Q2 2024 Ameresco Inc Earnings Call

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Operator: Good afternoon, everyone. We appreciate you joining us on today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; Doran Hole, Executive Vice President and Chief Financial Officer; Nicole Bongarino, Executive Vice President and General Manager, Federal and Utility Solutions; Mike Backus, Executive Vice President and Chief President, Renewable Natural Gas; and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks.

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.

Doren Hull, Executive Vice President and Chief Financial Officer Nicole Bulgarino, Executive Vice President and General Manager, Federal and Utility Solutions

Speaker Change: Mike Backus, Executive Vice President, Renewable Natural Gas, and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks.

Operator: Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainty. Please refer to today's earnings materials, the Safe Harbor language on slide 2 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

Speaker Change: Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties.

Speaker Change: Please refer to today's earnings materials, the Safe Harbor language on slide 2 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.

Speaker Change: In addition, we use several non-GAAP measures when presenting our financial results.

Operator: We have included the reconciliations to these measures in our supplemental information. I will now turn the call over to George.

Speaker Change: We have included the reconciliations to these measures in our supplemental information.

George Sakellaris: Thank you, Leila, and good afternoon, everyone. Before I get started on the Q2 results, I would like to address the statement captured in our earnings release. Doran Hole has resigned as Chief Financial Officer to pursue other opportunities.

Speaker Change: I will now turn the call over to George. George? Thank you, Leila, and good afternoon, everyone. Before I get started on the Q2 results, I would like to address the statement captured in our earnings release.

George Sakellaris: Doran Hole has resigned as Chief Financial Officer to pursue other opportunities. We greatly appreciate Doran's contributions over the last five years and wish him the best in his future endeavors.

George Sakellaris: We greatly appreciate Dora's contributions over the last five years and wish him the best in his future endeavors. Doran will continue to serve as Chief Financial Officer until August 30, at which time Mark Chiplock will be promoted to Chief Financial Officer. Mark has been with Ameresco for over 10 years, and he has served in multiple roles with increasing responsibility. I am thrilled to have Mark step into this role as a seasoned Ameresco leader.

Speaker Change: Doran will continue to serve as Chief Financial Officer until August 30, at which time Mark Chiplock could be promoted to the Chief Financial Officer. Mark has been with Ameresco for over 10 years.

Speaker Change: and has served in multiple roles with increasing responsibility. I am thrilled to have Mark step into this role as a seasoned Ameresco leader.

George Sakellaris: In addition, Josh Baribeau will assume an expanded role as a senior vice president of finance. I believe our deep bench of seasoned executives will skillfully navigate this transition. And now, on to the results. Our momentum continues into the second quarter as the Ameresco team again delivers strong revenue growth across all four of our business lines, led by an impressive 45% growth in project revenue. At the same time, we continue to build on our excellent long-term visibility, increasing total backlog by 36% year over year to a record $4.4 billion. We will also bring a record 155 megawatts of energy assets into operation.

Speaker Change: In addition, Josh Baribeau will assume an expanded role as a Senior Vice President of Finance. I believe our deep bench of seasoned executives will skillfully navigate this transition.

Speaker Change: And now on to the results. Our momentum continued into the second quarter as the Ameresco team again delivered strong revenue growth across all four of our business lines.

Speaker Change: led by an impressive 45% growth in projects revenue.

Speaker Change: At the same time, we continue to build on our excellent long-term visibility, increasing total backlog.

Speaker Change: By 36% year-over-year to a record $4.4 billion, we are also bringing a record 155 megawatts of energy assets into operation, and we still have 635 megawatts of assets in development.

George Sakellaris: And we still have 635 megawatts of assets in development, demand for our renewables, energy efficiency, and resiliency continues to be very strong, as our customers see it. Clean technology solutions that yield both cost savings and increased reliability.

Speaker Change: Demand of our renewables, energy efficiency, and resiliency offerings continues to be very strong as our customers see. Clean technology solutions that yield more, cost savings, and increase reliability.

George Sakellaris: Ameresco's technology-agnostic platform and depth of engineering expertise allows us to stay at the forefront of the energy transition. While our market environment continues to be very strong, we do understand that there is a lot of uncertainty around the upcoming elections. Ameresco was established almost 25 years ago and has not only grown but thrived under a variety of administrations.

Speaker Change: Ameresco's technology agnostic platform and depth of engineering expertise allows us to stay at the forefront of the energy transition.

Speaker Change: Well, our market environment continues to be very strong. We do understand that there is a lot of uncertainty around the upcoming elections.

Mariasco: Ameresco was established almost 25 years ago and has not only grown but thrived under a variety of administrations.

George Sakellaris: The foundation of our business is helping customers, including the government, achieve cost savings and improve their energy infrastructure in a capital efficient manner. I have asked two key members of our executive team, Nicole Valgarino and Mike Backus, to join us to discuss their business.

Mariasco: The foundation of our business is helping customers, including the government, achieve cost savings and improve their energy infrastructure in a capital-efficient manner.

Mariasco: I have asked two key members of our executive team, Nicole Bulgarino and Mike Pacas, to join us to discuss their business. Nicole?

Nicole Bulgarino: Thank you, George, and good afternoon, everyone. As George just mentioned, we are excited about the outlook for both our federal and utility businesses, as we expect continued demand for resilient clean energy projects for many years to come. Over the last few decades, while we have seen policy and messaging shift from one administration to another, the key drivers for our business have remained consistent. Our government agency and military customers continue to be focused on mission-critical projects that deliver secure and resilient power to support their bases, ports, facilities, office buildings, and military housing communities.

Nicole Bulgarino: Thank you, George, and good afternoon everyone. As George just mentioned, we are excited for the outlook and good of our federal and utility businesses as we expect continued demand for resilient clean energy projects for many years to come.

Mike Backus: Over the last two decades, while we have seen policy and messaging shift from one administration to another, the key drivers for our business have remained consistent.

Mike Backus: Our government agency and military customers continue to be focused on mission-critical projects that deliver secure and resilient power to support their bases, ports, facilities, office buildings, and military housing communities.

Nicole Bulgarino: We are uniquely positioned to help our customers achieve these objectives by reducing load through the latest energy efficiency upgrades and by deploying distributed generation solutions. Across multiple administrations, we have delivered large, highly successful, comprehensive energy solutions for the Department of Defense and other government agencies. We have a very strong pipeline of additional projects and assets, integrating domestically sourced solutions using third-party financing. For our utility business, our customers are focused on providing cost-effective, reliable electricity while also transitioning to clean energy.

Mike Backus: We are uniquely positioned to help our customers achieve these objectives by reducing load through the latest energy efficiency upgrades and by deploying distributed generation solutions.

Mike Backus: Across multiple administrations, we have delivered large, highly successful, comprehensive energy solutions for the Department of Defense and other government agencies. We have a very strong pipeline of additional projects and assets, integrating domestically sourced solutions using third-party financing.

Speaker Change: For our utility business, our customers are focused on providing cost-effective, reliable electricity, while also transitioning to clean energy.

Nicole Bulgarino: In addition, they need to increase capacity to address the load growth driven by electrification and data center development. More recently, utility customers have been utilizing battery energy storage solutions for resiliency and grid stability, providing critical power during peak demand periods and allowing the grid to better handle an increased amount of intermittent renewable energy.

Speaker Change: In addition, they need to increase capacity to address the load growth driven by electrification and data center development.

Speaker Change: More recently, utility customers have been utilizing battery energy storage solutions for resiliency and grid stability, providing critical power during peak demand periods, and allowing the grid to better handle an increased amount of intermittent renewable energy.

Mike Backus: We are already experiencing rapid growth in our utility business, as seen by the meaningful increase in the number of significant announcements made in just the last few years. The battery storage systems we recently celebrated with the United Power Team in Colorado last week are a perfect example of this work, as is the large Capeno solar and battery storage system we brought online in June, which is a great example of an integrated solution serving both our federal and our utility customers at the same time.

Speaker Change: We are already experiencing rapid growth of our utility business, as seen by the meaningful increase in the number of significant announcements made in just the last few years. The battery storage systems we recently celebrated with the United Power Team in Colorado last week are a perfect example of this work.

Speaker Change: As is the large Capeno solar and battery storage system we brought online in June , which is a great example of an integrated solution serving both our federal and our utility customers at the same time.

Mike Backus: As you can see, our strong reputation for technology expertise and execution places us in a prime position to capitalize on the expanding opportunities in both the federal and utility markets. Our projects save money, enhance efficiency, provide clean, resilient, reliable power, while creating jobs and supporting local and national policies. This great value proposition is in high demand, regardless of changes in Washington. I will now turn the call over to Mike.

Speaker Change: As you can see, our strong reputation for technology expertise and execution places us in a prime position to capitalize on the expanding opportunities in both the federal and utility markets.

Speaker Change: Our projects save money, enhance efficiency, provide clean, resilient, reliable power while creating jobs and supporting local and national policies. This great value proposition is in high demand regardless of changes in Washington. I will now turn the call over to Mike. Mike? Mike?

Mike Backus: Thank you, Nicole. Ameresco has been developing biofuel projects since our founding, and I can honestly say that I have never been as excited as I am now about their prospects. For a number of years, R&G's primary market has been the transportation sector, leveraging the RFS program. But as global markets have continued to focus on sustainability, primarily on the electric side of the carbon footprint equation, we are seeing many industries turn their attention to the thermal side.

Mike Backus: Thank you, Nicole. Ameresco has been developing biofuel projects since our founding, and I can honestly say that I have never been as excited as I am now about its prospects.

Speaker Change: For a number of years, R&G's primary market has been the transportation sector, leveraging the RFS program.

Speaker Change: But as global markets have continued to focus on sustainability, primarily in the electric side of the carbon footprint equation, we are seeing many industries turn their attention to the thermal side.

Mike Backus: This is a market with huge potential, with natural gas utility consumption over 440 times the volumes used in the transportation sector. And for Ameresco, it is a perfect opportunity as it involves longer-term profitable off-take contracts while reducing our exposure to rent. Gas utility RFPs for R&G supply agreements have picked up noticeably as these parties seek to meet their carbon reduction goals. In the end, RNG is the only immediately available drop-in green substitute for natural gas, requiring no changes to the utility's existing infrastructure.

Speaker Change: This is a market with huge potential, with natural gas utility consumption over 440 times the volumes used in the transportation sector.

Amoresco: And for Ameresco, it is a perfect opportunity, as it involves longer-term profitable off-take contracts while reducing our exposure to rents.

Amoresco: Gas utility RFPs for R&G supply agreements have picked up noticeably, as these parties seek to meet their carbon reduction goals.

Amoresco: In the end, R&G is the only immediately available drop-in green substitute for natural gas, requiring no changes to the utility's existing infrastructure.

Mike Backus: This demand is not only driven by the utilities themselves but also by the states and their regulatory bodies as part of programs to reduce overall carbon impact. In light of this, we are very excited to announce that Ameresco has been chosen by a large California-based natural gas utility to supply R&G to help meet its state-mandated locally-sourced renewable content. If final approval is granted by the California Public Utility Commission, this would represent a meaningful portion of our R&G volume.

Amoresco: This demand is not only driven by the utilities themselves, but also by the states and their regulatory bodies as part of programs to reduce overall carbon impact.

Mike Backus: In doing so, this fixed price contract would also help to balance our portfolio to reduce long-term exposure to RIN volatility while benefiting from a five-year profitable revenue stream. And this potential contract represents only one of many opportunities across the country to sell our R&G via longer-term offtake agreements to non-transportation customers. In summary, Ameresco's biofuels business is uniquely positioned to capitalize on this expansion of the addressable market with the entrance of very large industries such as natural gas utilities. Importantly, this asset class also continues to meet our return hurdles without reliance on any IRA-related investment tax credit.

Amoresco: In light of this, we are very excited to announce that Ameresco has been chosen by a large California-based natural gas utility to supply R&G to help meet its state-mandated locally-sourced renewable content.

Amoresco: If final approval is granted by the California Public Utility Commission, this would represent a meaningful portion of our R&G volume.

Amoresco: In doing so, this fixed-price contract would also help to balance our portfolio to reduce long-term exposure to RIN volatility while benefiting from a five-year profitable revenue stream.

Speaker Change: And this potential contract represents only one of many opportunities across the country to sell our R&G via longer-term off-take agreements to non-transportation customers.

Speaker Change: In summary, Ameresco's biofuels business is uniquely positioned to capitalize on this expansion of the addressable market with the entrance of very large industries such as natural gas utilities.

Speaker Change: Importantly, this asset class also continues to meet our return hurdles without reliance on any IRA-related investment tax credits.

Doran Hole: We believe our R&G assets will continue to provide significant, stable, profitable growth for years to come. I will now turn the call over to Doran to comment on our financial performance and outlook. Thanks, Mike, and good afternoon, everyone.

Speaker Change: We believe our R&G assets will continue to provide significant, stable, profitable growth for years to come. I will now turn the call over to Doran to comment on our financial performance and outlook.

Doran Hole: Thanks, Mike, and good afternoon, everyone.

Doran Hole: I just want to say a huge thanks to George and the entire Ameresco team for what has been an amazing experience I've had here over the past five years. It is impossible to put into words how much I've learned from this management team and this board. I want to congratulate Mark and Josh on their new roles. It's been a real pleasure working with both of them.

Doran Hole: Before I start, I just want to say a huge thanks to George and the entire Ameresco team for what's been an amazing experience I've had here over the past five years. It is impossible to put into words how much I've learned from this management team and this board.

Speaker Change: I want to congratulate Mark and Josh on their new roles. It's been a real pleasure working with both of them. I feel very, very confident in their successful futures here at Ameresco. And I have to say the company is in excellent hands.

Doran Hole: I feel very, very confident in their successful futures here at Ameresco. And I have to say, the company is in excellent hands. So with that, now, let's jump into the numbers. 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 revenues in the quarter grew 34% to $438 million, with each of our four business lines experiencing revenue growth.

Doran Hole: Our project's business revenue grew 45%, reflecting our focus on execution and conversion of our backlog. Energy asset revenue grew 6.8%, largely due to the greater number of operating assets compared to last year, improved production, as well as higher RIN prices.

Speaker Change: So with that, now let's jump into the numbers. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today.

Speaker Change: Total revenues in the quarter grew 34% to $438 million with each of our four business lines experiencing revenue growth. Our project's business revenue grew 45%, reflecting our focus on execution and conversion of our backlog.

Speaker Change: Energy asset revenue grew 6.8%, largely due to the greater number of operating assets compared to last year, improved production, as well as higher RIN prices.

Doran Hole: We brought a record 155 megawatts of assets into operation in the second quarter and are well on our way to meeting our anticipated 200 megawatt target for the year. Our large and growing base of operating energy assets now stands at 661 megawatts, which should provide decades of profitable revenue to the company. Our O&M business had a very strong quarter with revenue growing 13.9% as we continue to win more long-term O&M business, while revenue for our other line of business grew 9.5% with strong performance from our consultants. Gross margin of approximately 15% dipped as we incurred additional costs of approximately $6.6 million related to our SCE projects, plus a mix of some other lower margin projects.

Speaker Change: We brought a record 155 megawatts of assets into operation in the second quarter and are well on our way to meeting our anticipated 200 megawatt target for the year.

Speaker Change: Our large and growing base of operating energy assets now stands at 661 megawatts, which should provide decades of profitable revenue to the company. Our O&M business had a very strong quarter with revenue growing 13.9% as we continue to win more long-term O&M business.

Speaker Change: while revenue for our other line of business grew 9.5% with strong performance from our consultant businesses.

Speaker Change: Gross margin of approximately 15% dipped as we incurred additional costs of approximately $6.6 million related to our SCE projects, plus a mix of some other lower margin projects.

Doran Hole: That said, our underlying gross margins, as well as the expected margins in our backlog, continue to match our historic ranges. In the second quarter, our revenue growth, as well as cost savings and operating leverage, drove adjusted EBITDA growth of 21% to $45.1 million. As George noted, our business development activity on both the project and asset side was very healthy during the course of the year. The company's total project backlog was approximately $4.4 billion, growing 36% year-on-year and 9% sequentially.

Speaker Change: That said, our underlying gross margins, as well as the expected margins in our backlog, continue to match our historic ranges.

Speaker Change: In the second quarter, our revenue growth as well as cost savings and operating leverage drove adjusted EBITDA growth of 21% to $45.1 million.

Speaker Change: As George noted, our business development activity on both the project and asset side was very healthy during quarter.

George Sakellaris: The company's total project backlog was approximately $4.4 billion, growing 36% year-on-year and 9% sequentially.

Doran Hole: This growth was led by our contracted backlog, which reached $1.6 billion and grew 50% year-on-year and 12% sequentially. Turning to our balance sheet and cash flows, we ended the quarter with approximately $150 million in cash and corporate debt of approximately $273 million.

George Sakellaris: This growth was led by our contracted backlog, which reached $1.6 billion and grew 50% year-on-year and 12% sequential.

George Sakellaris: Turning to our balance sheet and cash flows, we ended the quarter with approximately $150 million in cash and corporate debt of approximately $273 million.

Doran Hole: Our debt to EBITDA leverage ratio under our senior secured credit facility declined to 2.9 times and remains below the covenant level of 3.5 times. Additionally, our energy asset debt advance rate remained at a conservative 73 percent. Importantly, we believe our access to energy asset capital is excellent, with many financing options available, as demonstrated by us having secured approximately $170 million in new project financing commitments in the quarter. We also believe our energy assets remain highly attractive to many financing parties interested in teaming with Ameresco, given our proven capabilities.

Speaker Change: Our debt to EBITDA leverage ratio under our Senior Secured Credit Facility declined to 2.9 times and remains below the covenant level of 3.5 times.

Speaker Change: Our energy asset debt advance rate remained at a conservative 73 percent.

Speaker Change: Importantly, we believe our access to energy asset capital is excellent, with many financing options available, as demonstrated by us having secured approximately $170 million in new project financing commitments in the quarter.

Speaker Change: We also believe our energy assets remain highly attractive to many financing parties interested in teaming with Ameresco, given our proven capabilities.

Doran Hole: And on the corporate side, at the end of the quarter, we were pleased to have successfully raised $100 million in subordinated debt from Nuveen Energy Infrastructure Credit. Our cash flow continued to be strong, with positive adjusted cash flow from operations of approximately $154 million during the quarter.

Speaker Change: And on the corporate side, at the end of the quarter, we were pleased to have successfully raised $100 million in subordinated debt from Nuveen Energy Infrastructure Credit.

Speaker Change: Our cash flow continued to be strong with positive adjusted cash flow from operations of approximately $154 million during the quarter. Our 8 quarter rolling average, which best represents our implementation cycle, reached almost $45.6 million.

Doran Hole: Our eight-quarter rolling average, which best represents our implementation cycle, reached almost $45.6 million. In our supplemental slides, we highlight the increased momentum we have 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 SoCal ED, our performance testing has been approved, and we are working together on the final checklist for substantial completion for two of the three projects.

Speaker Change: In our supplemental slides, we highlight the increased momentum we have 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 projects.

Speaker Change: Speaking of SoCal ED, our performance testing has been approved and we are working together on the final checklist for substantial completion for two of the three projects.

Doran Hole: The third project, which was more significantly impacted by the 2023 rainfall, is expected to reach substantial completion in September of this year. Now, let me spend a few minutes on our new 2024 guide. We're increasing our revenue range based on solid financial performance for the first half of the year and our strong visibility for the remainder of the year. Our new gross margin range reflects the expected full-year impact of cost budget revisions on the SCE projects of approximately $10 million.

Speaker Change: The third project...

Speaker Change: which was more significantly impacted by the 2023 rainfall is expected to reach substantial completion in September of this year.

Speaker Change: Now let me spend a few minutes on our new 2024 guidance.

Speaker Change: We're increasing our revenue range based on the solid financial performance for the first half of the year and our strong visibility for the remainder of the year.

Speaker Change: Our new gross margin range reflects the expected full-year impact of the cost budget revisions on the SCE projects of approximately $10 million.

George Sakellaris: Our new guidance range would yield revenue and adjusted EBITDA growth of 27% and 35%, respectively, at the midpoint. You can find more details on the revised 2024 guidance in our press release. Now, I'd like to turn the call back over to George for closing comments. Thank you, Doran.

Speaker Change: Our new guidance range would yield revenue and adjusted EBITDA growth 27% and 35% respectively at the midpoints.

Speaker Change: You can find more details on the revised 2024 guidance in our press release.

Speaker Change: Now I'd like to turn the call back over to George for closing comments. Thank you, Doran. Ameresco thrives in an environment where customers seek clean energy solutions that result in cost savings and greater resiliency.

George Sakellaris: Ameresco thrives in an environment where customers seek clean energy solutions that result in cost savings and greater resiliency. We believe this environment and the demand for these solutions will continue regardless of the political environment in Washington. We are extremely well positioned with over $8.3 billion in future revenue visibility, and we are laser focused on executing our tremendous backlog and cash flow generation. In closing, I would like once again to thank our employees, customers, and stockholders for their continued support.

