Sakellaris: Yes.

Unknown Executive: I think the joint venture methodology with the solar EPC is really really good leverage for us we're able to leverage off that organization not just increases that the company has faced increase but we're also building projects in Italy, and the UK through that joint venture and Thats, a thats a very good way for us to add incremental business.

Unknown Executive: Help them grow and in fact help interco's growth because we are building projects and they are in their home turf. So it's a pretty exciting pretty exciting jurisdiction to be honest I think the UK is continuing to grow and continuing to show strength. So.

Unknown Executive: It will be it will be continuing to invest our time there.

Unknown Executive: Let me follow up by asking about the situation with Section 45 Z. I know a lot of R&D developers have been surprised that the Treasury has not unveiled the carbon intensity kind of calculation yet. What is your understanding of when that's going to come out? Well...

Pavel: Okay, Let me follow up by asking about.

Speaker Change: I see.

Unknown Executive: <unk> with 645 Z I know a lot of R&D developers have been surprised that the treasury has not.

Unknown Executive: Unveiled the carbon intensity kind of calculation yet.

Unknown Executive: What is your understanding of when.

Speaker Change: That's going to come out.

Unknown Executive: Well, look, given the state of play in Washington currently, I think that the, Regardless of what you might hear from Washington, I think they're being very careful about what they decide to put out in terms of guidance, because you're really inching up to that Congressional Review Act date, and I think that we've got to be quite careful about trying to estimate timing. So I think that it's because these projects are critically important to the administration. I don't think that means the guidance isn't coming.

Unknown Executive: Well.

Unknown Executive: Look given the stay.

Unknown Executive: Data play in Washington, currently I think that the.

Unknown Executive: Irrespective of what you might hear from Washington, I think they are being very careful about what they decided to put out in terms of guidance because youre really inching up to that congressional review date, and I think that we've got to be.

Unknown Executive: B be quite careful about.

Unknown Executive: Try to estimate timing, so I think that.

Unknown Executive: It's because these projects are critically important to the administration I don't think that means the guidance isn't coming the guidance thats going to come however.

Unknown Executive: The guidance is going to come. However, given where we are with the CRA, my suspicion is you're getting second, third, and fourth looks at the regulations before they go out. They're going to be very thoughtful about them because I think the last thing they want to do is have the same thing happen with this as what happened with renewable natural gas when they had to kind of turn around and reverse course on one of the provisions with the cleaning and conditioning equipment, if you remember. So that's kind of my thoughts. Thanks very much.

Unknown Executive: However, given where we are with the CRA My suspicion is you're getting second and third and fourth looks at the rigs before they go out they are going to be very thoughtful about them because.

Unknown Executive: I think the last thing they want to do is have the same thing happened with this is what happened with the renewable natural gas when they had to.

Unknown Executive: And a turnaround in reverse course, I'm one of the provisions with the cleaning conditioning equipment. If you remember so that's kind of my thoughts.

Unknown Executive: Thanks very much.

Speaker Change: Thank you.

Operator: Thank you, Wong Moon, for your next question. Our next question comes from the line of Ben Kallo of Baird. Your line is now open. Hey guys.

Speaker Change: Thank you Juan for next question.

Benjamin Joseph Kallo: Our next question comes from the line of Ben <unk> of Baird. Your line is now open.

Benjamin Joseph Kallo: Hey guys, congrats on the quarter. Thank you all. But just the approach to, um... The RNG credits, the RINs, I know in the past you guys maybe hedged some or sold forward some, and just your approach now that I have a follow-up.

Benjamin Joseph Kallo: Hey, guys congrats on the quarter.

Speaker Change: Thank you.

Benjamin Joseph Kallo: Quickly.

Benjamin Joseph Kallo: But just the approach too.

Benjamin Joseph Kallo: <unk>.

Benjamin Joseph Kallo: The R&D credits.

Benjamin Joseph Kallo: I know in the past you guys.

Benjamin Joseph Kallo: Silver sold forward.

Benjamin Joseph Kallo: Just your approach though.

Benjamin Joseph Kallo: Before.

Unknown Executive: So with respect to the RIN side of things, you know, we've been pretty happy with where those have been trading at. As you know, that's an illiquid kind of over the counter market, but we've been relatively steady with going into the market and hedging a lot of our rent exposure for 2024. We're at this point; we're over 70% hedged for 2024. So I think we're feeling good about where those prices have been.

