Q3 2024 Ameresco Inc Earnings Call
Leila: Thank you for standing by. My name is Leila, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Q3 2024 Amoresco, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Leila: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Speaker Change: Thank you. I would now like to turn the call over to Leila Dillon, Senior Vice President of Marketing. Please go ahead.
Leila Dillon: Thank you, Luella, and good afternoon, everyone. We appreciate you joining us for today's call.
Leila Dillon: Joining me here are George Sakellaris, Emeresco's Chairman, President, and Chief Executive Officer.
Leila Dillon: Mark Chiplock, Executive Vice President, Chief Financial Officer, and Chief Accounting Officer, as well as two of our executives, Nicole Bulgarino and Lou Maltezos.
Leila Dillon: Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks.
Leila Dillon: Today's earnings materials contain forward-looking statements, including statements regarding our expectations.
All forward-looking statements are subject to risks and uncertainties.
Leila Dillon: 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.
Leila Dillon: In addition, we used several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures and additional information in our supplemental slides that were posted to our website.
Leila Dillon: Please note that all comparisons that will be discussed today are on a year-over-year basis, unless otherwise noted.
I will now turn the call over to George.
George Sakellaris: Thank you, Leila, and good afternoon, everyone. Before I begin, I would like to draw everyone's attention to the important announcement we made today regarding further steps we have taken to optimize our corporate structure to drive continued profitable growth.
George Sakellaris: Today, we announce the promotions of four key executives to the role of president, leading their respective groups.
Mike Bakas is president of the Renewable Fuels.
Nicole Bulgarino is President of Federal and Utility Infrastructure.
Speaker Change: Lou Maldonados as President of Central and Western USA and Canada and Peter Christakis as President of VISTA USA, Greece and Project RISK.
Now on to our results.
MResco's diversified business model continued to yield impressive results.
Speaker Change: with over 40% growth in both revenue and adjusted EBITDA, driven by our continued focus on execution against a strong industry backdrop.
Speaker Change: We also brought an additional 42 megawatts of energy assets into operation.
Speaker Change: This brings our total amount to a record, 2,000 megawatts, already above our 200 megawatt guidance for the year.
Our total project backlog grew by 22%.
expanding our long-term contract visibility to 4.5 billion dollars.
Speaker Change: We were also very successful with contract execution as our contracted project backlog grew an impressive 56% to a record 1.9 billion dollars.
Speaker Change: Our diversified customer base continues to show very strong demand for our renewables, energy efficiency, and resiliency offerings.
Speaker Change: We are at the forefront of the energy transition as our customers value our ability to integrate a comprehensive portfolio of cleantech solutions in order to meet their unique goals. All we are offering budget neutral cost saving solutions.
Speaker Change: Before I turn the call over, let me make a few comments about the recent election outcome.
reiterating what we have said many times in the past.
Speaker Change: We believe we are well insulated from changes in the administration as our core efficiency solutions stand on their own without relying on any federal incentives.
Speaker Change: The technologies that qualify for incentives such as battery storage continue to receive strong bipartisan support.
Speaker Change: Inversely, probably remember that Demorescuo had some of its best years during the last Trump administration.
Speaker Change: There was very strong support for our performance contracts, especially our resiliency solutions.
Speaker Change: with both civilian, but more importantly, the federal military part of the government.
and especially in a budget-constrained environment.
Speaker Change: Also, we have become a much more diversified and resilient over the years.
Speaker Change: We have purposely grown our recurring energy asset and O&M profit streams, which now account for the majority of our annual adjusted EBITDA.
Speaker Change: Geographically, we are also much more diversified with operations in every state, Canada, the UK, and our growing continental European footprint.
Speaker Change: Due to the great value proposition of our business model, we believe we are very well positioned to thrive under any administration as we have demonstrated for over 25 years of doing business.
Speaker Change: Similar to the last call, I have asked two key members of our executive team, Luma Desert, to join us today.
Speaker Change: Lou will cover the drivers of the strengths we have been seeing in our core markets and discuss some of the internal changes we have made to execute more efficiently in the current operating environment.
Speaker Change: Nicole will discuss how the increasing demand for resiliency continues to be a key catalyst for our business.
Speaker Change: And now I would like to turn the call over to Lou.
Speaker Change: Thanks, George, and good afternoon, everyone. I'm pleased to be here today to talk about what we see as the bedrock of our business, the energy efficiency, distributed generation, and cost savings project work.
Speaker Change: This work is focused on our traditional core customer base, what we call the mush market. That includes state and local governments, colleges and universities, K-12 school systems, and the health care sector.
Speaker Change: While the scale of the projects we execute for these customers tend to be smaller than our federal or utility projects, they represent an important part of Amherst Coast business and future growth.
Speaker Change: These projects address our customers' critical need to upgrade their aging infrastructure and reduce their deferred maintenance.
Speaker Change: At the same time, they improve the performance and comfort of our customers' buildings in a sustainable, budget-neutral manner.
Speaker Change: Within these markets, the fundamental drivers are consistent. Our customers need to fix their buildings, but are often budget-constrained.
Speaker Change: A typical Ameresco project will optimize, update, or replace their HVAC, lighting, and building envelope, and provide smart building automation systems.
Speaker Change: In addition, our projects often go beyond energy efficiency to incorporate customer-driven needs like water efficiency, electric vehicle charging, and solar car parks as part of a complete facility solution.
Speaker Change: Importantly, these projects can generate operational cost savings from day one with no upfront capital.
Speaker Change: Ameresco is unique in our ability to integrate a comprehensive set of solutions for our customers, as opposed to them having to use a wide range of different products and service providers.