Speaker Change: We believe this environment and the demand for these solutions will continue, regardless of the political environment in Washington.

George Sakellaris: We are extremely well positioned with over 8.3 billion dollars in future revenue visibility and we are laser focused on executing our tremendous backlog and cash flow generation.

Speaker Change: In closing, I would like to once again thank our employees, customers, and staff holders for their continued support. Operator, we would like to open the call to questions now.

George Sakellaris: Operator, we would like to open the call to questions now. Thank you. To ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change: Thank you. To ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question, please.

Operator: We ask that you please limit yourself to one question and one follow-up. One moment for our first question, please. And our first question is going to come from the line of Noah Kaye with Oppenheimer & Co. Your line is open, please go ahead.

Speaker Change: And our first question is going to come from the line of Noah Kaye with Oppenheimer and Co. Your line is open, please go ahead.

Noah Kaye: Oh, good afternoon. Thanks for taking the questions. The first one is around cash generation. The trend line here, especially in the last few quarters, around improving cash generation, is really encouraging. Obviously, in the past, there were some conversion headwinds related to specific projects, but I was hoping you could maybe take us a little bit deeper into what you seem to be driving some of the improvement in cash generation and your visibility into that continuing potentially additional levers. You don't necessarily just have to talk about SoCal Edison, but the business more broadly. Yeah, I will let Mark get into this, but go ahead, Mark.

Noah Kay: Oh, good afternoon. Thanks for taking the questions.

Speaker Change: The first one is around cash generation. The trend line here, especially in the last few quarters, around the improving cash generation is really encouraging. Obviously, in the past, there were some conversion headwinds related to specific projects.

Speaker Change: I was hoping you could maybe take us a little bit deeper into what you seem to drive some of the improvement in cash generation and your visibility into that continuing potentially additional levers. You know, you're not necessarily just have to talk on SoCal Edison, but in the business more broadly.

Speaker Change: Yeah, I will let Mark get into this, but go ahead, Mark. Yeah, so I think what we're seeing, so if you look in the quarter, a lot of it's timing in Q2, but some of the things that I found to be encouraging that I think will help us to continue to show the improved cash flow is that, you know, a lot of billing milestones, we're front-end loading now in some of our contracts. So we're seeing those come in. You see it on the federal ESPC, the net proviability and receivable, and you also see it on our deferred revenue line.

Mark Chiplock: Yeah, so I think what we're seeing, so if you look at the quarter, a lot of it's timing in Q2, but some of the things that I found to be encouraging that I think will help us to continue to show the improved cash flow are that, you know, a lot of billing milestones are front-end loading now in some of our contracts. So we're seeing those come in. You see it on the federal ESPC when you net the liability and the receivable, and you also see it on our deferred revenue line.

Mark Chiplock: We also saw the proceeds from the conversion of, or the transfer of ITC in the quarter as well. So I think, you know, those are some of the, you know, I think the positives that are helping that trend. I think, you know, and keep in mind, you know, important stuff is always going to be wealthy, right, which is why we started to roll out this new metric.

Speaker Change: We also saw the proceeds from the conversion of, or the transfer of ITC in a quarter as well. So I think, you know, those are some of the, you know, I think the positives that are helping that trend. You know, I think, Noah, keep in mind, you know, quarterly stuff is always going to be wealthy, right? Which is why we started to roll out this.

George Sakellaris: But yeah, we're encouraged by some of the things that we're seeing and the changes we're making on the contractual side that are keeping those billing milestones a little bit more front-end loaded to keep the projects capsule-positive throughout. Yeah, and if I might add a little bit there, Noah, focusing on a particular issue, you see, generates pretty good results. By the way, sending out the bills on time, following up in the collection, and so on, and it just helped a lot because the account receivable was substantial. And then back then, when the interest rates weren't that high, we probably weren't paying as much attention as we should have been paying.

Speaker Change: This new metric, but yeah, we're encouraged by some of the things that we're seeing, and the changes we're making on the contractual side that are keeping those billing milestones a little bit more front-end loaded to keep the projects capsule-positive throughout.

Speaker Change: Yeah, any time I get a little bit better, you know...

Speaker Change: Focusing on a particular issue, you get, generates very good results, by the way, sending out the bills on time, following up in the collection, and so on, and it just helped a lot, because the accounts are serial.

Speaker Change: It was substantial, and then back then when the interest rates weren't that high, probably we weren't paying as much attention as we should be paying, and the fact that the last

Noah Kaye: And the fact that the last, I would say now, nine, ten months, we've been focusing a lot, we have seen all those metrics come down, and the cash generated is going up. And we will continue to focus on that. I still think there is room for improvement in that area. I would just like to understand what is the opportunity and the appetite of the company to continue to increase these fixed contracts as a portion of the R&G exposure?

Speaker Change: I would say now nine, ten months we've been focusing a lot. We have seen all those metrics come down and the cash generated and going up. And we will continue to focus on that. I still think there is room for improvement in that area.

Speaker Change: Thanks.

Speaker Change: Second question on the R&G business, you know, Mike called out

Speaker Change: The contract with the large California natural gas utility supply.

Speaker Change: RNG. And I think, you know, Mike, you did a good job of talking on these points of why that kind of predictability and visibility is helpful. So we'd just like to understand what is the opportunity and the appetite of the company to continue to increase

Noah Kaye: Is there any kind of target we should think about that would be optimal for a portfolio? And then how does this potentially contribute to more favorable financing for the development of the asset? A very, very good question.

Speaker Change: So these fixed contracts as a portion of the R&G exposure, is there any kind of target we should think about that would be optimal for a portfolio? And then how does this potentially contribute to more favorable financing on the development of the assets?

George Sakellaris: I will ask Mike to address it, and then I will come back at the end with what percentage we might get into long-term contracts. Go ahead, Mike. I think generally, we've said to the street in the past that we try to fix our pricing for 50% of the volume on our new projects. This is a unique contract vehicle in that it's leaving the transportation sector and going to a voluntary market. Obviously, great credit with the utility and the terms will, I think, without a doubt, help with the financing of these projects.

Speaker Change: Very, very good question. I will ask Mike to address it, and then I will come back at the end, what percentage we might get into long-term contracts. Go ahead, Mike. I think generally, we've said to the street in the past that we try to fix our pricing 50% of the volume on our new projects.

Speaker Change: This is a unique contract vehicle in that it's leaving the transportation sector and going to a voluntary market. Obviously, great credit with the utility and the terms will, I think, without a doubt, help on the financing of these projects.

George Sakellaris: And I think we're going to start seeing more and more of this, of our gas going to the non-transportation sector as that market continues to expand, and the finance. And Don, do you want to add something?

Mike Backus: And I think we're going to start seeing more and more of this, of our gas going to the non-transportation sector as that market continues to expand.

Mike Backus: I mean, no, not surprisingly, when you get fixed price contracts, the banks like the stability of those cash flows and the fact that we're actually now striking these projects, even though this first one might be five years. As more and more of those cash flows get fixed, we would expect that we'll get better advance rates. And obviously, we'll be pushing for tighter spreads in the future. But that's, it's definitely one of those characteristics.

Mike Backus: And the financing, Donald, you want to add something? I mean, no, not surprisingly, when you get fixed, you know, fixed price contracts, the banks like the stability of those cash flows and the fact that we're actually now striking these projects, even though this first one might be five years.

Donald: As more and more of those cash flows get fixed, we would expect that we'll get, you know, better advance rates and, you know, obviously we'll be pushing for tighter spreads in the future, but it's definitely one of those characteristics.

Doran Hole: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Stephen Gengaro with Stiefels. Your line is open. Please go ahead. Thanks. Good afternoon, everybody.

Speaker Change: Thank you and one moment as we move on to our next question.

Stephen Gengaro: Thank you. George, I thought you might have been about to add something to the last question before I asked mine. Okay, okay, sorry.

Speaker Change: And our next question is going to come from the line of Stephen Gengaro with Stiefels. Your line is open. Please go ahead.

Speaker Change: Thanks. Good afternoon, everybody.

Speaker Change: George, I thought you might have been about to add something on the last question before I asked mine.

George Sakellaris: Um, so I think two things for me, and one is, I'll start with, I'm not sure how much you want to get into this, but when you look at your energy assets backlog, and you look at your projects backlog, and SCE rolling off at a high level, what should we think about as the big positives and negatives as we go into 2025? I don't know if I can.

George Sakellaris: Okay, sorry. So, I think two things for me, and one I'll start with, I'm not sure how much you want to get into this, but when you look at your energy assets backlog and you look at your projects backlog and

Speaker Change: SCE rolling off at a high level. What should we think about as the big positives and negatives as we go into 2025?

George Sakellaris: The big positives and negatives. I mean, the big part of it is the fact that we have a great, great backlog and are executing on that backlog. And the other good thing that I wanted to point out, and we're doing the analysis earlier on that backlog, the actual gross profit margin, it's been going up every quarter since we started focusing on screening our... What kind of project we'll get to trying to push the margins up.

Speaker Change: I don't know if I ... The big positives and negatives. I mean, the big part of it is the fact that ...

Speaker Change: We have a great, great backlog, an execution of that backlog. And the other good thing that I wanted to point out, and we're doing the analysis earlier on that backlog, the actual...

Speaker Change: Gross profit margin, it's been going up every quarter.

Speaker Change: Since we started focusing on screening what kind of projects we'll get, we're trying to push the margins up.

George Sakellaris: So that's a great, great positive. The backlog that we have on the assets, whether it's the battery storage or the solar plants or the renewable assets, the gas plants that will be coming up, they are a great, great part of this. The only negative is elections; they might have an impact, but on the other hand, and That's why I wanted Nicole and Mike to be here today to explain that the federal business has done excellently under any administration and on renewable gas.

Speaker Change: So that's a great, great part of the backlog that we have on the assets, whether it's the battery storage, or the solar plants, or the renewable assets.

Speaker Change: on the gas plants that will be coming up.

Speaker Change: They are a great, great part of this. The only negative, it's elections, they might have an impact, but on the other hand...

Speaker Change: And that's why I wanted Nicole and Mike to be here today to explain that the federal business, it has done excellent under any administration.

George Sakellaris: Now that utilities are getting to be more and more in the States and requiring the utilities to have more renewable natural gas as part of the percentage that they provide their customers, it's very good. So with Southern California rolling off, I think the risks, the negatives, are much lower, and the potential, the good part of it, is much higher. I can't think of anything else.

Speaker Change: And on the renewable gas, now that the utilities...

Speaker Change: and I'm getting to be more and more in the States and getting, requiring the utilities to have more renewable natural gas as part of their percentage that they provide their customers, it's very good. So the Southern California is rolling off.

Speaker Change: The risks, the negatives are much lower, and the potential, the goods are much higher.

Speaker Change: Okay, go ahead, anything else?

George Sakellaris: And maybe just as a follow-on to that, when you look at the project's portfolio. You mentioned this a little bit, but the embedded margins, assuming... you should have margin improvement in projects over the next one to two years. Is that a fair assessment?

Speaker Change: Great. Thanks, Georgia. And maybe just as a follow-on to that, when you look at...

Speaker Change: The project's portfolio...

Speaker Change: You mentioned this a little bit, but the embedded margins, assuming...

Speaker Change: strong execution of the backlog you should have margin improvement in projects.

Speaker Change: over the next one to two years. Is that a fair assessment?

George Sakellaris: That is, yes, that is a fair statement. That's why, and it can become a focus. And what I have found out, especially as the company grows, and we have grown a lot in the last five years, and then with the COVID situation, they're bringing some difficulties. I think the team here and there took on some projects that did not have the best margins, so they didn't have all the risks mitigated as they should have. But refocusing the organization, margins, and minimizing risks associated with those margins is key, and it's burning food so far. So, a lot of positive for XEF. Thanks. And just one other quick one.

Speaker Change: That is, yes, that is a fair, that's a fair statement.

Speaker Change: That's right, and it has become a focus, and what I have found out, especially as the company grows, and we have grown a lot the last five years, and then with the COVID situation there brings some difficulties.

Speaker Change: I think the team here and there, they took some BAM projects that did not have the best margins, so...

Speaker Change: They didn't have all the risk mitigators that they should have.

Speaker Change: But refocusing the organization, margins, and minimize risks associated with those margins is key, and it's burning food so far. So a lot of positive for next year.

Speaker Change: Thank you. And just one other quick one. You've done this a little bit in the past.

Stephen Gengaro: You've done this a little bit in the past. Is there anything, what should we consider as we think about seasonality in the back half of the year? You kind of guided for 2020 for just the, how should we think about how that unfolds in the third and fourth quarters? Any color on that?

Speaker Change: Is there anything, what should we consider as we think about seasonality in the back half of the year, kind of guided for 2020, for just the, how should we think about how that unfolds in the third and fourth quarters? Any color on that?

Mark Chiplock: Yes, a good question, and I will let Mark follow up because we've been dreaming about all the numbers. Yeah, I think maybe just briefly, you know, when it comes to shaping, unlike last year, I think we would expect Q3 and Q4 to be fairly similar, maybe a small bump in Q3 related to normal seasonality, but they should be a little bit more than that in Q3 and Q4, as opposed to last year. Thank you, Mark.

Speaker Change: Yes, good question, and I will let Mark follow up, because we've been dreaming about all the numbers. Yeah, I think maybe just briefly, you know, when it comes to shaping, unlike last year, I think we would expect Q3 and Q4 to be fairly similar. Maybe a small bump in Q3 related to normal seasonality, but they should be a little bit more simple.

Mark: Q3 and Q4, as opposed to this past year.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of George Gianarikas with Canaccord Genuity. Your line is open; please go ahead. Hi, good afternoon, everyone.

Mark: Great, thank you, Mark.

Mark: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of George Gianarikas with Canaccord Genuity. Your line is open, please go ahead.

George Gianarikas: Thank you for taking my questions. I'd just like to understand a little bit about the revised revenue and EBITDA guidance just to make sure we're all clear. So there's a $5 million reduction at the midpoint based on increased costs. Would you have raised it by $5 million? Is there anything else that's pulling down the EBITDA guidance for 2024? Is it just the S&P?

George Gianerakis: Hi, good afternoon everyone. Thank you for taking my questions.

George Gianerakis: I'd just like to understand a little bit about the...

George Gianerakis: Revised Revenue and EBITDA Guidance just to make sure we're all clear.

Speaker Change: There's a $5 million reduction at the midpoint based on increased costs from SCE. Just to be clear, if you didn't have those costs,

Speaker Change: Would you have raised $5 million? Is there anything else that's pulling down the EBITDA guidance for 2024? Is it just the FCE costs?

George Sakellaris: Yeah, basically, we tried to reflect the impact that the Southern California projects had. And even though, you know, we had some other minor other projects that they adversely impacted. However, and I'll let Mark explain a little bit more. But basically, that that was the impact because we had thought that the project we had been doing after the last quarter. So, Yeah, I think I'm right.

Speaker Change: That you alluded to.

Speaker Change: Yeah, basically we try to reflect the impact that the Southern California Projects have.

Speaker Change: And even though, you know, we had some other projects that the adversity impacted, however, and I'll let Mark explain it a little bit more, but basically that was the impact because we had thought that the project we had done after the last quarter.

Mark Chiplock: I think the modifications were really focused on, at least the EBITDA was on the assumed cost for S&P. We're certainly having strong revenue performance, but, you know, obviously, you've seen a little bit lower margin profile. So, you know, we took that into account. But I think, based on the first half performance and what visibility we have, we made those changes, and we feel pretty good about them. Yeah. And then maybe just a question on the backlog, the big growth in the backlog. I'm curious as to whether you can give us a little bit more detail as to what's going on there.

Mark: Yeah, I think that's right. I think it was the modifications were really focused on, at least the EBITDA were on that.

Mark: We're certainly having strong revenue performance, but obviously you've seen a little bit lower margin profile, so we took that into account. But I think based on the first half performance and what visibility we have, we made those changes.

Mark: We feel pretty good about it. Yeah.

Speaker Change: And then maybe just a question on the backlog, the big growth and backlog. I'm curious as to whether you can give us a little bit more detail as to what's going on there, where do you see significant growth, and is anything related to data center opportunities?

George Sakellaris: Where do you see significant growth? And is it related to, Yeah, and actually... It's across the board. We see growth across the board, but Cicely Cole is here, and she's the project's queen. I will let her talk a little bit.

Speaker Change: Thank you.

Speaker Change: Yeah, and actually...

Speaker Change: It's across the board, we see growth across the board, but since Nicole is here...

Nicole Bulgarino: and

Nicole Bulgarino: Sure. I think a large percentage of our growth and backlog is coming from the market drivers that we just described earlier a few minutes ago, really related to battery energy storage. So we're seeing those in our project business, a lot of our federal utility markets. So that's probably the largest portion of that. And then, certainly not captured in the pipeline right now, but there is a lot of work that we're doing to capitalize on batteries for data centers and energy.

Nicole Bulgarino: She's a project queen, I will let her talk a little bit. Sure. I think a large percentage of our growth and backlog is coming from the market drivers that we just...

Nicole Bulgarino: Described earlier a few minutes ago really related to the battery energy storage that we're seeing those in our project business

Nicole Bulgarino: on a lot of our federal utility markets. So that's probably the largest portion of that. And then certainly not captured in the pipeline right now, but there is a lot of work that we're doing to capitalize on batteries for the data centers and energy.

Nicole Bulgarino: It's a little too early right now for that to be in the awarded pipeline. Great, thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Kashi Harrison with Piper Sandler. Your line is open. Please go ahead.

Nicole Bulgarino: But it's a little too early right now for that to be in the awarded pipeline.

Speaker Change: Great, thank you.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Kashi Harrison with Piper Sandler. Your line is open, please go ahead.

Kashi Harrison: Good afternoon, thanks for taking the questions, and Doran, best of luck with your future endeavors. Um, so, you know, yeah, so first question is for Mike. Sorry if I missed this, but did you quantify the size of this R&G project you're working on with the California utilities? A megawatt or EBITDA number would be great.

Kashi Harrison: Good afternoon. Thanks for taking the questions, and Doron, best of luck with the future endeavors.

Speaker Change: So, you know...

Kashi Harrison: Yeah, so first question is for Mike. Sorry if I missed this, but did you quantify the size of this R&G project you're working on with the California utilities? A megawatt or EBITDA number would be great. Just trying to think of the scale of this project relative to the portfolio.

Mike Backus: Just trying to think of the scale of this project relative to Portfolio. Yeah, there are two projects. And so it's about 22-23 megawatts between the two. One comes online actually this quarter coming up, and the other one will come online in early 2026. The agreement with the utility doesn't actually become effective until January 1, 2026.

Mike Backus: There's two projects, about 22-23 MW between the two. One comes online actually this quarter coming up, and the other one will come online in early 2026.

Speaker Change: The agreement with the utility doesn't begin actually effective until January 1, 2026.

Mike Backus: It's a material portion of our portfolio. If those two projects were online today, they would represent probably close to 40% of our supply. And in 2026, we're forecasting that it could be around 12-13% of our supply. That's helpful. I appreciate the added color.

Speaker Change: It's a material portion of our portfolio. If those two projects were online today, it would represent probably close to 40% of our supply, and in 2026 we're forecasting it could be around 12-13% of our supply.

Kashi Harrison: And then my next question is just a follow-up on the budget revisions to SOCA Ed. You know, I think you flagged $10 million of total revisions in EBITDA. Can you just help us think through the risk of potential further budget revisions? For example, if the project is delayed another quarter, you know, what does that do to that forecast? And then are these overruns separate from the liquidated damages, or are these tied to the liquidated damages? Any color on that would be appreciated.

Speaker Change: That's helpful, I appreciate the added color. And then my next question is just a follow-up on the budget revisions to the SOCA ad.

Speaker Change: I think you flagged $10 million of total revisions in EBITDA. Can you just help us think through the risk of potential further budget revisions? For example,

Speaker Change: If the project is delayed another quarter, you know, what does that do to that forecast? And then are these overruns separate from the liquidated damages or are these tied to the liquidated damages? Any color on that would be appreciated. Thank you. Thank you.

Mark Chiplock: Thank you. Yeah, Cassie, I'll start and let other guys chime in later. So the $10 million across the entire year is the expectation. And you've seen some mention of adjustments already in Q1. We talked about $6.6 million in Q2, you know, primarily related to insurance premiums as the projects continue to get delayed. But I don't know that we see a huge risk of that number going up from there. I think we've been—it's a pretty conservative estimate of what we might face as we bring those to substantial completion. That is completely separate from anything related to LDE.

Speaker Change: Yeah, Cassie, I'll start and let other guys chime in. So the $10 million across the entire year is the expectation. So you

Speaker Change: We've seen some mention of adjustments already in Q1, we talked about $6.6 million in Q2, primarily related to insurance premiums as the projects continue to get delayed.