Benjamin Joseph Kallo: So with respect to the RIN side of things.

Unknown Executive: We've been.

Unknown Executive: Pretty happy with where those have been trading in the levels as you know thats, an illiquid kind of over the counter market, but we've been relatively steady with going into the market and hedging a lot of our part of our RIN exposure for 2024.

Unknown Executive: We're at this point, we're over 70% hedged for 2024, so I think we're feeling good about where those prices have been.

Unknown Executive: We obviously always try to keep a little bit in our in our back pocket for production.

Unknown Executive: You know, we obviously always try to keep a little bit in our back pocket for production. But nevertheless, we're kind of continuing to watch that market. I think, you know, we feel good about the ITC on renewable natural gas. We're still waiting for the guidance to come out to really affirm where that's going to come through for 2024 projects that we're placing in service. And, you know, the truth of the matter is, we've been underwriting those projects without it. And we're continuing to underwrite our projects for

Unknown Executive: But nevertheless, we're kind of continuing to watch that market I think.

Unknown Executive: We.

Unknown Executive: So we feel good about that the ITC.

Unknown Executive: On renewable natural gas, we're still waiting for the guidance to come out to really affirm where thats going to come through for 2024 projects that we're placing in service.

Unknown Executive: The truth of the matter is we've been underwriting those projects without it and we're continuing to underwrite our projects.

Benjamin Joseph Kallo: I don't want to put the cart before the horse, but just as we think about kind of 25, 26, and what you've established with the recurring revenue, any kind of color on how you think. Because it was kind of lumpy in 22 and 23, but what we should think about, you know, going forward.

Unknown Executive: Yes.

Benjamin Joseph Kallo: <unk> put the cart before the horse, but just because we think about.

Benjamin Joseph Kallo: <unk> 2006.

Benjamin Joseph Kallo: Sure.

Benjamin Joseph Kallo: What you've established with.

Benjamin Joseph Kallo: <unk>.

Benjamin Joseph Kallo: The recurring revenue.

Benjamin Joseph Kallo: Any kind of.

Benjamin Joseph Kallo: <unk> how are you.

Benjamin Joseph Kallo: Rick.

Benjamin Joseph Kallo: Because it was kind of lumpy in 'twenty two 'twenty three.

Benjamin Joseph Kallo: We should think about going forward.

Unknown Executive: Well, we continue to invest in the asset portfolio, right? I mean, there's not a fundamental change in the way we're thinking about the RNG offtake, with the exception of the fact that we're seeing prices in the non-transportation market go up. So we're starting to look really closely; we've kind of come close to hitting a couple of those contracts that might be longer term, certainly not related to the transportation market.

Speaker Change: Well, we continue to invest in any asset portfolio, Ryan I mean, theres not a fundamental change in the way we're thinking about.

Unknown Executive: The R&D uptick with the exception of the fact that we're seeing prices in the non transportation market go up. So we're starting to look really closely you would kind of come close to hitting a couple of those contracts that might be longer term.

Unknown Executive: Not not related to the transportation market and I think that we probably will see that increase as we bring more of these projects online over the next couple of years the rest of the business.

Unknown Executive: And I think that we probably will see that increase as we bring more of these projects online for the next couple of years. The rest of the business, you know, we're You know, we look at the growth rates for 2024, over 23 and beyond, I think that we're still feeling like it's steady growth. You've got the CAGR chart in our supplemental slides, 10% revenue, you know, 20% on EBITDA. And we think that that's likely to be the direction that

Unknown Executive: There were.

Unknown Executive: When we look at the growth rates for 2024 over 'twenty, three and beyond that I think that we're still feeling like its a steady growth.

Unknown Executive: We've got the CAGR chart in our supplemental slides, 10% revenue.

Unknown Executive: 20% with the on the EBITDA and we think that Thats.

Unknown Executive: That's likely to be the direction that we go.