Speaker Change: I don't know that we see a huge risk of that number going up from there. I think we've been—it's a pretty conservative estimate of what we might face as we bring those to substantial completion. That is completely separate from anything related to LDs.

Speaker Change: Bye.

Operator: Thank you, and one moment as we move on to our next question. And our next question comes from the line of Eric Stine with Craig Hallam Capital Group. Your line is open, please go ahead. Everyone.

Speaker Change: Thank you, and one moment as we move on to our next question.

Speaker Change: And our next question comes from the line of Eric Stine with Craig Hallam Capital Group. Your line is open. Please go ahead.

Eric Stine: So just curious about the project business. You mentioned that you had some larger projects in this quarter, and that's why the margin came in where it was. But Georgie also talked about some projects that were priced maybe in the past that were rolling through, and that that impacted margin. Just curious.

Eric Stine: Hey everyone, so just curious, on the project business, you mentioned that you had some larger projects in this quarter and that's why the margin...

Eric Stine: came in where it was, but Georgie also talked about some projects that were priced maybe

Eric Stine: In the past that we're rolling through and that that impacted margins, just curious, I mean, is this trend to larger projects? Is that something that you expect?

George Sakellaris: I mean, is this trend toward larger projects? Is that something that you expect to sustain? Or is this more about, hey, you just set a mix of that in the quarter plus some of those older contracts? I mean, that's what impacted the margin in the quarter. Primarily, we had a large portion of the project executed for the Quora coming from some of the European EPC contracts that we have signed over there.

Eric Stine: to sustain, or is this more about, hey, you just had a mix of that in the quarter, plus some of those older contracts, and that's what impacted the margin in the quarter.

Speaker Change: Primarily, we had some large portion of the project executed for the Quora.

Speaker Change: Coming from some of the European EPC contracts that we have signed over there. And then when you book the revenue...

George Sakellaris: And then when you book the revenue, because we consult on the top line and then the margin, and we account for only half of the actual margin, and it impacted it more than normally. But the overall, though, what we have on the backlog of the projects, that's what makes me feel very good; it's going up. But on any given Quora, the mixture might change, and that adversely impacts your margin. Do you want to add anything to that? Yep, I think it's just mixed.

Speaker Change: Because we consult on the top line, and then the margin, we count only half of the actual margin, and it impacts it more than normally. But the overall, though, what we have on the backlog, the projects, that's what makes me feel very good. It's going up.

Speaker Change: But any given quarter, the mixture might change, and that adversely impacts your money. Do you want to add anything to that? I think it's just mixed. Yeah.

Mark Chiplock: Yeah, right. Okay, no, that's great. And then maybe a second one for me, just more high level.

Eric Stine: I know the FCE, the contracts there, a lot of that is out of your control, it's weather-related, etc. But as you sign more of these energy storage awards, I'm just curious about some of the lessons learned, how you're structuring contracts differently, you know, anything that you might be changing, based on what happened here for SoCal Edison. We have become the professors of the industry. We have learned a lot. And every contract that we sign right now has great, great protections for us. But you can see all the backlog, all the worries that we have, and the execution that we have been able to achieve past Southern Cal. For example, the United Power.

Speaker Change: Okay.

Speaker Change: No, that's great. And then maybe a second one for me, just more high level. Yeah, I know the FCE.

Speaker Change: The contracts there, a lot of that is out of your control, it's weather related, etc.

Speaker Change: But as you sign more of these energy storage awards, I'm just curious, some of the lessons learned, how you're structuring contracts differently, anything that you might be changing based on what's happened here for SoCal Edison.

Speaker Change: We have become the professors of the industry. We learned a lot and every contract that we sign right now has different great great protections for for us.

Speaker Change: But you can see on the backlog all the work that we have and the execution that we have been able to achieve.

Speaker Change: past Southern Cal, for example, the United Power.

George Sakellaris: You know, we just finished it, and we broke the record. Within one year, from signing the contract to actually getting six out of the eight projects already up and running, and the other two, they are fully contracted. They are being commissioned right now. Then you go down to Hawaii and the Kupona projects.

Speaker Change: You know, we just finished it and we broke the record within one year from signing the contract to actually getting six out of the eight projects already up and running, and the other two, they are fully contracted, they are being commissioned right now.

George Sakellaris: And even with labor difficulties there, it's up and running again. Solar, as well as 44 megawatts of battery storage. And the one that we recently announced in the UK is an excellent, excellent project. And if we could minimize just about all the risks associated with it.

Speaker Change: Then you go down to the Hawaii, the Kapono Projects, and even with labor difficulties there, it's up and running again, solar as well as...

Speaker Change: 44 megawatts of battery storage.

Speaker Change: and the one that was recently announced in the UK.

Speaker Change: It's an excellent, excellent project and we have minimized just about all the risks associated with it.

George Sakellaris: And yeah. And the only thing I'll add on the one in the UK is that it's a really good example of where we're focusing on improving those contracts by frontloading more of the milestones. And so that was, you know, you saw a big part of that come through our deferred revenue line on cash flow in Q2. So, you know, we're making those changes to improve cash flow and liquidity.

Speaker Change: Yeah, and the only thing I'll add on the one in the UK, it's a really good example of where we're focusing on, on improving those contracts by frontloading more of the milestones and so that was, you know, you saw a big part of that come through our deferred revenue line on the cash flow in Q2, so, you know, we're making those changes to improve cash flow and liquidity.

Operator: Okay, thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Joseph. Osha with Guggenheim. Your line is open. Please go ahead.

Speaker Change: Got it. Okay, thank you.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Joseph Osha with Guggenheim. Your line is open. Please go ahead.

Speaker Change: Sir, your line may be moved.

Speaker Change: Alright, we'll move on to our next question.

Operator: Sir, your line may be moved. All right, we'll move on to our next question. And our next question is going to come from the line of Craig Irwin with MKM. Your line is open. Please go ahead. Good evening.

Speaker Change: And our next question is going to come from the line of Craig Irwin with MKM. Your line is open, please go ahead.

Craig Irwin: Thanks for taking my question. George, I wanted to ask if there's some metrics maybe you can share with us around organic growth, either in revenue or contracted backlog away from the energy storage bids. The legacy projects business of the company before you started moving into energy storage, you know. Maybe if you had a storage contribution to your contracted backlog that could help with visibility, or if you could help us with what the storage contribution to revenue growth is year over year in the quarter. I will give it on a high level.

Craig Irwin: Good evening. Thanks for taking my question. So George, I wanted to ask if there's some metrics maybe you can share with us around organic growth either in revenue or contracted backlog away from the energy storage business.

George: The legacy projects business of the company before you started moving into energy storage, you know,

George: Maybe if you have a storage contribution to your contracted backlog that could help with visibility, or if you could help us with what the storage contribution to revenue growth is year-over-year in the quarter.

George Sakellaris: The battery storage projects right now represent about almost 10% of $4.4 billion. Actually, they are between $350 to $400 million. And the growth on the others, it's the federal government, it's across the board.

Speaker Change: I will give it on the high level. The battery storage projects right now, they represent about almost 10% of $4.4 billion. Actually, they are between $350 to $400 million, the battery storage.

Speaker Change: and the growth of the others. It's the federal government, it's across the board. It's the traditional core of business, and that's why you see the margins slowly picking up.

George Sakellaris: It's the traditional core of business. And that's why you see the margins slowly picking up. So, and that's why I made the point to clarify that a little bit, because we're looking at the federal sector, even though we haven't, like, usually the revenues come from the federal government, and if you do the arithmetic, about one-third of the backlog right now is a federal government project. So it's, at any given time, especially some of the EPC projects that come in fast, by the way, from the RFP, and then you start executing, and then especially if you front load them on the execution by the material and so on, so they impact the margin.

Speaker Change: So, and that's why I made the point to clarify that a little bit, because we're looking at the federal sector, even though we haven't, like usually the revenues, one-third comes from the federal government, and if you do the arithmetic, about one-third of the backlog right now is a federal government project.

Speaker Change: So it's a...

Speaker Change: But at any given time, especially some of the EPC projects that they come in fast, otherwise from the RFP and then you start executing, and then especially if you front load them on the execution by the material and so on. So the impact...

George Sakellaris: They might hit the margin for that particular quota, but they are contributing great leverage, you know, on the profitable, the top, the gross profit line. Excellent. That's strong progress. So, my second question I want to ask is about the asset business, right?

Speaker Change #100: Thank you.

Speaker Change #100: Excellent, that's strong progress.

Craig Irwin: So, you seem to be outperforming there, some nice growth year over year in EBITDA. Many of the other companies in the sector, both private and public, are having issues, let's just say, politely. Even a couple of the very large portfolios of projects that were slated to get built, the customers are apparently taking them away from the partners that they'd identified. Can you maybe talk to us a little about your philosophy about, you know, how you structure these projects that allows you to generate, you know, positive returns in difficult periods? And can you maybe talk about whether or not you'd be interested in these portfolios?

Speaker Change #101: So my second question I wanted to ask is about the assets business, right? So you seem to be outperforming there, some nice growth year-over-year in EBITDA.

Speaker Change #102: and many of the other companies in the sector, both private and public.

Speaker Change #103: are having issues, let's just say, politely. You know, even a couple of the very large...

Speaker Change #103: large portfolios of projects that were slated to get built. The customers are apparently taking them away from the

Speaker Change #104: Can you maybe talk to us a little bit about your philosophy about, you know, how you structure these projects that allows you to generate, you know, positive returns in difficult periods? And can you maybe talk about whether or not you'd be interested in these portfolios?

George Sakellaris: Yeah, it basically starts from the beginning, you know, the assets that we are developing, and we try to risk them. And the ones that we keep, we're looking for higher returns than some other people would look at. And that's why we have said in the past, because we have a very, very good development team. And just think about it, that we are across the country, and that basically gets lots of projects.

Speaker Change #105: Yeah, it's basically, it starts from the beginning, you know, the assets that we are developing and we try to derisk them.

Speaker Change #105: And the ones that we keep, we're looking for higher returns than some other people would look at. And that's why we have said in the past...

Speaker Change #105: Because we have a very, very good development team, and just think about it, that we are across the country, and that basically gets lots of projects.

Speaker Change #106: So the ones that we will give, we a...

George Sakellaris: So the ones that we will keep, we do it for all of them, but the ones we'll keep especially, not only do we risk them, but we're looking for higher returns that will exceed our cost of capital. And that's why, you know, raising this new VIN capital, even though it was a little bit at a higher cost of interest, we feel very confident that we can invest that at considerably higher returns than what we are paying in their interest. We pay them.

Speaker Change #106: [inaudible]

George Sakellaris: In addition, it's a great company, and they're going to be good partners for another project. So I think doing our job upfront, and I've been in this business for a long time, and we take risks. And then, with Doran's help and Jeff's help, we do risk these projects a lot. And that's why the investment committee that we have, that does all the due diligence and plays all kinds of "what if" games, what if this happened, what if that happened, and then at the end of the day, we say, okay, we will keep that project, or that project is lined up for sale.

Speaker Change #106: And we can invest that, that's considerably higher return than what we are paying in their interest, we're paying them. In addition to it's a great company and they're going to be good partners for another project. So I think it's doing our job up front.

Doran Hole: And I've been in this business for a long time, and we do risk. And then with Doran's help and Jeff's help, we do risk these projects a lot. And that's why the investment committee that we have does all the due diligence and playing all kinds of what-ifs games.

Doran Hole: What if this happened, what if this happened, and then at the end of the day, we say, okay, we will keep that project or that project is lined up for sale. And that's why we developed a bid, and we say that part of our assets in our portfolio, we will not...

Doran Hole: And that's why we developed a bid, and we say that part of our assets in our portfolio, we will not develop them before we put them on our balance sheet, we will sell them at a very good profit because the market is so liquid out there. Craig, I'll just add that that the market for our development sell assets is exactly the reason why we're probably not going after any portfolios that are out there as a buyer.

Doran Hole: Now we develop it. Before we put them on our balance sheet, we will sell them at a very good profit because the market is so liquid out there.

Doran Hole: And Craig, I'll just add that that's, that's, that's.

Greg: That market for our develop and sell assets is exactly the reason why we're probably not.

Doran Hole: Because we're kind of taking advantage of the market that's out there at a cost capital, you know, return hurdles that are lower than ours to sell the assets that we're developing. And the development team, George mentioned, is so strong. It's bringing so many solid quality megawatts into that asset development metric that we've got the liberty to kind of choose the ones we want to keep on our balance sheet. And, you know, other folks in the market also don't have as diversified a pool of asset types.

Greg: going after any portfolios that are out there as a buyer.

Greg: because we're kind of taking advantage of the market that's out there at a cost of capital, you know, return hurdles that are lower than ours to sell the assets that we're developing. And the development team, George mentioned.

Greg: is

George: So strong, it's bringing so many.

George: solid quality megawatts into that asset development metric, that we've got the liberty to kind of choose the ones we want to keep on our balance sheet. And, you know, other folks in the market also don't have as diversified of a pool of asset types, you know, we've got one of the best.

Doran Hole: You know, we've got one of the best, or arguably the best, development groups for RNG on the street, you know, and that's not going to fall into the competition that you might see for some of the others that are more into the solar and battery side. Understandable. Thank you for that, Keller.

George: We're arguably the best development group for RNG on the street, you know, and that's not going to fall into the competition that you might see for some of the others that are more into the solar and battery side.

Craig Irwin: And I should say, Doran, you know, I hope you're going somewhere where we can continue to work together going forward. And, Mark, congratulations on the promotion. Thanks, Craig.

Doran Hole: Understood. Thank you for that, Keller. And I should say, Doran, you know, I hope you're going somewhere where we continue to work together going forward. And Mark, congratulations on the promotion.

Operator: Thank you. Thank you and one moment as we move on to our next question. Our next question is going to come from the line of Tim Mulrooney with William Blair. Your line is open. Please go ahead.

Speaker Change #108: Thank you and one moment as we move on to our next question.

Speaker Change #109: Our next question is going to come from the line of Tim Mulrooney with William Blair. Your line is open. Please go ahead. Thank you.

Tim Mulrooney: Yeah, thanks for taking my questions. I wanted to ask about your growth margin guide to start, which I think was about 18% at the midpoint previously, and it's now more in the low 16% range. Can you just help bridge gaps? I think that that probably only accounts for 50 to 60 pips if I'm doing my math right.

Tim Mulrooney: Yeah, thanks for taking my questions. I wanted to ask about your growth margin guide to start, which I think was about 18% at the midpoint previously, and it's now more in the low 16% range.

Speaker Change #111: Can you just help bridge the gaps in our needs?

Speaker Change #112: I think that that probably only accounts for 50 to 60 pips if I'm doing my math right. So just curious what the other, you know, moving pieces are. Remember in Q1, we also, you know, we also took, you know, a handful of

Mark Chiplock: So just curious what the other, you know, moving pieces are. Remember in Q1, we also took, you know, a handful of hits to gross margin just because of some legacy projects and some things that were a little bit unexpected. I think, you know, we were able to kind of offset that overall by the performance on the revenue side. But, yeah, I think Q1 and Q2 combined are really what's driving the margins down. And I think that we have talked about the so-called impact.

Speaker Change #112: of hits to the to gross margin justice of legacy projects and some things that were a little bit unexpected, I think.

Speaker Change #113: You know, we were able to kind of offset that overall by the performance on the revenue side. But, yeah, Q1 and Q2 combined, I think, is really what's driving the margins down.

Tim Mulrooney: I think it's important to come back and really refocus on what we're seeing in operating leverage. So even though we're seeing gross margins down, we're still continuing to grow gross stocks faster than op-eds. So we're seeing improvement in our operating leverage. But, yeah, I think, you know, Tim, that's really the bridge on what we're seeing in margins is, you know, there were also some hits that we took on Certified and some Q1 as well.

Speaker Change #113: I think that we talked about the SoCal ED impact.

Speaker Change #113: But I think it's important to come back and really refocus on what we're seeing in operating leverages actually are.

Tim Mulrooney: So even though we're seeing gross margins down, we're still continuing to grow gross faster than op-ed. So we're seeing improvement in our operating leverage. But yeah, I think, you know, Tim, that's, you know, that's really the bridge on what we're seeing in margins is, you know, there were also some, some, some hits that we took on Certified and some Q1 as well.

Tim Mulrooney: Okay, that's helpful and well understood. Thank you. Secondly, you know, backlog on your projects businesses is up a lot year over year. 36% or something like that, but I'm not sure if you have this number handy.

Tim Mulrooney: Okay, that's helpful and well understood, thank you. Secondly, you know, backlog on your projects, this is up a lot year over year.

Speaker Change #114: I think maybe 36% or something like that, but I'm not sure if you have this number handy. We're curious how much of that's from switching assets in development over to the project side versus completely new wins, like how much is each of those buckets is driving that increase.

George Sakellaris: I'm just curious how much of that's from... Switching assets in development over to the project side versus completely new wind, like how much. Each of those buckets is driving that increase. So it's all new wins. Nicole, do you want to add something?

Speaker Change #114: So it's all new wins. It's all new wins. Nicole, you want to add something? Yeah, there's significant wins across multiple business lines, from the federal government to utilities to our UK group. So it's several, nothing to do with converting assets in the last two quarters.

Nicole Bulgarino: Yeah, no, significant wins across multiple business lines, from the federal government to utilities to our UK group. So it's several, and nothing to do with converting assets in the last two quarters. Okay, thank you.

Speaker Change #115: Okay, thank you.

George Sakellaris: Well, basically, what I want to say is the assets that are in development. They are in development right now. If we convert them to sales, you will see them in that particular quarter. But up to date, they have no impact on the backlog, project backlog that we reported. Okay, got it. And if you don't mind, I'd sneak one more in. Take advantage of having Nicole on the call today.

George: Go ahead, Josh.

George: Well, basically what I want to say, the answer is that they are in development right now.

Speaker Change #116: If we convert them to sales, you will see them in that particular quarter, but up to date, they have no impact on the backlog, project backlog that we reported.

Tim Mulrooney: Nicole, specifically on your solar project, talk about any differences that you're seeing in projects moving forward between stand-alone solar versus projects that have solar plus energy storage. Is there any noticeable difference in which types of projects are having an easier time moving forward in this environment? Well, I think in all, and almost all of them, you're seeing solar with battery storage. And that's really related to peak demand, getting the most maximized PPA price or savings. So, and it's just a requirement.

Speaker Change #117: Okay, got it. And if you don't mind, I'd sneak one more in to take advantage of having Nicole on the call today. Nicole, specifically on your solar projects,

Speaker Change #118: Can you just talk about any differences that you're seeing in projects moving forward between stand-alone solar versus projects that have solar plus energy storage? Is there any noticeable difference in which types of projects are having an easier time moving forward in this environment? Thank you.

Nicole Bulgarino: So I think in all of them, you're seeing solar with battery storage, and that's really related to peak demand, getting the most maximized TPA price or savings.

Nicole Bulgarino: I mean, you're using these for, like, our federal government is using these for resiliency. So they are going to need the battery energy systems with them, coupled with the PV system, to be able to meet that requirement. It's not just clean energy, but it's resilient energy as well. Understand. Thank you. And Doran, we'll miss you.

Speaker Change #119: So, and it's just a requirement. I mean, you're using these for, like, our federal government's using these for resiliency, so they are going to need the battery energy systems with them, coupled with the PV system.

Speaker Change #119: to be able to meet that requirement too.

Speaker Change #119: It's not just clean energy, but it's resilient energy as well.

Speaker Change #119: Understood. Thank you, and Doran, we'll miss you around here, man.

Operator: [inaudible] Thank you. One moment as we move on to our next question, and our next question is going to come from the line of William Grippin with UBS. Your line is open. Please go ahead.

Speaker Change #120: Thank you. One moment as we move on to our next question.

Speaker Change #121: And our next question is going to come from the line of William Grippin with UBS. Your line is open. Please go ahead.

William Grippin: Great, thanks for your time. My first question is, just wondering if you could update us on the R&G projects you're expecting to commission in the second half of this year and how those are progressing. And I think, previously, you provided a rule of thumb on R&G revenue contribution of $2.3 million per megawatt equivalent. Could you talk about how the potential utility deal would impact that figure, if at all? Yeah, Mike, go ahead with the projects. Yeah, so we have a project that's about 11.7 megawatts that's being commissioned right now. It's going through final product gas testing to get approved to go into the pipe.

William Griffin: Great, thanks for the time. My first question, just wondering if you could update us on

William Griffin: The R&G projects you're expecting to commission in the second half of this year and how those are progressing.

Speaker Change #123: And I think previously you provided a rule of thumb on R&G revenue contribution of $2.3 million per megawatt equivalent. Could you talk about how the potential utility deal would impact that figure, if at all?

Speaker Change #124: Yeah, Mike, go ahead on the projects. Yeah, so we have a project that's about 11.7 megawatts that's being commissioned right now. It's going through final product gas testing. You get approved to go into the pipe.

Mike Backus: So I would expect sometime this month, early September, that it will be fully commercial. And then we have another project that's 15.6 megawatts that should go commercial sometime in October of this year. And then, as far as the metrics go, as we have said before, for the RNG plans, on the revenue side, you see about $1.5 to $3 million in the top line, and then... with ring prices where they are now, $750 to $1.5 million only for that contribution per megawatt.

Speaker Change #124: So I would expect sometime this month, early September , that will be fully commercial. And then we have another project that's 15.6 megawatts that should go commercial sometime in October of this year.

Speaker Change #124: And then, as far as the metrics, what we have said before, that...

Speaker Change #125: For the RNG plans, on the revenue side, you see about $1.5 to $3 million top line, and then with the ring prices where they are now, $750 to $1.5 million on the HIPAA DAP contribution per megawatt.

Mike Backus: We haven't updated it for the, you asked about the utility agreements; those numbers are reflective of the utility agreements. The offtake prices are less than the current spot market in the RFS program, which is trading around $340 right now, but materially better than what we've seen in terms of long-term agreements in the RFS space. Got it, that's helpful.

Speaker Change #125: We haven't updated it for the, you asked about the utility agreements. Those numbers are reflective of the utility agreements.

Speaker Change #125: The offtake prices are less than the current spot market in the RFS program, which is trading around $3.40 right now, but materially better than what we've seen in terms of long-term agreements in the RFS space.

William Grippin: Could you refresh our memory as to what the underlying assumption was as far as rent prices for the prior sort of revenue sensitivity? I don't think we've provided that before, Will, and I think that, you know, broadly speaking, obviously there are puts and takes about the way that this will change the hedging for RINs, etc., but I still think those ranges are still good. Got it. And just one last one for me.

Speaker Change #126: Got it. That's helpful. Could you refresh our memory as to what the underlying assumption was as far as rent prices for the prior sort of revenue sensitivity?

Speaker Change #127: I don't think we've provided that before, Will, and I think that, you know, broadly speaking, obviously there are puts and takes about the way that this will change the hedging for RINs, etc., but I still think those ranges are still good.

William Grippin: I think last quarter you talked about guidance, and assuming some continued delays in the assets business, it appears you're well on track at this point to hit the 200 megawatt target. So, in light of the revised guidance, I mean, where should we kind of think about results falling, assuming you get the 200 megawatts fully online on the Envision timelines? Yeah, our guidance just reflects that, right? Yeah, we feel pretty good about the 200 that we've given before. So far, we have 168.

Speaker Change #128: Got it. And just one last one for me. I think last quarter you had talked about guidance assuming some continued delays in the assets business.

Speaker Change #129: appears you're well on track at this point to hit the 200 megawatt target. So in light of the revised guidance, I mean, where should we kind of think about results falling, assuming you get the 200 megawatts fully online on the Envision timelines?

Speaker Change #130: We feel pretty good about the $200,000 that we've given before. So far we have $168,000 and then we have a few coming up very shortly, so we feel good about the $200,000.

George Sakellaris: And then we have a few coming up very, very shortly. So we feel good about the 200. All right. Thanks very much.

William Grippin: That's all for me. Thank you, and one moment as we move on to our next question. And our next question will come from the line of Pavel Molchanov with Raymond James. Your line is open. Please go ahead.

Speaker Change #131: All right. Thanks very much. That's all for me.

Speaker Change #132: Thank you, and one moment as we move on to our next question.

Speaker Change #133: And our next question will come from the line of Pavel Molchanov with Raymond James. Your line is open. Please go ahead.

Pavel Molchanov: Yeah, thanks for taking the question. You offered some commentary earlier in the call about the upcoming US election, of course. Britain had an election barely a month ago, and you talked about some of the battery projects, for example, that you're doing there.

Pavel Mochnov: Thanks for taking the question. You offered some commentary earlier in the call about the upcoming U.S. election. Of course, Britain had an election barely a month ago.

Speaker Change #135: You know, you talked about some of the battery projects, for example, that you're doing there. So, can we get an update on your UK opportunity, you know, including maybe what's going on in Bristol?

George Sakellaris: Can we get an update on your UK opportunity, you know, including maybe what's going on in Bristol? Yeah, I mean, with a new government over there, especially with the money that they're planning to allocate for clean projects, it's going to help us a lot. It's going to take some time, of course, but it's going to take time. But in the long term, though, it's going to be very, very, very helpful. And then, on Bristol City, we continue to make good progress.

Speaker Change #136: Yeah. Yeah, I mean, with a new government over there, especially with the money that they're planning to allocate for clean projects, it's going to help us a lot. It's going to take some time, of course, but it's going to take a long time.

Speaker Change #136: Thank you all.

Speaker Change #136: But in the long term, though, it's going to be very, very, very helpful. And then on Bristol City, we continue to make good progress.

George Sakellaris: We made some organizational changes over there, hiring a new person to run that particular project. And they made some changes on their side. And I think you will see that project going forward moving at a faster pace. And the overall, the environment, you know, in Europe is very, very good.

Speaker Change #136: We made some organizational changes over there.

Speaker Change #136: hiring a new person to run that particular project.

Speaker Change #137: They made some changes on their side and I think you will see that project going forward moving at a faster pace.

Speaker Change #136: And the overall, the environment, you know, in Europe is very, very good. And that's why you see great growth in the European market for us. I mean, you know, having talked to the management team over there, the...

George Sakellaris: And that's why you see great growth in the European market for us. I mean, you know, having talked to the management team over there, the... The litany of targeted processes and changes that the new labor government is going to go through, I think, as George said, is going to take a little bit of time, but there's a lot there, and there's a lot of momentum. It's a great backdrop for the company, and especially because, over in the UK, our business looks a lot like what it looks like here in the United States.

Speaker Change #138: The litany of...

Speaker Change #138: targeted

George: process ease and changes that the new labor government are going to go through I think as George said it's going to take a little bit of time but there's there's a lot there and there's a lot of momentum it's a great it's a great backdrop for the for the company and especially because we over in the UK our business looks a lot like what it looks like here in the United States we're across a multitude of technologies energy efficiency solar battery EV chargers you know we're kind of touching it all and so these incentives are going to come bring some strength

George Sakellaris: We're across a multitude of technologies, energy efficiency, solar, battery, EV chargers. We're kind of touching it all, and so these incentives are going to bring some strength. I feel very confident about that. Let me ask you a quick question about Washington.

Speaker Change #138: I feel very confident about them.

Speaker Change #139: Let me ask a quick one about Washington. Why do you think the Treasury

Pavel Molchanov: Why do you think the Treasury? still has not unveiled any of the biofuels, including orange?

Speaker Change #140: Still has not unveiled the Section 45Z numbers for any of the biofuels, including RNG.

Mike Backus: Mike, do you want to tackle that one? If I had an answer for that, we'd have had a lot of phone calls. I mean, I'll spin it a little differently. We're seeing movement. We submitted all our applications on time, and we actually got notified that the EPA is going through and reviewing our application as we speak. So we are seeing progress, at least on the administrative side. I can't tell you why Treasury hasn't already ruled something out on not just 45Z but a number of other tax credits. What we keep being told is that it should be sometime in this fall that we would get some guidance, but we haven't received it. Thanks very much.

Speaker Change #140: Mike, you want to tackle that one? If I had an answer for that, we've had a lot of phone calls, I mean...

Mike Backus: I'll spin it a little differently. I mean, we're seeing movement. We submitted all our applications on time, and we actually got notified the EPA is going through and reviewing our application as we speak.

Speaker Change #141: So we are seeing progress, at least on the administrative side. I can't tell you why.

Speaker Change #142: Treasury hasn't already rolled something out on not just 45Z, but a number of the other tax credits. What we keep being told is that it should be sometime in this fall that we would get some guidance, but we haven't received anything.

Pavel Molchanov: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Ben Kallo with Baird. Your line is open. Please go ahead. Hey, thank you so much, and thank you, Doren.

Speaker Change #143: Alright, thanks very much.

Speaker Change #144: Thank you and one moment as we move on to our next question.

Speaker Change #145: And our next question is going to come from the line of Ben Kallo with Baird. Your line is open. Please go ahead.

Ben Kallo: My question is on Asset Business. This year, I think you had some pull-ins for 200 megawatts. Is that a big number compared to what we should expect for next year? Could you just give us some kind of color about how we should think about the average number of megawatts that come on over a year, or if it's better to look at a two-year time frame? Maybe that's some color you could use.

Ben Callowith-Baird: Hey, thank you so much and thank you Doran. My question is on the asset business in this year I think you got some pull-ins for the 200 megawatts

Speaker Change #147: Is that a big number compared to what we should expect for next year? Could you just give us some kind of color about how we should think about, you know, the average number of megawatts that comes on over a year, or if it's better to look at, you know, a two-year time frame, maybe that's some color you could give us. Thank you.

George Sakellaris: Thank you. No, no, no, it's not, we're not pulling in from next year to this year, not at all. Actually, some of these projects, they were delayed, that we didn't bring them on last year because of interconnection and so on, and, you know, we have said that we want to target between 80 to 100, 120 megawatts per year, but like anything else, the business is lumpy, and this year, we were able to bring 200 megawatts, and the next year looks pretty good as well, so he's not pulling any assets from last year to this year.

Speaker Change #148: No, no, it's not, we're not putting in from next year to this year, not at all. Actually, some of these projects, they were delayed that we didn't bring them on last year because of interconnection and so on.

George Sakellaris: It's basically a couple of assets that were delayed from the year before to this year, understood, and just when we think about, Thank you. I think Lorna can take that because she's... I'm talking tabs all the time.

Speaker Change #149: And, you know, we have said that we want to target between 80 to 100, 120 megawatts per year. But, like anything else, the business is lumpy. And this year we were able to bring 200 megawatts, and the next year looks pretty good as well.

Speaker Change #150: So he's not pulling any assets from last year to this year. It's basically a couple of assets that were delayed from the year before to this year.

Speaker Change #151: Understood. And just when we think about...

Speaker Change #152: tariffs on Chinese cells starting up. What is your approach? Have you lined up your domestic suppliers? And how do you think that that impacts overall storage market distance? You're getting, you know, a higher mix towards that business. Thank you.

Speaker Change #152: I think Oren can take that because he's...

George Sakellaris: I think the... I don't know that we're necessarily on our back foot here necessarily, you know. I think that, you know, keep in mind or our purchases, the difficulties of imports, we're not doing like large multi-gigawatt installations. So when you're doing DG, the per watt cost is pretty high, you know; the individual components have less of an impact. And so tariff, you know; in fact, I don't know all of these.

Oren: I'm talking tariffs all the time.

Oren: Bye-bye.

Oren: I don't know that we're on our back foot here necessarily, you know. I think that, you know, keep in mind our purchases, you know, the...

Oren: The difficulties of...

Speaker Change #154: imports we're not doing like large multi gigawatt installations so when you're doing DG the per watt cost is pretty high you know the individual components are

Speaker Change #155: I will add that a lot of our projects have been for federal government where we have been using domestic solutions for quite some time. I think we will continue to see that trend for utilities as well, wanting to support the domestic.

Ben Kallo: Yeah, I just want to add that a lot of our projects have been, or for the federal government, where we've been using domestic solutions for quite some time, and I think we'll continue to see that trend for utilities as well, wanting to support the domestic supply chain here, as well as certainly for the IRA business as well. So when we're doing our pricing, we use primarily domestic balance and domestic pricing. And then that eliminates some of that, particularly

Speaker Change #155: supply chain here as well as certainly for the IRA business as well.

Speaker Change #156: So when we're doing our pricing, we use primarily domestic balance and domestic pricing, and then that eliminates some of that particularly. But what has happened, though, as soon as they talk about tariffs, the prices go up domestically as well as the other ones.

Nicole Bulgarino: But what has happened, though, is that as soon as they talk about tariffs, the prices go up, domestic as well as the other one. Well, thank you, and congratulations, Mark. Thank you. Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Julien Dumoulin-Smith with Jeffreys. Your line is open, please go ahead. Hey, good afternoon, team.

Speaker Change #156: Well, thank you, and congratulations, Mark.

Speaker Change #157: Thank you one moment as we move on to our next question.

Speaker Change #158: Our next question is going to come from the line of Julien Dumoulin-Smith with Jeffreys. Your line is open. Please go ahead.

Julien Dumoulin: Thank you very much, Jordan. It's been a real pleasure. I wish you all the best, sir. So maybe with that, I can come back to the R&G numbers you guys were talking about on the call here. I think if I heard this right, you talked about this arrangement representing 40 percent of the supply today but only 12 to 13 percent of the supply pro forma for 2026. If I heard that right, I mean, that's a pretty big implied step up in overall volumes.

Julian Domelin-Smith: Hey, good afternoon team. Thank you very much, Jordan. It's been a real pleasure. I wish you all the best, sir.

Speaker Change #160: So, maybe with that, just if I can come back to the RNG numbers you guys were talking about on the call here. I think if I heard this right, you talked about it representing this arrangement representing 40% of the supply today, but only 12 to 13% of the supply pro forma for 2020.

Speaker Change #161: 26? If I heard that right, I mean that's a pretty big implied step up in overall volumes. I just want to make sure I understand how you think about the scaling up of the volumes in megawatt terms or what have you from today through that 26 at the outset, and I got a quick follow-up.

Mike Backus: I just want to make sure I understand how you think about the scaling up of the volumes in megawatt terms or whatever you have from today through that 26 at the outset. And I got a quick follow-up. Julien, what I'd say was that if those plants were online today... We would, they would represent 40% of our total supply in 2024. They're not online.

Julie: And Julien, what I said was that if those plants weren't online today...

Julie: They would represent 40% of our total supply in 2024. They're not online today.

Julien Dumoulin: When they come online, we start supplying gas to the utility in 2026, will have brought a number of plants online since then, and it will represent about 12% of our forecasted volume in 2026, which means we're growing the business. Yeah, yeah, yeah, it's kind of like tripling. That's kind of what I was trying to get at. It's sort of a subtle affirmation of the overall trajectory, right? Kind of a, and if you think about what that implies, if you've got 50 megawatts today, doesn't that suggest you have that kind of ballpark, 150 pro forma for, you know, call it year-end 26 when you get this stuff online? I'm being a human calculator; I won't confirm or deny what you said.

Speaker Change #163: When they come online, we start supplying the gas to the utility in 2026.

Julie: We'll have brought a number of plants online since then, and it will represent about 12% of our forecasted volume in 2026.

Julie: which means we're growing the business.

Speaker Change #164: Yeah, yeah, yeah. It's kind of like a tripling. That's kind of what I was trying to get at. It's sort of a subtle affirmation of the overall trajectory, right, kind of a... And if you think about what that implies, if you've got 50 megawatts today, doesn't that suggest you've got, like, kind of ballpark 150 proforma for, you know, call it year-end 26 when you get this stuff online?

Mike Backus: I think what I would tell you is that our projects are sizable, right? These aren't dairy projects; they're primarily landfill gas. And many of the projects that are in development or construction now are sizable, and I'm going to add a lot to our portfolio over the next couple of years. But there's no reason, I mean, look, the landfill gas, what you've done before as well, you continue to scale at that roughly $1 million per megawatt, adding 100 megawatts here seems like a pretty significant contributor. Again, nothing novel per se, but you've implicitly reaffirmed that with this latest contract. I'm not sure I understand what you just asked, do you, Ben?

Speaker Change #165: Now, being a human calculator, I won't confirm or deny what you said. I think what I would tell you is that our projects are incisible, right? These aren't dairy projects. They're primarily landfill gas.

Speaker Change #165: And many of the projects that are in development or construction now are sizable, and I'm going to add a lot to our portfolio over the next couple of years.

Speaker Change #166: Right, but there's no reason, I mean, look, the landfill gas, what you've done before today as well, you continue to scale at that roughly dollar, one million per megawatt, adding 100 megawatts here, seems like a pretty significant contributor, just to, again, look, nothing novel per se, but you've implicitly reaffirmed that with this latest contract.

Julien Dumoulin: I mean, the plan, Julien, is that we add two to three plants a year, and what happens is that a couple of those plants that we add in are a good size, and that's why the numbers get a little bit bigger. Yeah, I think we're all saying the same thing. It's very sizable, $100 million EBITDA or something like that. Indeed. Excellent.

Speaker Change #166: I'm not sure I understood what you just asked. Well, I mean, the plan, Julien, is that we add two to three plants a year, and what happens, a couple of those plants that we add in, they're a good size, and that's why the numbers get a little bit...

Julien Dumoulin: And just to clarify the strategy on R&G, just because obviously, you've got this, you know, kind of medium-term contract. Is there any thought to change the tenor of the contracts that you have in R&G? I mean, obviously, there's some political risk, potentially in the R&G universe here. How do you think about your decision tree to take the market versus start the contract up on a more, you know, term basis?

Speaker Change #167: Excellent. And just to clarify the strategy on R&G, just because, obviously, you've got this, you know, kind of medium-term contract, is there any thought to change the tenor of the contracts that you have in R&G? I mean, obviously, there's some political risk potentially in the R&G

Speaker Change #168: How do you think about your decision tree to take market versus start the contract up on a more, you know, term basis here?

Mike Backus: We've actually evaluated terms, I think everybody here, this is our first time, and we've seen this market evolve. We pick and choose our terms based on optimal value, and I think we'll continue doing that. We've had opportunities to do much longer terms than five, but the discount's too steep. It doesn't make a lot of sense.

Speaker Change #169: We've actually evaluated trauma...

Speaker Change #170: We've seen this market evolve. We've picked and choose our term based on optimal value.

Speaker Change #170: We've looked at it, and I think we'll continue doing that. We've had opportunities to do much longer term than five, but the discount's too steep. It doesn't make a lot of sense.

Operator: But that market's evolving. And remember, when we first started doing R&G, we were doing these one, two-year deals. Then it got up to three, and then five.

Speaker Change #170: But that market's evolving, and remember, when we first started doing R&G, we were doing these one, two-year deals, and then it got up to three, and then five.

Ryan Finks: I think that will continue to evolve over time as the addressable market expands and demand continues to grow for the product. Thank you, and we're going to move on to our last question. And our last question is going to come from the line of Ryan Finks with Bill Reilly. Your line is open. Please go ahead. Yeah, hey guys, thanks for sneaking me in.

Speaker Change #170: I think that will continue to evolve over time as the addressable market expands and demand continues to grow for the product.

Speaker Change #171: Thank you and we're going to move on to our last question.

Speaker Change #172: And our last question is going to come from the line of Ryan Finks with B Reilly. Your line is open. Please go ahead.

Mike Backus: Maybe I'll just ask one more question on our behalf, for Michael. How much is the potential E-RIN pathway affecting your strategy here, if at all, and do you have any high-level thoughts on if and when that might come to pass? Well, as you're probably aware, we have a fairly sizable electric portfolio that we continue to operate that would benefit from that pathway. We maintain an incredible depth of bench that allows us to pivot at any time if we choose to go to electric brush R&G. We have, you know, a very dynamic event, because, as you know, this group develops power plants for others as well. Look, the ball's in motion.

Ryan Finks: Yeah, hey guys, thanks for sneaking me in. Maybe I'll just ask one more on R&G for Michael.

Ryan Finks: How much is a potential E-RIN pathway affecting your strategy here, if at all, and do you have any high-level thoughts on if and when that might come to pass?

Speaker Change #174: As you're probably aware, we have a fairly sizable electric portfolio that we continue to operate that would benefit from that pathway.

Speaker Change #175: We maintain an incredible depth of bench that allows us to pivot at any time if we choose to go to electric brush R&J. We have a very dynamic event, because as you know, this group develops power plants for others as well.

Ryan Finks: I mean, you know, it's going to be interesting to see how this moves along. If we have a current administration, you can be golly optimistic; we'll see that pathway open up. But candidly, with Musk's push with the other, the Republican side, he would benefit greatly from e-rinse. So, you know, we don't count on it. It's never been in any of our forecasts.

Speaker Change #175: I look at the balls in motion. I mean, you know, it's going to be interesting to see.

Speaker Change #175: Now this moves along. If we have a current administration, you get golly optimistic. We'll see that pathway open up.

Musk: Candidly, with Mosker's push with the Republican side, he would benefit greatly with e-rents. We don't count on it. It's never been in any of our forecasts. We don't budget for it. It's upside.

Operator: It's upside. Thank you. That does conclude today's question and answer session. Ladies and gentlemen, this also will conclude today's conference call. Thank you for participating and you may now disconnect. Everyone have a great day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good afternoon, everyone.

Speaker Change #177: Thank you. That does conclude today's question and answer session. Ladies and gentlemen, this also will conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.

Speaker Change #177: ? ? ? ? ? ? ? ? ?

Speaker Change #178: ?? ?? ?? ?? ??

Operator: We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; Doran Hole, Executive Vice President and Chief Financial Officer; and Nicole Bulgarino, Executive Vice President and General Manager, Federal and Utility Solutions.

George Sakellaris: 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.