Benjamin Joseph Kallo: Good stuff. And just going back to the data center question, the technologies that you guys would use, are they batteries or fuel cells? I would say we're going to continue to take an agnostic approach. Of course, we're going to be focusing on carbon-reducing technologies, right? So renewable generation, battery storage, the microgrid, et cetera, that's going to be the key focus. And some fuel cells here and there. Yeah, fuel cells are not off the table, right? And backup power is important. So, we're going to have to think about what the customer is looking for, to be honest.

Unknown Executive: Okay.

Benjamin Joseph Kallo: Going back to that sort of a question.

Benjamin Joseph Kallo: Technology.

Benjamin Joseph Kallo: Guys.

Benjamin Joseph Kallo: I would use.

Benjamin Joseph Kallo: Okay.

Benjamin Joseph Kallo: <unk> or <unk>.

Benjamin Joseph Kallo: Fuel cells.

Speaker Change: Or what are you.

Benjamin Joseph Kallo: I would say I would say, we're going to continue to take an agnostic approach.

Benjamin Joseph Kallo: Of course, we're going to be focusing on the carbon reducing technologies right. So renewable generation.

Benjamin Joseph Kallo: Battery storage micro grid et cetera, that's going to be the key.

Benjamin Joseph Kallo: Fuel cells.

Benjamin Joseph Kallo: Fuel cells are not off the table right.

Benjamin Joseph Kallo: Backup power is important so we're going to have to think about what the customer is looking for to be honest.

Benjamin Joseph Kallo: All right. Thank you, guys. I appreciate it.

Speaker Change: Alright, Thank you guys I appreciate it.

Speaker Change: Thanks, Thank you.

Operator: Thank you. Please allow one moment for our next question.

Speaker Change: Thank you volume for next question.

Luke Tokens: Our next question comes from the line of Luke tokens of Piper Sandler Your line is now open.

Speaker Change: Hey, Thanks for taking my question most of our mass so just one for me.

Speaker Change: It looks like you brought on about 10 megawatts of projects in the quarter can you talk about your confidence on the 200 megawatts for the year.

Unknown Executive: I did provide a little bit of a laundry list in the comments, you know, we've got Kapono, that's a big one. We've got all these United Power Battery Assets. Those are, you know, those are transcripts provided by Transcription Outsourcing, LLC.

Unknown Executive: Very closely.

Unknown Executive: Yes.

Unknown Executive: I did provide a little bit of a laundry list in the comments.

Unknown Executive: <unk>, that's a big one we've got all of these United Power battery assets those are.

Unknown Executive: Those are those are looking.

Unknown Executive: Looking looking very good as far as completion here.

Unknown Executive: In our country in the coming weeks and months.

Unknown Executive: Then the other RMG plants kind of by the time you get.

Unknown Executive: Through all of that you are pretty much there and then.

Unknown Executive: In addition to that of course, we've got our typical granular kind of solar assets scattered around the country that we're doing for customers. So we feel pretty good about that.

Operator: Thank you one moment for our next question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone. Our next question comes from the line of Craig Shere of Tweed Brothers. Your line is now open.

Unknown Executive: Yeah.

Unknown Executive: Thank you for your next questions.

Craig Kenneth Shere: Next question.

Craig Kenneth Shere: Again as a reminder to ask a question you will need to press star one on your telephone.

Operator: Our next question comes from the line of Craig Shere of Tuohy Brothers. Your line is now open.

Craig Kenneth Shere: Hi, good afternoon, and thanks for taking the question. Ben's question: did I hear correctly that you're looking at the discretionary institutional offtake market for R&G? And if that's correct, are you looking at upwards of 10-year terms and maybe in the ballpark of $20 an end? Could you provide any color if that's the case?

Craig Kenneth Shere: Hi, good afternoon, and thanks for taking questions.

Speaker Change: Yes, Greg.

Craig Kenneth Shere: Ben's question did I hear correctly the your.

Craig Kenneth Shere: Looking at the discretionary institutional offtake market for RMG, and if thats correct or Youre looking at upwards of 10 year terms and may be in the ballpark of $20 and then could you provide any color if that's the case.

Unknown Executive: So probably because all of the negotiations are private, we can't really give you any color on where the prices are ending up. But I would say that there was a long time when levels like you described were, you know, things that we, with the way that we were looking at our returns, what we were getting from using the 50-50 strategy, weren't horribly attractive. I think that we've seen the rates come up that a lot of these parties, the voluntary parties, are looking to pay.