Speaker Change #179: Doren Hull, Executive Vice President and Chief Financial Officer Nicole Bulgarino, Executive Vice President and General Manager, Federal and Utility Solutions

Operator: Mike Backus, Executive Vice President, Renewable Natural Gas, and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainty. Please refer to today's earnings materials, the Safe Harbor language on slide 2 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.

Speaker Change #180: Mike Backus, Executive Vice President, Renewable Natural Gas, and Mark Chiplock, Senior Vice President and Chief Accounting Officer.

Speaker Change #181: Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks.

Speaker Change #181: Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties.

Speaker Change #181: Please refer to today's earnings materials, the Safe Harbor language on slide 2 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.

Speaker Change #181: In addition, we use several non-GAAP measures when presenting our financial results.

Speaker Change #181: We have included the reconciliations to these measures in our supplemental information.

George Sakellaris: We have included the reconciliations to these measures in our supplemental information. I will now turn the call over to George.

George Sakellaris: Thank you, Leila, and good afternoon, everyone. Before I get started on the Q2 results, I would like to address the statement captured in our earnings release. Doran Hole has resigned as Chief Financial Officer to pursue other opportunities.

Speaker Change #181: I will now turn the call over to George. George? Thank you Leila, and good afternoon everyone. Before I get started on the Q2 results, I would like to address the statement captured in our earnings release.

Speaker Change #182: Doran Hole has resigned as Chief Financial Officer to pursue other opportunities.

George Sakellaris: We greatly appreciate Dora's contributions over the last five years and wish him the best in his future endeavors. Doran will continue to serve as chief financial officer until August 30, at which time Mark Chiplock could be promoted to chief financial officer. Mark has been with Ameresco for over 10 years, and he has served in multiple roles with increasing responsibility. I am thrilled to have Mark step into this role as a seasoned Ameresco leader.

Speaker Change #183: We greatly appreciate Dora's contributions over the last five years and wish him the best in his future endeavors.

Speaker Change #184: Doran will continue to serve as Chief Financial Officer until August 30, at which time Mark Chiplock could be promoted to the Chief Financial Officer.

Speaker Change #185: Mark has been with Ameresco for over 10 years, and he has served in multiple roles with increasing responsibility.

Speaker Change #186: I am thrilled to have Mark step into this role as a seasoned Ameresco leader.

George Sakellaris: In addition, Josh Baribeau will assume an expanded role as a senior vice president of finance. I believe our deep bench of seasoned executives will skillfully navigate this transition. And now, on to the results. Our momentum continues into the second quarter as the Ameresco team again delivers strong revenue growth across all four of our business lines, led by an impressive 45% growth in project revenue. At the same time, we continue to build on our excellent long-term visibility, increasing total backlog by 36% year over year to a record $4.4 billion. We will also bring a record 155 megawatts of energy assets into operation.

Speaker Change #186: In addition, Josh Baribeau will assume an expanded role as a Senior Vice President of Finance.

Speaker Change #186: I believe our deep bench of seasoned executives will skillfully navigate this transition.

Speaker Change #186: And now, on to the results.

Speaker Change #186: Our momentum continues into the second quarter as the Ameresco team again delivers strong revenue growth across all four of our business lines.

Speaker Change #186: led by an impressive 45% growth in projects revenue.

Speaker Change #186: At the same time, we continue to build on our excellent long-term visibility.

Speaker Change #186: Increasing total backlog.

Speaker Change #186: By 36% year-over-year to a record $4.4 billion, we are also bringing a record 155 megawatts of energy assets into operation.

George Sakellaris: And we still have 635 megawatts of assets in development, demand for our renewables, energy efficiency, and resiliency continues to be very strong, as our customers see, clean technology solutions that yield both cost savings and increased reliability.

Speaker Change #186: And we still have 635 megawatts of assets in development.

Speaker Change #186: Demand of our renewables, energy efficiency, and resiliency offerings continues to be very strong as our customers see. Clean technology solutions that yield more, cost savings, and increase reliability.

George Sakellaris: Ameresco's technology-agnostic platform and depth of engineering expertise allows us to stay at the forefront of the energy transition. While our market environment continues to be very strong, we do understand that there is a lot of uncertainty around the upcoming elections. Ameresco was established almost 25 years ago and has not only grown but thrived under a variety of administrations.

Speaker Change #186: Ameresco's technology agnostic platform and depth of engineering expertise allows us to stay at the forefront of the energy transition.

Speaker Change #187: While our market environment continues to be very strong, we do understand that there is a lot of uncertainty around the upcoming elections.

Mariasco: Ameresco was established almost 25 years ago and has not only grown but thrived under a variety of administrations.

George Sakellaris: The foundation of our business is helping customers, including the government, achieve cost savings and improve their energy infrastructure in a capital efficient manner. I have asked two key members of our executive team, Nicole Bulgarino and Mike Bacchus, to join us to discuss their business.

Mariasco: The foundation of our business is helping customers, including the government, achieve cost savings and improve their energy infrastructure in a capital-efficient manner.

Speaker Change #188: I have asked two key members of our executive team, Nicole Bulgarino and Mike Backus to join us to discuss their business. Nicole?

Nicole Bulgarino: Thank you, George, and good afternoon, everyone. As George just mentioned, we are excited about the outlook as big as our federal and utility businesses, as we expect continued demand for resilient clean energy projects for many years to come. Over the last few decades, while we have seen policy and messaging shift from one administration to another, the key drivers for our business have remained consistent. Our government agency and military customers continue to be focused on mission-critical projects that deliver secure and resilient power to support their bases, ports, facilities, office buildings, and military housing communities.

Nicole Bulgarino: Thank you George, and good afternoon everyone. As George just mentioned, we are excited for the outlook as good as our federal and utility businesses as we expect continued demand for resilient clean energy projects for many years to come.

Speaker Change #189: Over the last two decades, while we have seen policy and messaging shift from one administration to another, the key drivers for our business have remained consistent.

Speaker Change #189: Our government agency and military customers continue to be focused on mission-critical projects that deliver secure and resilient power to support their bases, ports, facilities, office buildings, and military housing communities.

Speaker Change #189: We are uniquely positioned to help our customers achieve these objectives by reducing load through the latest energy efficiency upgrades and by deploying distributed generation solutions.

Nicole Bulgarino: We are uniquely positioned to help our customers achieve these objectives by reducing load through the latest energy efficiency upgrades and by deploying distributed generation solutions. Across multiple administrations, we have delivered large, highly successful, comprehensive energy solutions for the Department of Defense and other government agencies.

Speaker Change #189: Across multiple administrations, we have delivered large, highly successful, comprehensive energy solutions for the Department of Defense and other government agencies. We have a very strong pipeline of additional projects and assets, integrating domestically sourced solutions using third-party financing.

Nicole Bulgarino: We have a very strong pipeline of additional projects and assets, integrating domestically sourced solutions using third-party financing. For our utility business, our customers are focused on providing cost-effective, reliable electricity while also transitioning to clean energy. In addition, they need to increase capacity to address the load growth driven by electrification and data center development. More recently, utility customers have been utilizing battery energy storage solutions for resiliency and grid stability, providing critical power during peak demand periods and allowing the grid to better handle an increased amount of intermittent renewable energy.

Speaker Change #190: For our utility business, our customers are focused on providing cost-effective, reliable electricity, while also transitioning to clean energy.

Speaker Change #190: In addition, they need to increase capacity to address the load growth driven by electrification and data center development.

Speaker Change #190: More recently, utility customers have been utilizing battery energy storage solutions for resiliency and grid stability, providing critical power during peak demand periods, and allowing the grid to better handle an increased amount of intermittent renewable energy.

Nicole Bulgarino: We are already experiencing rapid growth in our utility business, as seen by the meaningful increase in the number of significant announcements made in just the last few years. The battery storage systems we recently celebrated with the United Power Team in Colorado last week are a perfect example of this work, as is the large Capeno solar and battery storage system we brought online in June, which is a great example of an integrated solution serving both our federal and our utility customers at the same time.

Speaker Change #191: We are already experiencing rapid growth of our utility business, as seen by the meaningful increase in the number of significant announcements made in just the last few years. The battery storage systems we recently celebrated with the United Power Team in Colorado last week are a perfect example of this work.

Speaker Change #191: As is the large Capeno solar and battery storage system we brought online in June , which is a great example of an integrated solution serving both our federal and our utility customers at the same time.

Nicole Bulgarino: As you can see, our strong reputation for technology expertise and execution places us in a prime position to capitalize on the expanding opportunities in both the federal and utility markets. Our projects save money, enhance efficiency, provide clean, resilient, reliable power, while creating jobs and supporting local and national policies. This great value proposition is in high demand, regardless of changes in Washington. I will now turn the call over to Mike.

Speaker Change #191: As you can see, our strong reputation for technology expertise and execution places us in a prime position to capitalize on the expanding opportunities in both the federal and utility markets.

Speaker Change #191: Our projects save money, enhance efficiency, provide clean, resilient, reliable power, while creating jobs and supporting local and national policies.

Speaker Change #191: This great value proposition is in high demand regardless of changes in Washington. I will now turn the call over to Mike. Mike.

Mike Backus: Thank you, Nicole. Ameresco has been developing biofuel projects since our founding, and I can honestly say that I have never been as excited as I am now about its prospect. For a number of years, R&G's primary market has been the transportation sector, leveraging the RFS program. But as global markets have continued to focus on sustainability, primarily on the electric side of the carbon footprint equation, we are seeing many industries turn their attention to the thermal side.

Mike Backus: Thank you, Nicole. Ameresco has been developing biofuel projects since our founding, and I can honestly say that I have never been as excited as I am now about its prospects.

Speaker Change #192: For a number of years, R&G's primary market has been the transportation sector, leveraging the RFS program.

Speaker Change #193: But as global markets have continued to focus on sustainability, primarily in the electric side of the carbon footprint equation, we are seeing many industries turn their attention to the thermal side.

Mike Backus: This is a market with huge potential, with natural gas utility consumption over 440 times the volumes used in the transportation sector. And for Ameresco, it is a perfect opportunity as it involves longer-term profitable off-take contracts while reducing our exposure to rent. Gas utility RFPs for R&G supply agreements have picked up noticeably, as these parties seek to meet their carbon reduction goals. In the end, RNG is the only immediately available drop-in green substitute for natural gas, requiring no changes to the utility's existing infrastructure.

Speaker Change #193: This is a market with huge potential, with natural gas utility consumption over 440 times the volumes used in the transportation sector.

Amoresco: And for Ameresco, it is a perfect opportunity, as it involves longer-term profitable off-take contracts while reducing our exposure to rents.

Amoresco: Gas utility RFPs for R&G supply agreements have picked up noticeably, as these parties seek to meet their carbon reduction goals.

Amoresco: In the end, R&G is the only immediately available drop-in green substitute for natural gas, requiring no changes to the utility's existing infrastructure.

Mike Backus: This demand is not only driven by the utilities themselves but also by the states and their regulatory bodies as part of programs to reduce overall carbon impact. In light of this, we are very excited to announce that Ameresco has been chosen by a large California-based natural gas utility to supply R&G to help meet its state-mandated locally-sourced renewable content. If final approval is granted by the California Public Utility Commission, this would represent a meaningful portion of our R&G volume.

Amoresco: This demand is not only driven by the utilities themselves, but also by the states and their regulatory bodies as part of programs to reduce overall carbon impact.

Mike Backus: In doing so, this fixed price contract would also help to balance our portfolio to reduce long-term exposure to RIN volatility while benefiting from a five-year profitable revenue stream. And this potential contract represents only one of many opportunities across the country to sell our R&G via longer-term offtake agreements to non-transportation customers. In summary, Ameresco's biofuels business is uniquely positioned to capitalize on this expansion of the addressable market with the entrance of very large industries such as natural gas utilities. Importantly, this asset class also continues to meet our return hurdles without reliance on any IRA-related investment tax credit.

Amoresco: In light of this, we are very excited to announce that Ameresco has been chosen by a large California-based natural gas utility to supply R&G to help meet its state-mandated, locally-sourced renewable content.

Amoresco: If final approval is granted by the California Public Utility Commission, this would represent a meaningful portion of our R&G volume.

Amoresco: In doing so, this fixed-price contract would also help to balance our portfolio to reduce long-term exposure to RIN volatility while benefiting from a five-year profitable revenue stream.

Amoresco: And this potential contract represents only one of many opportunities across the country to sell our R&G via longer-term off-take agreements to non-transportation customers.

Amoresco: In summary, Ameresco's biofuels business is uniquely positioned to capitalize on this expansion of the addressable market with the entrance of very large industries such as natural gas utilities.

Amoresco: Importantly, this asset class also continues to meet our return hurdles without reliance on any IRA-related investment tax credits.

Mike Backus: We believe our R&G assets will continue to provide significant, stable, profitable growth for years to come. I will now turn the call over to Doran to comment on our financial performance in Outlook. Thanks, Mike, and good afternoon, everyone.

Amoresco: We believe our R&G assets will continue to provide significant, stable, profitable growth for years to come. I will now turn the call over to Doran to comment on our financial performance and outlook.

Doran Hole: I just want to say a huge thanks to George and the entire Ameresco team for what has been an amazing experience I've had here over the past five years. It is impossible to put into words how much I've learned from this management team and this board. I want to congratulate Mark and Josh on their new roles. It's been a real pleasure working with both of them.

Doran Hole: Thanks, Mike, and good afternoon, everyone.

Doran Hole: I just want to say a huge thanks to George and the entire Ameresco team for what's been an amazing experience I've had here over the past five years. It is impossible to put into words how much I've learned from this management team and this board.

Doran Hole: I feel very, very confident in their successful futures here at Ameresco. And I have to say, the company is in excellent hands. So with that, now, let's jump into the numbers. 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 revenues in the quarter grew 34% to $438 million, with each of our four business lines experiencing revenue growth.

Doran Hole: Our project's business revenue grew 45%, reflecting our focus on execution and conversion of our backlog. Energy asset revenue grew 6.8%, largely due to the greater number of operating assets compared to last year, improved production, as well as higher RIN prices.

Speaker Change #194: For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today.

Speaker Change #195: Our project's business revenue grew 45%, reflecting our focus on execution and conversion of our backlog.

Doran Hole: We brought a record 155 megawatts of assets into operation in the second quarter and are well on our way to meeting our anticipated 200 megawatt target for the year. Our large and growing base of operating energy assets now stands at 661 megawatts, which should provide decades of profitable revenue to the company. Our O&M business had a very strong quarter with revenue growing 13.9% as we continue to win more long-term O&M business, while revenue for our other line of business grew 9.5% with strong performance from our consultants. Gross margin of approximately 15% dipped as we incurred additional costs of approximately $6.6 million related to our SCE projects, plus a mix of some other lower margin projects.

Speaker Change #195: Our large and growing base of operating energy assets now stands at 661 megawatts, which should provide decades of profitable revenue to the company.

Speaker Change #195: Our O&M business had a very strong quarter with revenue growing 13.9% as we continue to win more long-term O&M business.

Speaker Change #195: while revenue for our other line of business grew 9.5% with strong performance from our consultant business.

Speaker Change #195: Gross margin of approximately 15% dipped as we incurred additional costs of approximately $6.6 million related to our SCE projects, plus a mix of some other lower margin projects.

Doran Hole: That said, our underlying gross margins, as well as the expected margins in our backlog, continue to match our historic ranges. In the second quarter, our revenue growth, as well as cost savings and operating leverage, drove adjusted EBITDA growth of 21% to $45.1 million. As George noted, our business development activity on both the project and asset side was very healthy during the quarter. The company's total project backlog was approximately $4.4 billion, growing 36% year-on-year and 9% sequentially.

Speaker Change #195: That said, our underlying gross margins, as well as the expected margins in our backlog, continue to match our historic ranges.

Speaker Change #195: In the second quarter, our revenue growth, as well as cost savings and operating leverage, drove adjusted EBITDA growth of 21% to $45.1 million.

Speaker Change #195: As George noted, our business development activity on both the project and asset side was very healthy during quarter.

George: The company's total project backlog was approximately $4.4 billion, growing 36% year-on-year and 9% sequentially.

Doran Hole: This growth was led by our contracted backlog, which reached $1.6 billion and grew 50% year-on-year and 12% sequentially. Turning to our balance sheet and cash flows, we ended the quarter with approximately $150 million in cash and corporate debt of approximately $273 million.

George: This growth was led by our contracted backlog, which reached $1.6 billion and grew 50% year-on-year and 12% sequential.

Speaker Change #196: Turning to our balance sheet and cash flows, we ended the quarter with approximately $150 million in cash and corporate debt of approximately $273 million.

Doran Hole: Our debt to EBITDA leverage ratio under our senior secured credit facility declined to 2.9 times and remains below the covenant level of 3.5 times. Additionally, our energy asset debt advance rate remained at a conservative 73%. Importantly, we believe our access to energy asset capital is excellent, with many financing options available, as demonstrated by us having secured approximately $170 million in new project financing commitments in the quarter. We also believe our energy assets remain highly attractive to many financing parties interested in teaming with Ameresco, given our proven capability.

Speaker Change #196: Our debt to EBITDA leverage ratio under our senior secured credit facility declined to 2.9 times and remains below the covenant level of 3.5 times.

Speaker Change #196: Our energy asset debt advance rate remained at a conservative 73 percent.

Speaker Change #196: Importantly, we believe our access to energy asset capital is excellent, with many financing options available, as demonstrated by us having secured approximately $170 million in new project financing commitments in the quarter.

Speaker Change #196: We also believe our energy assets remain highly attractive to many financing parties interested in teaming with Ameresco, given our proven capabilities.

Doran Hole: And on the corporate side, at the end of the quarter, we were pleased to have successfully raised $100 million in subordinated debt from Nuveen Energy Infrastructure Credit. Our cash flow continued to be strong, with positive adjusted cash flow from operations of approximately $154 million during the quarter.

Speaker Change #196: And on the corporate side, at the end of the quarter, we were pleased to have successfully raised $100 million in subordinated debt from Nuveen Energy Infrastructure Credit.

Speaker Change #196: Our cash flow continued to be strong with positive adjusted cash flow from operations of approximately $154 million during the quarter.

Doran Hole: Our eight-quarter rolling average, which best represents our implementation cycle, reached almost $45.6 million. In our supplemental slides, we highlight the increased momentum we have 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 SoCal ED, our performance testing has been approved, and we are working together on the final checklist for substantial completion for two of the three projects.

Speaker Change #196: Our eight-quarter rolling average, which best represents our implementation cycle, reached almost $45.6 million.

Speaker Change #196: In our supplemental slides, we highlight the increased momentum we have 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 projects.

Speaker Change #196: Speaking of SoCal ED, our performance testing has been approved and we are working together on the final checklist for substantial completion for two of the three projects.

Doran Hole: The third project, which was more significantly impacted by the 2023 rainfall, is expected to reach substantial completion in September of this year. Now, let me spend a few minutes on our new 2024 guidance. We're increasing our revenue range based on solid financial performance for the first half of the year and our strong visibility for the remainder of the year. Our new gross margin range reflects the expected full-year impact of cost budget revisions on the SCE projects of approximately $10 million.

Speaker Change #196: The third project...

Speaker Change #196: which was more significantly impacted by the 2023 rainfall is expected to reach substantial completion in September of this year.

Speaker Change #196: Now let me spend a few minutes on our new 2024 guidance.

Speaker Change #196: We're increasing our revenue range based on the solid financial performance for the first half of the year and our strong visibility for the remainder of the year.

Speaker Change #196: Our new gross margin range reflects the expected full-year impact of the cost budget revisions on the SCE projects of approximately $10 million.

George Sakellaris: Our new guidance range would yield revenue and adjusted EBITDA growth of 27% and 35%, respectively, at the midpoint. You can find more details on the revised 2024 guidance in our press release. Now, I'd like to turn the call back over to George for closing comments. Thank you, Doran.

Speaker Change #196: Our new guidance range would yield revenue and adjusted EBITDA growth 27% and 35% respectively at the midpoints.

Speaker Change #196: You can find more details on the revised 2024 guidance in our press release.

George Sakellaris: Ameresco thrives in an environment where customers seek clean energy solutions that result in cost savings and greater resiliency. We believe this environment and the demand for these solutions will continue regardless of the political environment in Washington. We are extremely well positioned with over $8.3 billion in future revenue visibility, and we are laser focused on executing our tremendous backlog and cash flow generation. In closing, I would like once again to thank our employees, customers, and stockholders for their continued support.

Speaker Change #196: Now I'd like to turn the call back over to George for closing comments.

George: Thank you, Doran. Ameresco thrives in an environment where customers seek clean energy solutions that result in cost savings and greater resiliency.

George: We believe this environment and the demand for these solutions will continue, regardless of the political environment in Washington.

Speaker Change #197: We are extremely well positioned with over 8.3 billion dollars in future revenue visibility and we are laser focused on executing our tremendous backlog and cash flow generation.

Speaker Change #198: In closing, I would like to once again thank our employees, customers, and staff holders for their continued support. Operator, we would like to open the call to questions now.

George Sakellaris: Operator, we would like to open the call to questions now. Thank you. To ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Speaker Change #199: Thank you. To ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question, please.

Operator: We ask that you please limit yourself to one question and one follow-up. One moment for our first question, please. And our first question is going to come from the line of Noah Kaye with Oppenheimer & Co. Your line is open, please go ahead.

Speaker Change #200: And our first question is going to come from the line of Noah Kaye with Oppenheimer & Co. Your line is open. Please go ahead. Thank you.

Noah Kaye: Oh, good afternoon. Thanks for taking the questions. The first one is around cash generation. The trend line here, especially in the last few quarters, around improving cash generation, is really encouraging. Obviously, in the past, there were some conversion headwinds related to specific projects, but I was hoping you could maybe take us a little bit deeper into what you've seen to drive some of the improvement in cash generation and your visibility into that continuing potentially additional levers. You know, you don't necessarily just have to talk about SoCal Edison but the business more broadly. Yeah, I will let Mark get into this, but go ahead, Mark.

Noah Kay: Oh, good afternoon. Thanks for taking the questions.

Noah Kay: The first one is around cash generation. The trend line here, especially in the last few quarters, around the improving cash generation is really encouraging. Obviously, in the past, there were some conversion headwinds related to specific projects, but I was hoping you could maybe take us a little bit deeper into what you've seen to drive some of the improvement in cash generation and your visibility into that continuing potentially additional levers. You know, you're not necessarily just have to talk on SoCal Edison, but in the business more broadly.

Mark Chiplock: Yeah, so I think what we're seeing, so if you look at the quarter, a lot of it's timing in Q2, but some of the things that I found to be encouraging that I think will help us to continue to show the improved cash flow are that, you know, a lot of billing milestones are front-end loading now in some of our contracts. So we're seeing those come in. You see it on the federal ESPC when you net the liability and receivable, and you also see it on our deferred revenue line.

Mark Chiplatt: Yeah, I will let Mark get into this, but go ahead, Mark. Yeah, so I think what we're seeing, so if you look in the quarter, a lot of it's timing in Q2, but some of the things that I found to be encouraging that I think will help us to continue to show the improved cash flow is that, you know, a lot of billing milestones, we're front-end loading now in some of our contracts. So we're seeing those come in. You see it on the federal ESPC when you net the liability and the receivable, and you also see it on our deferred revenue line.

Mark Chiplock: We also saw the proceeds from the conversion of, or the transfer of ITC in a quarter as well. So I think, you know, those are some of the, you know, I think the positives that are helping that trend. I think, you know, and keep in mind, you know, important stuff is always going to be wealthy, right, which is why we started to roll out this, this new metric. But yeah, we're encouraged by some of the things that we're seeing and the changes we're making on the contractual side that are keeping those billing milestones a little bit more front-end loaded to keep the project capital positive throughout.

Mark Chiplatt: We also saw the proceeds from the conversion of, or the transfer of ITC in a quarter as well. So I think, you know, those are some of the, you know, I think the positives that are helping that trend, you know, I think, Noah, keep in mind, you know, the quarterly stuff is always going to be lumpy, right, which is why we started to roll out this.

Mark Chiplatt: This new Patrick, but yeah, we're encouraged by some of the things that we're seeing and the changes we're making on the contractual side that are keeping those billing milestones a little bit more front-end loaded to keep the projects capsule-positive throughout.

Mark Chiplock: Yeah, and if I might add a little bit there, Noah, focusing on a particular issue generates pretty good results. By the way, sending out the bills on time, following up in the collection, and so on, and it just helped a lot because the accounts receivable were substantial. And then back then when the interest rates weren't that high, probably we weren't paying as much attention as we should have been.

Speaker Change #202: Yeah, and if I might add a little bit to that there, Noah, you know...

Speaker Change #203: Focusing on a particular issue, you get, generates pretty good results, by the way, sending out the bills on time, following up in the collection, and so on, and it just helped a lot, because the accounts receivable, it was substantial, and then...

Speaker Change #203: Back then when the interest rates weren't that high, probably we weren't paying as much attention as we should be paying.

George Sakellaris: And the fact that the last, I would say now, nine, ten months, we've been focusing a lot. We have seen all those metrics come down, and the cash generated is going up. And we will continue to focus on that. I still think there is room for improvement in that area.

Speaker Change #204: I would say now nine, ten months we've been focusing a lot. We have seen all those metrics come down and the cash generated and going up. And we will continue to focus on that. I still think there is room for improvement in that area.

Speaker Change #206: Thanks. Second question on the R&G business. You know, Mike called out...

Noah Kaye: And I think, you know, Mike, you did a good job of explaining why that kind of predictability and visibility is helpful. So, we'd just like to understand what is the opportunity and the appetite of the company to continue to increase these fixed contracts as a portion of the R&G exposure? Is there any kind of target we should think about that would be optimal for a portfolio?

Speaker Change #207: the contract with a large California natural gas utility supply.

Speaker Change #208: RNG. And I think, you know, Mike, you did a good job talking on these points of why that kind of predictability and visibility is helpful. So we'd just like to understand what is the opportunity and the appetite of the company to continue to increase

Speaker Change #209: So these fixed contracts as a portion of the R&G exposure, is there any kind of target we should think about that would be optimal for a portfolio? And then how does this potentially contribute to more favorable financing on the development of the asset?

George Sakellaris: And then, how does this potentially contribute to more favorable financing for the development of the asset? Very, very good question. I will ask Mike to address it, and then I will come back at the end with what percentage we might get into long-term contracts. Go ahead, Mike.

Speaker Change #210: Very, very good question. I will ask Mike to address it, and then I will come back at the end. What percentage we might get into long-term contracts? Go ahead, Mike. I think generally, we've said to the industry in the past that we try to fix our pricing 50% of the volume on our new projects.

Mike Backus: I think generally, we've said to the industry in the past that we try to fix our pricing 50% of the volume on our new projects. This is a unique contract vehicle in that it's leaving the transportation sector and going to a voluntary market. Obviously, great credit with the utility and the terms will, I think, without a doubt, help with the financing of these projects.

Mike Backus: This is a unique contract vehicle in that it's leaving the transportation sector and going to a voluntary market. Obviously, great credit with the utility and the terms will, I think, without a doubt, help on the financing of these projects.

Mike Backus: And I think we're going to start seeing more and more of this, of our gas going to the non-transportation sector as that market continues to expand. And the financing, Don, do you want to add something? I mean, no, not surprisingly, when you get fixed-price contracts, the banks like the stability of those cash flows and the fact that we're actually now striking these projects, even though this first one might be five years. As more and more of those cash flows get fixed, we would expect that we'll get better advance rates.

Mike Backus: And I think we're going to start seeing more and more of this, of our gas going to the non-transportation sector as that market continues to expand.

Mike Backus: And the financing, Donald, you want to add something? I mean, no, not surprisingly, when you get fixed price contracts, the banks like the stability of those cash flows, and the fact that we're actually now striking these projects, even though this first one might be five years, as more and more of those cash flows get fixed.

Mike Backus: Obviously, we'll be pushing for tighter spreads in the future, but it's definitely one of those characteristics. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Stephen Gengaro with Stiefels. Your line is open. Please go ahead. Thanks. Good afternoon, everybody.

Donald: We would expect that we'll get better advance rates, and obviously we'll be pushing for tighter spreads in the future, but it's definitely one of those characteristics.

Speaker Change #211: Thank you, and one moment as we move on to our next question.

Speaker Change #212: And our next question is going to come from the line of Stephen Gengaro with Stiefels. Your line is open. Please go ahead.

Stephen Gengaro: Thank you. George, I thought you might have been about to add something to the..., the last question before I asked mine. Okay, okay, sorry.

Stephen Gengaro: Thanks. Good afternoon, everybody.

Stephen Gengaro: George, I thought you might have been about to add something on the last question before I asked mine.

George Sakellaris: Um, so I think two things for me, and one is, I'll start with, I'm not sure how much you want to get into this. But when you look at your energy assets backlog, and you look at your projects backlog, and SCE rolling off at a high level, what should we think about as the big positives and negatives as we go into 2025? The big positives and negatives.

George: Okay, okay, sorry. So, I think two things for me, and one I'll start with, I'm not sure how much you want to get into this, but

Speaker Change #214: When you look at your energy assets backlog and you look at your projects backlog and SCE rolling off, at a high level, what should we think about as the big positives and negatives as we go into 2025?

George Sakellaris: I mean, the big part of it is the fact that we have a great, great backlog and great execution of that backlog. And the other good thing that I wanted to point out, and we're doing the analysis earlier on that backlog, the actual gross profit margin, it's been going up every quarter since we started focusing on screening what kind of projects we'll get, trying to push the margins up. So that's a great, great positive.

Speaker Change #215: The big positive and negative. I mean the big part of it is the fact that

Speaker Change #216: We have a great, great backlog, an execution on that backlog, and the other good thing that I wanted to point out, and we're doing the analysis earlier, on that backlog, the actual...

Speaker Change #216: Gross profit margin has been going up every quarter.

Speaker Change #216: Since we started focusing on screening what kind of projects we'll get, we're trying to push the margins up.

George Sakellaris: The backlog that we have on the assets, whether it's the battery storage or the solar plants or the renewable assets, the gas plants that will be coming up, they are a great, great part of this. The only negative is elections; they might have an impact, but on the other hand, and that's why I wanted Nicole and Mike to be here today to explain that the federal business has done excellently under any administration, and on renewable gas, now that the utilities are getting to be more and more in the states and requiring the utilities to have more renewable natural gas as part of the percentage that they provide their customers, it's very good.

Speaker Change #216: So that's a great, great part of the backlog.

Speaker Change #216: that we have on the assets, whether it's the battery storage, or the solar plants, or the renewable assets.

Speaker Change #216: on the gas plants that will be coming up.

Speaker Change #216: They are a great, great part of this. The only negative, it's elections, they might have an impact, but on the other hand...

Speaker Change #217: And that's why I wanted Nicole and Mike to be here today to explain that the federal business, it has done excellent under any administration.

Speaker Change #217: And on the renewable gas, now that the utilities...

Speaker Change #217: are getting to be more and more, and the states are requiring the utilities to have more renewable natural gas as part of the percentage that they provide their customers.

George Sakellaris: And with Southern California rolling off, I think the risks, the negatives, are much lower, and the potential of the goods is going to be much higher. Okay. Okay. Great. Thanks, Georgia.

Speaker Change #218: It's very good, with Southern California rolling off.

Speaker Change #219: I think the risks, the negatives are much lower and the potential, the good are much higher.

Speaker Change #219: [inaudible]

George Sakellaris: And maybe just as a follow-on to that, when you look at the project's portfolio. You mentioned this a little bit, but the embedded margins, assuming... The Emancipation Support Committee, 2017, over the next one to two years. Is that a fair assessment?

Speaker Change #219: Great. Thanks, Georgia. And maybe just as a follow on to that, when you look at

Speaker Change #220: the project's portfolio.

Speaker Change #221: You mentioned this a little bit, but the embedded margins, assuming...

Speaker Change #222: Strong execution of the backlog. You should have margin improvement in projects.

Speaker Change #223: over the next one to two years. Is that a fair assessment?

George Sakellaris: That is, yes, that is a fair statement. That's why, and it can become a focus. And what I have found out, especially as the company grows, and we have grown a lot in the last five years, and then with the COVID situation, they're bringing some difficulties. I think the team here and there took on some projects that did not have the best margins, so they didn't have all the risk mitigators that they should have. But refocusing the organization, margins, and minimizing risks associated with those margins is key, and it's burning food so far. So, a lot of positive for next year. Thanks. And just one other quick one.

Speaker Change #224: That is, yes, that is a fair, that's a fair statement.

Speaker Change #225: That's right, and it can become a focus, and what I have found out, especially as the company grows, and we have grown a lot the last five years, and then with the COVID situation there brings some difficulties.

Speaker Change #226: I think the team here and there, they took some BAM projects that did not have the best margins so they didn't have all the risk mitigators that they should have.

Speaker Change #226: But refocusing the organization, margins, and minimize risks associated with those margins is key, and it's burning food so far. So a lot of positive for XCF.

Stephen Gengaro: You've done this a little bit in the past. Is there anything, what should we consider as we think about seasonality in the back half of the year? You kind of guided for 2020 for just the, how should we think about how that unfolds in the third and fourth quarters? Any color on that?

Speaker Change #227: Thanks, and just one other quick one, you've done this a little bit in the past.

Speaker Change #228: Is there anything, what should we consider as we think about seasonality in the back half of the year, kind of guided for 2020, for just the, how should we think about how that unfolds in the third and fourth quarters? Any color around that?

Mark Chiplock: Yes, a good question, and I will let Mark follow up because we've been dreaming about all the numbers. Yeah, I think maybe just briefly, you know, when it comes to shaping, unlike last year, I think we would expect Q3 and Q4 to be fairly similar, maybe a small bump in Q3 related to normal seasonality, but they should be a little bit more similar, Q3 and Q4, as opposed to the past year. Thank you, Mark.

Speaker Change #228: Yes, good question, and I will let Mark follow up, because we've been dreaming about all the numbers. Yeah, I think maybe just briefly, you know, when it comes to shaping, unlike last year, I think we would expect Q3 and Q4 to be fairly similar. Maybe a small bump in Q3 related to normal seasonality, but they should be a little bit more similar.

Mark Chiplatt: Q3 and Q4, as opposed to this past year.

Operator: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of George Gianarikas with Canaccord Genuity. Your line is open; please go ahead. Hi, good afternoon, everyone.

Mark Chiplatt: Great. Thank you, Mark.

Mark Chiplatt: Thank you and one moment as we move on to our next question.

Speaker Change #229: And our next question is going to come from the line of George Gianarikas with Canaccord Genuity. Your line is open, please go ahead.

George Gianarikas: Thank you for taking my questions. I'd just like to understand a little bit about the revised revenue and EBITDA guidance just to make sure we're all clear. So there's a $5 million reduction at the midpoint based on increased costs. Just to be clear, if you didn't have those costs... Would you have raised it by $5 million? Is there anything else that's pulling down the EBITDA guidance for 2024? Is it just the S&P?

George Gianerakis: Hi, good afternoon, everyone. Thank you for taking my questions.

George Gianarikas: I'd just like to understand a little bit about the...

George Gianarikas: Revised revenue and EBITDA guidance just to make sure we're all clear.

Speaker Change #231: There's a $5 million reduction at the midpoint based on increased costs from SCE. Just to be clear, if you didn't have those costs,

Speaker Change #231: Would you have raised $5 million? Is there anything else that's pulling down the EBITDA guidance for 2024? Is it just the FCE costs?

George Sakellaris: Yeah, basically, we try to reflect the impact that the Southern California projects have. And even though, you know, we had some other minor, other projects that they adversely impacted. However, and I'll let Mark explain a little bit more, but basically, that was the impact because we had thought that the project we had done after the last quarter. Yeah, I think that's right. I think it was the modifications were really focused on, at least the EBITDA was on the assumed cost for S&E.

Speaker Change #232: that you alluded to.

Speaker Change #233: Yeah, basically we try to reflect the impact that the Southern California projects have.

Speaker Change #234: And even though, you know, we had some other minor, other projects that they adversely impacted, however, and I'll let Mark explain it a little bit more, but basically that was the impact because we had thought that the project we had been done after the last quarter.

Mark Chiplatt: Yeah, I think I'm right. I think it was the modifications were really focused on, at least the EBITDA were on the...

Mark Chiplock: We're certainly having strong revenue performance, but, you know, obviously, you've seen a little bit lower margin profile. So, you know, we took that into account, but I think based on the first half performance and what visibility we have, we made those changes, and we feel pretty good about them. Yeah. And then maybe just a question on the backlog, the big growth and backlog. I'm curious as to whether you can give us a little bit more detail as to what's going on there.

Mark Chiplatt: on the assumed cost for SCE. We're certainly having strong revenue performance, but obviously you've seen a little bit lower margin profile, so we took that into account. But I think based on the first half performance and what visibility we have, we made those changes.

Mark Chiplatt: And we feel pretty good about them. Yeah.

Speaker Change #235: And then maybe just a question on the backlog, the big growth and backlog. I'm curious as to whether you can give us a little bit more detail as to what's going on there, where do you see significant growth, and is anything related to data center opportunities? Thank you.

George Sakellaris: Where do you see significant growth? And is it related to, Yeah, and actually... It's across the board.

Speaker Change #236: Yeah, and actually...

George Sakellaris: We see growth across the board. But since Nicole is here and she's the project's queen, I will let her talk a little bit. Sure. I think a large percentage of our growth and backlog is coming from the market drivers that we just described earlier a few minutes ago, really related to battery energy storage. And we're seeing that in our project business, on a lot of our federal utility markets. So that's probably the largest portion of that.

Speaker Change #236: It's across the board, we see growth across the board, but since Nicole is here...

Nicole Bulgarino: And to the project's queen, I will let her talk a little bit. Sure. I think a large percentage of our growth and backlog is coming from the market drivers that we just described earlier, a few minutes ago, really related to the battery energy storage. So we're seeing those in our project business.

George Sakellaris: And then certainly not captured in the pipeline right now, but there is a lot of work that we're doing to capitalize on batteries for the data centers and energy. It's a little too early right now for that to be in the awarded pipeline. Great, thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Kashi Harrison with Piper Sandler. Your line is open. Please go ahead.

Speaker Change #237: on a lot of our federal utility markets. So that's probably the largest portion of that. And then certainly, not captured in the pipeline right now, but there is a lot of work that we're doing to capitalize on batteries for the data centers and energy.

Speaker Change #237: It's a little too early right now for that to be in the awarded pipeline.

Speaker Change #239: Great, thank you.

Speaker Change #239: Thank you and one moment as we move on to our next question.

Speaker Change #240: And our next question is going to come from the line of Kashi Harrison with Piper Sandler. Your line is open. Please go ahead.

Kashi Harrison: Good afternoon, thanks for taking the questions, and Doran, best of luck with your future endeavors. Um, so, you know, yeah, so first question is for Mike. Sorry if I missed this, but did you quantify the size of this R&G project you're working on with the California utilities? A megawatt or EBITDA number would be great.

Kashi Harrison: Good afternoon. Thanks for taking the questions and Doran, best of luck with the future endeavors.

Speaker Change #242: So, you know...

Kashi Harrison: Yeah, so first question is for Mike. Sorry if I missed this, but did you quantify the size of this R&G project you're working on with the California utilities? A megawatt or EBITDA number would be great. Just trying to think of the scale of this project relative to the portfolio.

Mike Backus: Just trying to think of the scale of this project relative to the portfolio. Yeah, there are two projects. And so it's about 22-23 megawatts between the two. One comes online this quarter coming up, and the other one will come online in early 2026.

Mike Backus: Yeah, there's two projects and so it's about 22-23 megawatts between the two.

Speaker Change #243: One comes online actually this quarter coming up, and the other one will come online in early 2026.

Mike Backus: The agreement with the utility doesn't actually begin to be effective until January 1, 2020, so that's a material portion of our portfolio. If it was, if those two projects were online today, they would represent probably close to 40% of our supply. And in 2026, we're forecasting it could be around 12-13% of our supply. That's helpful. I appreciate the added color.

Speaker Change #244: The agreement with the utility doesn't begin actually effective until January 1, 2026.

Speaker Change #245: It's a material portion of our portfolio. If those two projects were online today, it would represent probably close to 40% of our supply, and in 2026 we're forecasting it could be around 12-13% of our supply.

Kashi Harrison: And then my next question is just a follow-up on the budget revisions to SOCA Ed. You know, I think you flagged $10 million of total revisions in EBITDA. Can you just help us think through the risk of potential further budget revisions? For example, if the project is delayed another quarter, you know, what does that do to that forecast? And then are these overruns separate from the liquidated damages, or are these tied to the liquidated damages? Any color on that would be appreciated.

Speaker Change #246: That's helpful. I appreciate the added color. And then my next question is just a follow-up on the budget revisions to the SOCA ad.

Speaker Change #247: I think you flagged $10 million of total revisions in EBITDA. Can you just help us think through the risk of potential further budget revisions, for example?

Speaker Change #247: If the project is delayed another quarter, you know, what does that do to that forecast? And then are these overruns separate from the liquidated damages or are these tied to the liquidated damages? Any color on that would be appreciated. Thank you. Thank you.

Mark Chiplock: Thank you. Yeah, Cassie, I'll start and let other guys chime in later. So, the $10 million across the entire year is the expectation. And you've seen some mention of adjustments already in Q1. We talked about $6.6 million in Q2, primarily related to insurance premiums as the projects continue to get delayed. But I don't know that we see a huge risk of that number going up from there. I think we've been—it's a pretty conservative estimate of what we might face as we bring those to substantial completion. That is completely separate from anything related to LDE.