Craig Kenneth Shere: Yes.

Speaker Change: So probably because all of the negotiations are private we can't I can't really give you any color on where the prices are ending up.

Unknown Executive: I would say that there was a long time when levels like you described were.

Unknown Executive: Saying that with the way that we're looking at our returns what we're getting from using the 50 50 strategy. Those werent horribly attractive I think that we've seen the rates come up come up that a lot of these parties. The voluntary parties are looking to pay.

Unknown Executive: And there are some that are really still in the five-year, but non-transportation, there's a number that are in the 10 or even 20-year range. So there's, I think that the market's still trying to find itself, and we're trying to find it. And as long as we feel comfortable with the credit of the counterparty and the actual risks in the contract, I wouldn't be surprised if we go ahead and hit something, because the prices are definitely looking better.

Unknown Executive: And there are some that are really still in the five year, but non transportation. There is a number that are in the 10 or even 20 year range. So there is I think that market is still trying to find itself and we're trying to find it and as long as we feel comfortable with the credit of the counterparty and the nature and the actual risks in the con.

Unknown Executive: <unk>.

Unknown Executive: I wouldn't be surprised if we go ahead and hit hit something.

Unknown Executive: Does the prices or prices are definitely looking better.

Unknown Executive: Great, that's very helpful. And, uh, I, you know, the awarded project backlog was kind of flattish sequentially, but, but, as you mentioned, the actual contracted backlog, you know, rose to a proportion that's, you know, firm. So going forward, given your focus, should we anticipate maybe a focus on both quality and margin and converting the contracts? Should we anticipate maybe a slower rate of growth but a steady to improving conversion rate?

Speaker Change: Great that's very helpful.

Unknown Executive: And.

Unknown Executive: The awarded project backlog was kind of flattish sequentially, but as you mentioned.

Unknown Executive: The actual.

Unknown Executive: Contracted backlog rose the proportion.

Unknown Executive: Firm.

Unknown Executive: So going forward given your focus should should we anticipate maybe.

Unknown Executive: Our focus on both quality and margin and converting the contracts should we anticipate maybe a slower awarded growth, but steady to improving conversion rates.

Unknown Executive: I wouldn't necessarily say that one of the things that drives those differences is probably a little bit circumstantial and potentially related to larger projects that might be awarded and contracted in the quarter. You know, inter-corridor, some of the design-build stuff that kind of goes through the design phase more quickly, so that's kind of how I would think about it.

Speaker Change: I wouldn't say necessarily I would say that one of the things that drives us.

Unknown Executive: Those differences are probably a little bit circumstantial and potentially related to larger projects that might be awarded and contracted in the quarter.

Unknown Executive: Intra quarter some of the design build stuff.

Unknown Executive: Kind of goes through the design phase more quickly. So that's kind of how I would think about it I wouldn't necessarily.

Unknown Executive: View that as a particular trend.

Unknown Executive: I wouldn't necessarily view that as a particular trend. I think, again, conversion is important, right? Yeah. Conversion is important. The pace of conversion is very important. But as far as the long-term kind of view of the company, the way I look at it, it's total backlog. And don't forget.

Unknown Executive: I think again we are.

Unknown Executive: Conversion is important conversion is important the pace of conversion is very important but as far as the long term kind of view of the company the way I look at it its total total backlog correct.

Unknown Executive: And don't forget, there is some luck in this. The one that we can control more is getting the awarded to the executed contract. That depends on the customer, of course, and as well as the awards. Many times it is lumpy, and don't be surprised that we see that picking up later on during the year, primarily the third quarter, second, and third quarter.

Unknown Executive: And don't forget there is some lumpiness.

Unknown Executive: The one that we can control more as getting the awarded to the executed contracts.

Unknown Executive: It depends on the customer of course, and as well as US The awards many times it is lumpy.

Unknown Executive: Don't be surprised if you see that picking up later on the year to date.

Unknown Executive: Primarily third quarter.

Unknown Executive: Uh huh.

Unknown Executive: Yeah.

Speaker Change: Great. Thank you.

Operator: Thank you. This concludes the question and answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thank you. This concludes our question and answer session. Thank you for your participation in todays conference. This does conclude the program you may now disconnect.

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