Speaker Change #248: Yeah, Cassie, I'll start and let other guys chime in. So, the $10 million across the entire year is the expectation. So, you...

Speaker Change #249: We've seen some mention of adjustments already in Q1, we talked about $6.6 million in Q2, primarily related to insurance premiums as the projects continue to get delayed.

Speaker Change #250: I don't know that we see a huge risk of that number going up from there. I think we've been—it's a pretty conservative estimate of what we might face as we bring those to substantial completion. That is completely separate from anything related to LDs.

Operator: Thank you, and one moment as we move on to our next question. And our next question comes from the line of Eric Stine with Craig Hallam Capital Group. Your line is open, please go ahead. Hey, everyone.

Speaker Change #251: Thank you and one moment as we move on to our next question.

Speaker Change #252: And our next question comes from the line of Eric Stine with Craig Hallam Capital Group. Your line is open, please go ahead.

Eric Stine: So just curious about the project business, you mentioned that you had some larger projects in this quarter, and that's why the margin came in where it was. But Georgie also talked about some projects that were priced maybe in the past that were rolling through, and that that impacted margin. Just curious, I mean, is this trend toward larger projects? Is that something that you expect to sustain?

Eric Stein: Hey everyone, so just curious, on the project business you mentioned that you had some larger projects in this quarter and that's why the margin...

Eric Stein: came in where it was, but Georgie also talked about some projects that were priced, maybe

Speaker Change #254: In the past that we're rolling through and that that impacted margin. Just curious, I mean, is this trend to larger projects? Is that something that you expect?

George Sakellaris: Or is this more about, hey, you just set a mix of that in the quarter plus some of those older contracts? I mean, that's what impacted the margin in the quarter. Primarily, we had a large portion of the project executed for Quora coming from some of the European EPC contracts that we have signed over there. And then when you book the revenue, because we consulted on the top line and then the margin, we found only half of the actual margin, and it impacted it more than normally.

Speaker Change #254: to sustain, or is this more about, hey, you just had a mix of that in the quarter, plus some of those older contracts, and that's what impacted the margin in the quarter.

Speaker Change #255: Primarily, we had some large portion of the project executed for the Quora.

Speaker Change #256: Coming from some of the European EPC contracts that we have signed.

Speaker Change #257: over there. And then when you book the revenue...

Speaker Change #258: because we consulted on the top line and then the margin and we found only half of the actual margin and it impacted more than normally but the overall though what we have on the backlog the projects that's what makes me feel very good it's going up.

George Sakellaris: But the overall, though, what we have on the backlog of the projects, that's what makes me feel very good; it's going up. But any given Quora, the mixture might change, and that adversely impacts your margin. Do you want to add anything to that? I think it's just mixed.

Speaker Change #259: But any given quarter, the mixture might change, and that adversely impacts your money. Do you want to add anything to that? I think it's just mixed. Yeah.

Mark Chiplock: Okay, no, that's great. And then maybe a second one for me, just more high level. I know FCE, the contracts there, a lot of that is out of your control, it's weather-related, etc. But as you sign more of these energy storage awards, I'm just curious about some of the lessons learned, how you're structuring contracts differently, you know, anything that you might be changing based on what happened here for SoCal Edison. We have become the professors of the industry.

Speaker Change #259: Okay.

Speaker Change #260: So that's great and then maybe second one for me just more high-level. Yeah, I know the FCE

Speaker Change #261: The contracts there, a lot of that is out of your control, it's weather related, etc.

Speaker Change #262: But as you sign more of these energy storage awards, I'm just curious, some of the lessons learned.

Speaker Change #263: How you're structuring contracts differently, you know, anything that you might be changing based on what's happened here for SoCal Edison.

Mark Chiplock: We learned a lot, and every contract that we sign right now has different great, great protections for us, but you can see all the backlog, all the worries that we have, and the execution that we have been able to achieve past Southern Cal. For example, United Power, you know; we just finished it, and we broke the record.

Speaker Change #264: We have become the professors of the industry. We learned a lot and every contract that we sign right now has brought different great great protections for for us.

Speaker Change #264: But you can see all the backlog, all the worries that we have, and the execution that we have been able to achieve.

Speaker Change #265: Bass, Souther, and Kalb.

George Sakellaris: Within one year, from signing the contract to actually getting six out of the eight projects already up and running, and the other two, they are fully contracted, and they are being commissioned right now. Then you go down to Hawaii, the Kupona projects, and even with labor difficulties there, it's up and running again, with solar as well as 44 megawatts of battery storage. And the one that we recently announced in the UK? It's an excellent, excellent project, and we have minimized just about all the risks associated with it.

Speaker Change #265: For example, the United Power.

Speaker Change #265: You know, we just finished it and we broke the record within one year from signing the contract to actually getting six out of the eight projects already up and running, and the other two, they are fully contracted, they are being commissioned right now.

Speaker Change #265: Then you go down to the Hawaii, the Kapono projects, and even with labor difficulties there, it's up and running again, solar as well as...

Speaker Change #265: 44 megawatts of battery storage.

Speaker Change #265: and the one that was recently announced in the UK. It's an excellent, excellent project and we have minimized just about all the risks associated with it.

George Sakellaris: And yeah, and the only thing I'll add on the one in the UK is that it's a really good example of where we're focusing on improving those contracts by frontloading more of the milestones. And so that was, you know, you saw a big part of that come through our deferred revenue line on cash flow in Q2. So, you know, we're making those changes to improve cash flow and liquidity.

Speaker Change #266: Yeah, and the only thing I'll add on the one in the UK, it's a really good example of where we're focusing on improving those contracts by front-loading more of the milestones and so that was, you know, you saw a big part of that come through our deferred revenue line on the cash flow in Q2, so, you know, we're making those changes to improve cash flow and liquidity.

Operator: Okay, thank you. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Osha with Guggenheim. Your line is open. Please go ahead.

Speaker Change #267: Got it. Okay, thank you.

Speaker Change #268: Thank you and one moment as we move on to our next question.

Speaker Change #269: And our next question is going to come from the line of Joseph Osha with Guggenheim. Your line is open. Please go ahead.

Speaker Change #270: Sir, your line may be moved.

Operator: Sir, your line may be moved. All right, we'll move on to our next question. And our next question is going to come from the line of Craig Irwin with MKM. Your line is open. Please go ahead. Good evening.

Speaker Change #271: All right, we'll move on to our next question.

Speaker Change #271: And our next question is going to come from the line of Craig Irwin with MKM. Your line is open, please go ahead.

Craig Irwin: Thanks for taking my question. So, George, I wanted to ask if there's some metrics you can share with us around organic growth, either in revenue or contracted backlog, away from the energy storage business. The legacy projects business of the company before you started moving into energy storage, you know. Maybe if you had a storage contribution to your contracted backlog that could help with visibility, or if you could help us with what the storage contribution to revenue growth is year over year in the quarter. I will give it on a high level.

Craig Irwin: Good evening. Thanks for taking my question. So George, I wanted to ask if there's some metrics maybe you can share with us around organic growth either in revenue or contracted backlog away from the energy storage business.

George: The legacy projects business of the company before you started moving into energy storage, you know,

George: Maybe if you have a storage contribution to your contracted backlog that could help with visibility, or if you could help us with what the storage contribution to revenue growth is year-over-year in the quarter.

George Sakellaris: The battery storage projects right now represent about almost 10% of $4.4 billion. Actually, they are between $350 to $400 million. And the growth on the others, it's the federal government, it's across the board.

Speaker Change #272: I will give it on the high level. The battery storage projects right now, they represent about almost 10% of $4.4 billion. Actually, they are between $350 to $400 million, the battery storage.

Speaker Change #273: And the growth on the others, it's the federal government, it's across the board, it's the traditional core of business, and that's why you see the margins slowly picking up.

George Sakellaris: It's the traditional core of business. That's why you see the margins slowly picking up. So, and that's why I made the point to clarify that a little bit because we're looking at the federal sector, even though we haven't, and like usually, revenues come from the federal government, and if you do the arithmetic, about one-third of the backlog right now is a federal government project. So, at any given time, especially some of the EPC projects that come in fast, by the way, from So they impact the margin; they might hit the margin for that particular quota, but they are contributing great leverage to the profit, the gross profit line.

Speaker Change #273: So, that's why I made the point to clarify that a little bit.

Speaker Change #273: Because we're looking at the federal sector even though we haven't, like usually the revenues one-third come from the federal government, and if you do the arithmetic, about one-third of the backlog right now is a federal government project.

Speaker Change #273: So it's a...

Speaker Change #273: But at any given time, especially some of the EPC projects that they come in.

Speaker Change #273: And then especially if you front load them.

Speaker Change #274: on the execution behind the material and so on. So they impact the margin, they might hit the margin for that particular product, but they are contributing great leverage on the profitable, the gross profit line.

Craig Irwin: Excellent. That's really good progress. So my second question I want to ask is about the asset business, right? So you seem to be outperforming there, some nice growth year over year in EBITDA. Many of the other companies in the sector, both private and public, are having issues, let's just say politely. Even a couple of the very large portfolios of projects that were slated to get built, the customers are apparently taking them away from the partners that they've identified.

Speaker Change #275: Excellent, that's strong progress.

Speaker Change #276: So my second question I wanted to ask is about the assets business, right? So you seem to be outperforming there, some nice growth year-over-year in EBITDA.

Speaker Change #277: May the other companies in the sector, both private and public, are having issues, let's just say, politely, you know, even a couple of the very large, large portfolios of projects that were slated to get built, the customers are apparently taking them away from the

Craig Irwin: Can you maybe talk to us a little about your philosophy about, you know, how you structure these projects that allow you to generate, you know, positive returns in difficult periods? And can you maybe talk about whether or not you'd be interested in these portfolios?

Speaker Change #278: Can you maybe talk to us a little bit about your philosophy about, you know, how you structure these projects that allows you to generate, you know, positive returns in difficult periods? And can you maybe talk about whether or not you'd be interested in these portfolios?

George Sakellaris: Yeah, it basically starts from the beginning, you know, the assets that we are developing, and we try to derisk them. And the ones that we keep, we're looking for higher returns than some other people would look at. And that's why we have said in the past, because we have a very, very good development team. And just think about it, that we are across the country, and that basically gets lots of projects.

Speaker Change #279: Yeah, it's basically, it starts from the beginning, you know, the assets that we are developing and we try to derisk them.

Speaker Change #279: And the ones that we keep, we're looking for higher returns than some other people would look at. And that's why we have said in the past, because we have a very, very good development team. And just think about it, that we are, of course, the country, and that basically gets lots of projects.

George Sakellaris: So the ones that we will keep, we do it for all of them, but the ones we'll keep especially, not only do we derisk them, but we're looking for higher returns that will exceed our cost of capital. And that's why, you know, raising this new Vini Capital, even though it was a little bit higher in interest, we feel very confident that we can invest that in at considerably higher returns than what we are paying in their interest. We're paying them, in addition to it being a great company, and they're going to be good partners for another project.

Speaker Change #279: So the ones that we will give, we ate.

Speaker Change #279: [inaudible]

Speaker Change #279: And we can invest that, that's considerably higher return than what we are paying in their interest, we're paying them. In addition to it's a great company and they're going to be good partners for another project. So I think it's doing our job up front.

George Sakellaris: So I think doing our job upfront, and I've been in this business for a long time, and we take risks, and then with Doran's help and Jas' help, we derisk these projects a lot. And that's why the investment committee that we have, that does all the due diligence and plays all kinds of what-if games, what if this happened, what if that happened, and then at the end of the day, we say, okay, we will keep that project, or that project is lined up for sale.

Doran Hole: And I've been in this business for a long time, and we do risk. And then with Doran's help and Jeff's help, we do risk these projects a lot. And that's why the investment committee that we have does all the due diligence and playing all kinds of what-ifs games.

Doran Hole: What if this happened, what if this happened, and then at the end of the day, we say, okay, we will keep that project or that project is lined up for sale. And that's why we developed a bid and we say that part of our assets in our portfolio, we will not...

Doran Hole: And that's why we developed a bid, and we say that part of our assets in our portfolio we will not develop before we put them on our balance sheet; we will sell them at a very good profit because the market is so liquid out there. Craig, I'll just add that that the market for our development sell assets is exactly the reason why we're probably not going after any portfolios that are out there as a buyer.

Doran Hole: Now we develop it. Before we put them on our balance sheet, we will sell them at a very good profit because the market is so liquid out there.

Doran Hole: And, Craig, I'll just add that that's, that, that.

Craig Irwin: That market for our develop and sell assets is exactly the reason why we're probably not going after any portfolios that are out there as a buyer. Because we're kind of taking advantage of the market that's out there at a cost of capital, the return hurdles that are lower than ours to sell the assets that we're developing. And the development team, George mentioned.

Doran Hole: Because we're kind of taking advantage of the market that's out there at a cost capital, you know, return hurdles that are lower than ours to sell the assets that we're developing. And the development team, George mentioned, is so strong. It's bringing so many solid quality megawatts into that asset development metric that we've got the liberty to kind of choose the ones we want to keep on our balance sheet. And, you know, other folks in the market also don't have as diversified a pool of asset types.

Craig Irwin: is

George: So strong, it's bringing so many solid quality megawatts into that asset development metric that we've got the liberty to kind of choose the ones we want to keep on our balance sheet. And you know, other folks in the market also don't have as diversified of a pool of asset types. You know, we've got one of the best.

Doran Hole: You know, we've got one of the best, or arguably the best, development groups for RNG on the street, you know, and that's not going to fall into the competition that you might see for some of the others that are more into the solar and battery side. Understandable. Thank you for that, Keller.

George: or arguably the best development group for RNG on the street, you know, and that's not going to fall into the competition that you might see for some of the others that are more into the solar and battery side.

Craig Irwin: And I should say, Doran, you know, I hope you're going somewhere where we can continue to work together going forward. And, Mark, congratulations on the promotion. Thanks, Craig.

Speaker Change #280: Understood. Thank you for that, Keller. And I should say, Doran, you know, I hope you're going somewhere where we continue to work together going forward. And Mark, congratulations on the promotion.

Operator: Thank you. Thank you, and one moment as we move on to our next question. Our next question is going to come from the line of Tim Mulrooney with William Blair. Your line is open. Please go ahead.

Speaker Change #281: Thank you and one moment as we move on to our next question.

Speaker Change #282: Our next question is going to come from the line of Tim Mulrooney with William Blair. Your line is open. Please go ahead. Thank you.

Tim Mulrooney: Yeah, thanks for taking my questions. I wanted to ask you about your growth margin guide to start, which I think was about 18% at the midpoint previously, and it's now more in the low 16% range. Can you just tell me where the gaps end?

Tim Mulrooney: Yeah, thanks for taking my questions. I wanted to ask about your growth margin guide to start, which I think was about 18% at the midpoint previously, and it's now more in the low 16% range.

Mark Chiplock: I think that that probably only accounts for 50 to 60 pips if I'm doing my math right. So I'm just curious what the other, you know, moving pieces are. Remember in Q1, we also took, you know, a handful of hits to gross margin just for some legacy projects and some things that were a little bit unexpected. I think, you know, we were able to kind of offset that overall by the performance on the revenue side.

Speaker Change #283: Can you just tell Bridget X and Ernie T?

Speaker Change #284: Spencer Hole, George Sakellaris

Speaker Change #285: And remember in Q1, we also took a handful of...

Speaker Change #286: I'll hint to the gross margin just for some legacy projects and some things that were a little bit unexpected. I think, you know, we were able to kind of offset that overall by the performance on the revenue side. But, yeah, I think Q1 and Q2 combined, I think, is really what's driving the margins down.

Mark Chiplock: But, yeah, I think Q1 and Q2 combined is really what's driving the margins down. And I think that we talked about the SoCal Ed impact. I think it's important to come back and really refocus on what we're seeing in operating leverage, which is actually up. So even though we're seeing gross margins down, we're still continuing to grow gross profit faster than op-eds. So we're seeing improvement in our operating leverage.

Speaker Change #287: I think that we talked about the SoCal ED impact, but I think it's important to come back and really refocus on what we're seeing in operating leverages actually are.

Speaker Change #287: So even though we're seeing gross margins down, we're still continuing to grow gross crops faster than op-ex, so we're seeing improvement in our operating leverage. But yeah, I think, you know, Tim, that's really the bridge on all we're seeing in margins is, you know, there were also some hits that we took on Certified and some Q1 as well.

Mark Chiplock: But, yeah, I think, you know, Tim, that's really the bridge on all we're seeing in margins is, you know, there were also some hits that we took on certain projects in Q1 as well. Okay, that's helpful and well understood. Thank you. Secondly, you know, the backlog on your projects. This is up a lot year over year, 36% or something like that, but I'm not sure if you have this number handy.

Tim Mulrooney: Okay, that's helpful and well understood. Thank you. Secondly, you know, the backlog on your project's business is up a lot year over year.

Speaker Change #288: I think maybe 36% or something like that, but I'm not sure if you have this number handy. We're curious how much of that's from switching assets in development over to the project side versus completely new wins, like how much is each of those buckets is driving that increase.

Tim Mulrooney: I'm just curious how much of that's from... Switching assets in development over to the project side versus completely new wind, like how much each of those buckets is driving that increase. So it's all new wins. Nicole, do you want to add something?

Speaker Change #288: It's all new wins. It's all new wins. Nicole, you want to add something? Yeah, no, significant wins across multiple business lines, from the federal government to utilities to our UK group. So it's several, nothing to do with converting assets in the last 20 quarters. Okay, thank you.

Nicole Bulgarino: Yeah, no, significant wins across multiple business lines, from the federal government, to utilities, to our UK group. So it's several, nothing to do with converting assets in the last two quarters. Okay, thank you. Well, basically, what I want to say is the assets that are in development, they are in development right now. If we convert them to sales, you will see them in that particular quarter.

Sarge: Go ahead, Sarge.

Sarge: Well, basically what I want to say, the assets that are in development, they are in development right now. If we convert them to sales, you will see them in that particular quarter.

George Sakellaris: But up to date, they have had no impact on the backlog, the project backlog that we reported. Okay, got it. And if you don't mind, I'd sneak one more in, take advantage of having Nicole on the call today.

Speaker Change #290: But up to date, they have no impact on the backlog, project's backlog that we reported.

Tim Mulrooney: Nicole, specifically on your solar project, talk about any differences that you're seeing in projects moving forward between standalone solar versus projects that have solar plots and energy storage. Is there any noticeable difference in which types of projects are having an easier time moving forward in this environment? Well, I think in almost all of them, you're seeing solar with battery storage.

Speaker Change #291: Okay, got it. And if you don't mind, I'd sneak one more in to take advantage of having Nicole on the call today. Nicole, specifically on your solar projects,

Speaker Change #292: Can you just talk about any differences that you're seeing in projects moving forward between standalone solar versus projects that have solar plus energy storage? Is there any noticeable difference in which types of projects are having an easier time moving forward in this environment? Thank you.

Nicole Bulgarino: Well, I think in almost all of them, you're seeing solar with battery storage, and that's really related to peak demand, getting the most maximized TPA price or savings.

Nicole Bulgarino: And that's really related to peak demand, getting the most maximized PPA price or savings. So, it's just a requirement. I mean, you're using these for, like, our federal government is using these for resiliency. So they are going to need the battery energy systems with them, coupled with the PV system, to be able to meet that requirement. It's not just clean energy, but it's resilient energy as well. I understand. Thank you. And Doran, we'll miss you.

Speaker Change #293: So, and it's just a requirement. I mean, you're using these for, like, our federal government's using these for resiliency, so they are going to need the battery energy systems with them, coupled with the PV system.

Speaker Change #293: to be able to meet that requirement too.

Speaker Change #293: It's not just clean energy, but it's resilient energy as well.

Speaker Change #293: Understood. Thank you. And Doran, we'll miss you around here, man.

Operator: Thank you. Thank you. Thank you. One moment as we move on to our next question. And our next question is going to come from the line of William Grippin with UBS. Your line is open, please go ahead. Great, thanks for your time.

Speaker Change #294: Thank you. One moment as we move on to our next question.

Speaker Change #295: And our next question is going to come from the line of William Grippin with UBS. Your line is open, please go ahead.

William Grippin: My first question is, just wondering if you could update us on the R&G projects you're expecting to commission in the second half of this year and how those are progressing. And I think previously you provided a rule of thumb on R&G revenue contribution of $2.3 million per megawatt equivalent. Could you talk about how the potential utility deal would impact that figure, if at all? Yeah, Mike, go ahead with the projects. Yeah, so we have a project that's about 11.7 megawatts that's being commissioned right now. It's going through final product gas testing to get approved to go into the pipe.

William Grippin: Great, thanks for the time. My first question, just wondering if you could update us on...

William Grippin: The R&G projects you're expecting to commission in the second half of this year and how those are progressing. And I think previously you provided a rule of thumb on R&G revenue contribution of $2.3 million per megawatt equivalent. Could you talk about how the potential utility deal would impact that figure, if at all?

Speaker Change #297: We have a project that's about 11.7 megawatts that's being commissioned right now. It's going through final product gas testing to get approved to go into the pipe.

Mike Backus: So I would expect sometime this month, early September, that it will be fully commercial. And then we have another project that's 15.6 megawatts that should go commercial sometime in October of this year. And then, as far as the metrics go, as we have said before, for the RNG plans, on the revenue side, you see about $1.5 to $3 million top line.

Speaker Change #297: So I would expect sometime this month, early September , that will be fully commercial.

Speaker Change #297: And then we have another project that's 15.6 megawatts that should go commercial sometime in October of this year.

Speaker Change #297: And then, as far as the metrics, what we have said before, that, um...

Speaker Change #298: for the RNG plans. On the revenue side you see about 1.5 to 3 million dollars top line and then

Mike Backus: And then with the ring prices where they are now, $750 to $1.5 million only for that contribution per megawatt. We haven't updated it for the – you asked about the utility agreements. Those numbers are reflective of the utility agreements.

Speaker Change #298: with ring prices where they are now $750 to $1.5 million on the EBITDA contribution per megawatt.

Speaker Change #298: We haven't updated it for the, you asked about the utility agreements. Those numbers are reflective of the utility agreements.

William Grippin: The offtake prices are less than the current spot market in the RFS program, which is trading around $3.40 right now, but materially better than what we've seen in terms of long-term agreements in the RFS space. Got it. That's helpful. Could you refresh our memory as to what the underlying assumption was as far as rent prices for the prior sort of revenue sensitivity? I don't think we've provided that before, Will, and I think that, you know, broadly speaking, obviously there are puts and takes about the way that this will change the hedging for RINs, etc., but I still think those ranges are still good. Got it. And just one last one for me.

Speaker Change #299: The offtake prices are less than the current spot market in the RFS program, which is trading around $3.40 right now, but materially better than what we've seen in terms of long-term agreements in the RFS space.

Speaker Change #300: Got it. That's helpful. Could you refresh our memory as to what the underlying assumption was as far as rent prices for the prior sort of revenue sensitivity?

Speaker Change #301: I don't think we've provided that before, Will, and I think that, you know, broadly speaking, obviously there are puts and takes about the way that this will change the hedging for RINs, etc., but I still think those ranges are still good.

William Grippin: I think last quarter you talked about guidance, and assuming some continued delays in the assets business, it appears you're well on track at this point to hit the 200 megawatt target. So in light of the revised guidance, I mean, where should we kind of think about results falling? Assuming you get the 200 megawatts fully online on the envisioned timelines? Yeah, our guidance just reflects that, right? Yeah, we feel pretty good about the 200 that we've given before. So far, we have 168, and then we have a few coming up very, very shortly.

Speaker Change #301: Yeah.

Speaker Change #302: Got it. And just one last one for me. I think last quarter you had talked about guidance assuming some continued delays in the assets business.

Speaker Change #303: It appears you're well on track at this point to hit the 200 megawatt target, so in light of the revised guidance, I mean, where should we kind of think about results falling, assuming you get the 200 megawatts fully online on the Envision timelines?

Speaker Change #304: We feel pretty good about the $200,000 that we've given before. So far we have $168,000 and then we have a few coming up very shortly, so we feel good about the $200,000.

George Sakellaris: So we feel good about the 200. All right. Thanks very much.

William Grippin: That's all for me. Thank you, and one moment as we move on to our next question. And our next question will come from the line of Pavel Molchanov with Raymond James. Your line is open. Please go ahead.

Speaker Change #305: All right. Thanks very much. That's all for me.

Speaker Change #306: Thank you, and one moment as we move on to our next question.

Speaker Change #307: And our next question will come from the line of Pavel Molchanov with Raymond James. Your line is open, please go ahead.

Pavel Molchanov: Yeah, thanks for taking the question. You offered some commentary earlier in the call about the upcoming US election, of course. Britain had an election barely a month ago, and you talked about some of the battery projects, for example, that you're doing there. Can we get an update on your UK opportunities, including maybe what's going on in Bristol?

Pavel Mokhanov: Thanks for taking the question. You offered some commentary earlier in the call about the upcoming U.S. election, of course.

Speaker Change #309: Britain had an election, you know, barely a month ago, and

Speaker Change #310: You know, you talked about some of the battery projects, for example, that you're doing there. So, can we get an update on your UK opportunity, you know, including maybe what's going on in Bristol?

George Sakellaris: Yeah, yeah, I mean, with a new government over there, especially the money that they're planning to allocate for clean projects, it's going to help us a lot. It's going to take some time, of course, but it's going to take. But in the long term, though, it's going to be very, very, very helpful. And then, at Bristol City, we continue to make good progress.

Speaker Change #311: Yeah, yeah, I mean, with a new government over there, especially with the money that they're planning to allocate for clean projects, it's going to help us a lot. It's going to take some time, of course, but it's going to take a lot.

Speaker Change #312: Thank you all.

Speaker Change #312: But in the long term, though, it's going to be very, very, very helpful. And then on Bristol City, we continue to make good progress. We made some organizational changes over there, hiring a new person to run that particular project.

George Sakellaris: We made some organizational changes over there, hiring a new person to run that particular project. And they had made some changes on our side. And I think you will see that project going forward, moving at a faster pace. And the overall environment, you know, in Europe is very, very good.

Speaker Change #313: They made some changes on their side and I think you will see that project going forward moving at a faster pace.

George Sakellaris: And that's why you see great growth in the European market for us. I mean, you know, having talked to the management team over there, The litany of targeted processes and changes that the new labor government is going to go through is, I think, as George said, going to take a little bit of time. But there's a lot there, and there's a lot of momentum. It's a great backdrop for the company, especially because over in the UK, our business looks a lot like what it looks like here in the United States.

Speaker Change #313: And the overall, the environment, you know, in Europe is very, very good, and that's why you see great growth in the European market for us. I mean, you know, having talked to the management team over there, the...

Speaker Change #313: The litany of...

Speaker Change #313: targeted

Speaker Change #313: processes and changes that the new labor government are going to go through. I think, as George said, it's going to take a little bit of time, but there's a lot there, and there's a lot of momentum. It's a great backdrop for the company, and especially because over in the UK, our business looks a lot like what it looks like here in the United States. We're across a multitude of technologies, energy efficiency, solar, battery, EV chargers. We're kind of touching it all, and so these incentives are going to come bring some strength.

George Sakellaris: We're across a multitude of technologies, energy efficiency, solar, battery, EV chargers. We're kind of touching it all, and so these incentives are going to bring some strength. I feel very confident about that. Let me ask you a quick question about Washington. Why do you think the Treasury?

Speaker Change #314: I feel very confident about them.

Speaker Change #315: Let me ask a quick one about Washington. Why do you think the Treasury

Speaker Change #316: still has not unveiled the section 45 Z numbers for any of the biofuels including RNG.

Pavel Molchanov: Mike, do you want to tackle that one? If I had an answer for that, we'd have had a lot of phone calls. I mean, I'll spin it a little differently. I mean, we're seeing movement. We submitted all our applications on time, and we actually got notified that the EPA is going through and reviewing our application as we speak. So we are seeing progress, at least on the administrative side.

Speaker Change #316: Mike, you want to tackle that one? If I had an answer for that, we've had a lot of phone calls. I mean, I'll spin it a little differently. I mean, we're seeing movement. We submitted all our applications on time and we actually got notified the EPA is going through and reviewing our application as we speak.

Pavel Molchanov: I can't tell you why Treasury hasn't already rolled something out on not just 45Z but a number of other tax credits. What we keep being told is that it should be sometime in this fall that we would get some guidance, but we haven't received it.

Speaker Change #317: So we are seeing progress, at least on the administrative side. I can't tell you why.

Speaker Change #318: Treasury hasn't already ruled something out on not just 45Z, but a number of the other tax credits. What we keep being told is that it should be sometime in this fall that we would get some guidance, but we haven't received anything.

Mike Backus: Thanks very much. Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Ben Kallo with Baird. Your line is open. Please go ahead. Hey, thank you so much, and thank you, Doren. My question is on... Asset Business.

Speaker Change #319: Alright, thanks very much.

Speaker Change #320: Thank you and one moment as we move on to our next question.

Speaker Change #321: And our next question is going to come from the line of Ben Kallo with Baird. Your line is open. Please go ahead.

Ben Kallo: Hey, thank you so much, and thank you, Dorn.

Ben Kallo: This year, I think you had some pull-ins for the 200 megawatts. Is that a big number compared to what we should expect for next year? Could you just give us some kind of color about how we should think about the average number of megawatts that come on over a year, or if it's better to look at a two-year time frame, maybe that's some color you could use.

Ben Kallo: My question is on the asset business.

Ben Kallo: And this year, I think you had some pull-ins for the 200 megawatts.

Speaker Change #323: Is that a big number compared to what we should expect for next year? Could you just give us some kind of...

Speaker Change #323: George Sakellaris, Spencer Hole, George Sakellaris

George Sakellaris: Thank you. No, no, no, it's not, we're not putting in from next year to this year, not at all. Actually, some of these projects, they were delayed that we didn't bring them on last year because of interconnection and so on, and, you know, we have said that we want to target between 80 to 100, 120 megawatts per year, but like anything else, the business is lumpy, and this year, we were able to bring 200 megawatts, and the next year looks pretty good as well, so he's not putting any assets from last year to this year.

Speaker Change #324: No, no, we're not pulling in from next year to this year, not at all. Actually, some of the projects that we delayed that we didn't bring them on last year because of interconnection and so on.

Speaker Change #325: And, you know, we have said that we want to target between 80 to 100, 120 megawatts per year. But, like anything else, the business is lumpy. And this year we were able to bring 200 megawatts, and the next year looks pretty good as well.

George Sakellaris: It's basically a couple of assets that were delayed from the year before to this year. Okay. Now, just when we think about tariffs on Chinese sales starting up, what is your approach, and have you lined up your domestic suppliers, and how do you think that that impacts overall store market distance you're getting, you know, a higher mix towards that business? Thank you. I think Conan can take that because he's...

Speaker Change #326: So he's not pulling any assets from last year to this year. It's basically a couple of assets that were delayed from the year before to this year.

Speaker Change #327: Understood. And just when we think about...

Speaker Change #328: tariffs on Chinese cells starting up. What is your approach? And have you lined up your domestic suppliers? And how do you think that that impacts overall stores market distance? You're getting, you know, a higher mix towards that business. Thank you.

George Sakellaris: I talk in tabs all the time. I think, um, the... I don't I don't know that we're necessarily on our back foot here necessarily, you know. I think that, you know, keep in mind or our purchases, you know, the difficulties of imports. We're not doing like large multi-gigawatt installations. So when you're doing DG, the per watt cost is pretty high, you know, the individual components have less of an impact.

Speaker Change #328: I think Oren can take that because he's...

Oren: I'm talking tariffs all the time. Yeah. I think the...

Oren: I don't know that we're on our back foot here necessarily, you know, I think that, you know, keep in mind our purchases, you know, the...

Oren: The difficulties of...

Speaker Change #329: We're not doing large multi-gigawatt installations, so when you're doing DG, the per watt cost is pretty high, you know, the individual components are

George Sakellaris: And so the tariff, you know, in fact, I don't know all of you. Yeah, I just will add that a lot of our projects have been, or for the federal government, where we've been using domestic solutions for quite some time, and I think we'll continue to see that trend for utilities as well, wanting to support the domestic supply chain here, as well as certainly for the IRA business as well. So when we're doing our pricing, we use primarily domestic balance and domestic pricing, and then that eliminates some of that, particularly. But what has happened, though, as soon as they talk about tariffs, the prices go up domestically as well as internationally.

Speaker Change #330: A lot of our projects have been for federal government where we've been using domestic solutions for quite some time. I think we'll continue to see that trend for utilities as well, wanting to support the domestic solutions.

Speaker Change #330: supply chain here as well as certainly for the IRA business as well.

Speaker Change #331: So when we're doing our pricing, we use primarily domestic balance and domestic pricing, and then that eliminates some of that, particularly, but what has happened, though, as soon as they talk about tariffs, the prices go up, domestic as well as the other ones.

Ben Kallo: Well, thank you, and congratulations, Mark. Thank you. Thank you. One moment as we move on to our next question. Our next question is going to come from the line of Julien Dumoulin-Smith with Jeffreys. Your line is open, please go ahead. Hey, good afternoon, team.

Speaker Change #331: Well, thank you, and congratulations, Mark.

Speaker Change #332: Thank you one moment as we move on to our next question.

Speaker Change #333: Our next question is going to come from the line of Julien Dumoulin-Smith with Jeffrey's. Your line is open, please go ahead.

Julien Dumoulin: Thank you very much, Jordan. It's been a real pleasure. I wish you all the best, sir.

Julian Domelin-Smith: Hey, good afternoon team. Thank you very much, Jordan. It's been a real pleasure. I wish you all the best, sir.

Julien Dumoulin: So maybe with that, just if I can come back to the R&G numbers you guys were talking about on the call here. I think if I heard this right, you talked about this arrangement representing 40 percent of the supply today but only 12 to 13 percent of the supply pro forma for 2026. If I heard that right, I mean, that's a pretty big implied step up in overall volumes. I just want to make sure I understand how you think about the scaling up of the volumes in megawatt terms or what you have from today through that 26 at the outset. And I got a quick follow-up. Julien, what I said was that if those plants weren't online today, we would, they would represent 40% of our total supply in 2024. They're not online yet.

Speaker Change #334: So, maybe with that, if I can come back to the RNG numbers you guys were talking about on the call here. I think if I heard this right, you talked about it representing this arrangement representing 40% of the supply today, but only 12 to 13% of the supply pro forma for 2020.

Speaker Change #335: 26. If I heard that right, I mean, that's a pretty big implied step up in overall volumes. I just want to make sure I understand how you think about the scaling up of the volumes in megawatt terms or what have you from today through that 26 at the outset. And I got a quick follow-up.

Julia: And Julien, what I said was that if those plants weren't online today...

Julia: They would represent 40% of our total supply in 2024. They're not online today.

Mike Backus: When they come online, we start supplying gas to the utility in 2026, will have brought a number of plants online since then, and it will represent about 12% of our forecasted volume in 2026, which means we're growing the business. Yeah, yeah, yeah. It's kind of like tripling.

Speaker Change #337: When they come online, we start supplying the gas to the utility in 2026.

Speaker Change #338: We'll have brought a number of plants online since then, and it will represent about 12% of our forecasted volume in 2026.

Speaker Change #338: which means we're growing the business.

Julien Dumoulin: That's kind of what I was trying to get at. It's sort of a subtle affirmation of the overall trajectory, right? And if you think about what that implies, if you've got 50 megawatts today, doesn't that suggest you have like kind of a ballpark 150 proforma for, you know, call it year-end 26 when you get this stuff online? I'm just being a human calculator; I won't confirm or deny what you said. I think what I would tell you is that our projects are sizable, right? These aren't dairy projects; they're primarily landfill gas.

Speaker Change #339: Yeah, yeah, yeah. It's kind of like a tripling. That's kind of what I was trying to get at. It's sort of a subtle affirmation of the overall trajectory, right? Kind of a... And if you think about what that implies, if you've got 50 megawatts today, doesn't that suggest you got, like, kind of ballpark 150 proforma for, you know, call it year-end 26 when you get this stuff online?

Speaker Change #340: Now, being a human calculator, I won't confirm or deny what you said. I think what I would tell you is that our projects are sizable, right? These aren't dairy projects. They're primarily landfill gas.

Speaker Change #340: And many of the projects that are in development or construction now are sizable, and I'm going to add a lot to our portfolio over the next couple of years.

Mike Backus: And many of the projects that are in development or construction now are sizable. I'm going to add a lot to our portfolio over the next couple of years. Right. But there's no reason, I mean, look, the landfill gas, what you've done before as well, you continue to scale at that roughly $1 million per megawatt, adding 100 megawatts here, seems like a pretty significant contributor. Again, look, nothing novel per se, but you've implicitly reaffirmed that with this latest contract.

Speaker Change #341: Right, but there's no reason, I mean, look, the landfill gas, what you've done before as well, you continue to scale at that roughly dollar, one million per megawatt, adding 100 megawatts here, seems like a pretty significant contributor. Just again, look, nothing novel per se, but you've implicitly reaffirmed that with this latest contract.

Mike Backus: I'm not sure I understood what you just asked. Are you done? Well, the plan, Julien, is that we add two to three plants a year. And what happens? A couple of those plants that we add in are a good size, and that's why the numbers get a little bit bigger. Yeah, I think we're all saying the same thing. It's very sizable, $100 million EBITDA or something like that.

Speaker Change #341: I'm not sure I understood what you just asked. Well, I mean, the plan, Julien, is that we add two to three plants a year, and what happens, a couple of those plants that we added, they're a good size, and that's why the numbers get a little bit...

Julian Domelin-Smith: I think we're all saying the same thing, it's very sizable, $100 million EBITDA or something like that.

Julien Dumoulin: Indeed. Excellent. And just to clarify the strategy on R&G, just because obviously, you've got this, you know, kind of medium-term contract. Is there any thought to change the tenor of the contracts that you have in R&G? I mean, obviously, there's some political risk, potentially in the R&G universe here. How do you think about your decision tree to take the market versus start the contract up on a more, you know, term basis? We've actually evaluated the term, Everybody here has seen this market for the first time. We have picked and chosen our term based on the optimal value.

Speaker Change #342: Excellent. And just to clarify the strategy on R&G, just because, obviously, you've got this, you know, kind of medium-term contract, is there any thought to change the tenor of the contracts that you have in R&G? I mean, obviously, there's some political risk potentially in the R&G

Speaker Change #343: universe here. How do you think about your decision tree to take market versus start the contract up on a more, you know, term basis here?

Speaker Change #344: We've actually evaluated term...

Speaker Change #345: This is the first time we've seen this market evolve. We pick and choose our term based on optimal value.

Speaker Change #345: We've looked at it, and I think we'll continue doing that. We've had opportunities to do much longer term than five, but the discount's too steep. It doesn't make a lot of sense.

Speaker Change #345: But that market's evolving, and remember, when we first started doing R&G, we were doing these one, two-year deals, and then it got up to three, and then five.

Speaker Change #345: I think that will continue to evolve over time as the addressable market expands and demand continues to grow for the product.

Mike Backus: [inaudible] Thank you, and we're going to move on to our last question. And our last question is going to come from the line of Ryan Finks with B Reilly. Your line is open. Please go ahead. Yeah, hey guys, thanks for sneaking me in.

Speaker Change #346: Thank you and we're going to move on to our last question.

Speaker Change #347: And our last question is going to come from the line of Ryan Finks with B. Reilly. Your line is open. Please go ahead.

Ryan Finks: Maybe I'll just ask one more question on R&D for Michael. How much is a potential eRIN pathway affecting your strategy here, if at all, and do you have any high-level thoughts on if and when that might come to pass? Well, as you're probably aware, we have a fairly sizable electric portfolio and that we continue to operate that would benefit from that pathway. We maintain an incredible depth of bench that allows us to pivot at any time if we choose to go to electric brush R&G. We have, you know, a very dynamic event, because, as you know, this group develops power plants for others as well. Look, the ball's in motion.

Ryan Finks: Yeah, hey guys, thanks for sneaking me in. Maybe I'll just ask one more on R&G for Michael.

Ryan Finks: How much is a potential E-RIN pathway affecting...

Ryan Finks: Your strategy here, if at all, and do you have any high-level thoughts on if and when that might come to pass?

Speaker Change #348: As you're probably aware, we have a fairly sizable electric portfolio that we continue to operate that would benefit from that pathway.

Speaker Change #349: We maintain an incredible depth of bench that allows us to pivot at any time if we choose to go to electric brush R&G. We have a very dynamic event, because as you know, this group develops power plants for others as well.

Mike Backus: I mean, you know, it's going to be interesting to see how this moves along. If we have a current administration, you can be golly optimistic; we'll see that pathway open up. But candidly, with Moscow's push with the other, the Republican side, he would benefit greatly from e-rent.

Speaker Change #349: I look at the balls in motion. I mean, you know, it's going to be interesting to see.

Speaker Change #350: How this moves along, if we have a current administration, you get Gali optimistic, we'll see that pathway open up, but candidly with Musk's push with the Republican side, he would benefit greatly with e-rents.

Ryan Finks: So I, you know, we don't count on it. It's never been in any of our forecasts. We don't budget for it.

Speaker Change #351: So, you know, we don't count on it. It's never been in any of our forecasts. We don't budget for it. It's upside.

Operator: It's upside. Thank you. That does conclude today's question and answer session. Ladies and gentlemen, this also will conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.

Speaker Change #352: Thank you. That does conclude today's question and answer session. Ladies and gentlemen, this also will conclude today's conference call. Thank you for participating and you may now disconnect. Everyone, have a great day.