Speaker Change: A great example of this is a project we recently completed for Columbia County, Oregon. The project involved an extensive renovation of the county's historic John Gum Building. The core technical work included HVAC, lighting, and envelope efficiency.
Speaker Change: But the project went beyond those traditional energy conservation measures to address critical building needs, including the preservation and repair of historic features, the installation of a new elevator to ensure accessibility, and irrigation and landscaping.
Speaker Change: Like many of the projects in our core market, the impact goes beyond the immediate benefits of the energy efficiency work and supports our customers' core missions.
Speaker Change: In this case, we were able to revitalize a historic building so that it can be used to provide expanded services and be a resource to the community.
Speaker Change: To accelerate our growth further, over the last 12 months, we've taken steps to realign the company to maximize our ability to serve our customers across our various geographies. It's a program we call One Amoresco.
Speaker Change: This has enabled us to lower our OPEX, improve efficiencies, share our technical strengths, and bolster our ability to serve national accounts.
Speaker Change: Together we're strategically targeting projects in our core markets squarely within our technical competencies.
Speaker Change: This organizational realignment is already in place, and it's proving successful.
Speaker Change: Given the great demand for our services, our unique ability to integrate comprehensive solutions, and the changes we have made internally to best capitalize on these opportunities, I couldn't feel more excited about the future. We're executing well and are focused on the mission.
Speaker Change: Whether it be a leading-edge transformational energy project or the practical efficiency projects in our core markets, I know we have the right team in place to drive future growth.
I'll now turn the call over to Nicole.
Nicole?
Nicole Bulgarino: Thank you, Lou, and good afternoon. Before I talk about resiliency in particular, I did want to follow up on George's comments about the election.
Nicole Bulgarino: As George mentioned, our federal group has had some of its best years during the last Trump administration, with very strong support for our budget-neutral infrastructure solution.
Nicole Bulgarino: In fact, during the previous Trump administration, the volume of ESPC contracts was approximately three times what we have seen during the Biden administration. We continue to be a leader of escot services to the federal government and look to continue to thrive under the new administration as we did during the last time he was in office.
Nicole Bulgarino: Let me now talk about the growing customer focus on resiliency, which is a very big focus on our federal, civilian, and military customers.
Nicole Bulgarino: Energy resiliency is increasingly vital across the federal, utility, and municipal markets to ensure a continuous and reliable power supply.
Nicole Bulgarino: particularly in the face of rising natural disasters, cyber threats, and aging infrastructure.
Nicole Bulgarino: For federal markets, energy resiliency is critical for national security, ensuring the uninterrupted operation of vital civilian and military services, and even for supporting our military personnel and their families.
Nicole Bulgarino: While expanding the use of intermittent renewable sources, renewable sources like wind and solar, utility and municipal markets also need firm, robust systems to prevent widespread outages and maintain services during extreme weather events.
Nicole Bulgarino: They require resilient energy solutions to support local communities, emergency services,
Nicole Bulgarino: Essential Public Infrastructure and Grid Reliability. By investing in energy resiliency, these sectors can enhance the ability to withstand and quickly recover from disruption, ensuring the safety and well-being of the population they serve.
Speaker Change: Over the years, Amresco has built a core competency and excellent reputation around many of the important technologies which enable resiliency, including microgrids and battery energy storage systems.
Speaker Change: We have successfully won in executing on several large resiliency projects this year. By way of example, we are currently in construction of a 50-megawatt battery energy storage asset for Silicon Valley Power in California.
Speaker Change: This system will efficiently store the surplus renewable electricity on California's grid during the day and discharge it during the afternoon ramp of electricity demand, supporting the renewable assets and providing resiliency during these transitional times.
Speaker Change: Also in California, we are building a 10-megawatt solar and 50-megawatt-hour battery storage project at the Naval Weapons Station Seal Beach, which we will expect to come online in the first half of 2025.
Speaker Change: The project builds on the public-private partnership model successfully deployed at our Kapono Solar Facility in Hawaii.
Speaker Change: Here, Amoresco is utilizing the Navy's land as the host for a wholesale power project with the utility San Jose Clean Energy, and in conjunction, provides resiliency improvements to the Navy installation.
Speaker Change: Another example of a different kind of resiliency solution we have with our military customers is the projects we are developing at Fort Johnson in Louisiana. Here we are installing geothermal infrastructure and upgrading 3,600 homes for our military families.
Speaker Change: The project will not only reduce the load from the local utility, but more importantly provides reliable, sustainable, and highly efficient energy exchange with an underground geothermal system.
This is a $33 million resiliency infrastructure investment.
Speaker Change: and it's one of the projects we are executing in partnership with Corbius, a leader in the Department of Defense's military housing privatization initiative.
Speaker Change: In closing, we believe that resilience is a key driver across our markets.
Speaker Change: Given the depth of our experience, as well as our portfolio of these kinds of projects, we are well positioned to be a leading solution provider to address this critical infrastructure need. I will now turn the call over to Mark to comment on our financial performance and outlook. Mark?
Mark Chiplock: Thank you, Nicole, and good afternoon. As George mentioned, we had another strong quarter of revenue and profit growth. Our total revenue grew 49 percent to over half a billion dollars as each of our four business lines experienced double-digit growth.
Mark Chiplock: Revenues from our projects business grew nearly 60%, reflecting our consistent focus on execution and conversion of our backlog.
Mark Chiplock: Project's business development activity remained robust, with our total backlog increasing 22% to $4.5 billion, and importantly, our contracted backlog increased 56% on the strength of nearly $600 million of awards converted into contracts.
Mark Chiplock: Energy asset revenue grew 33 percent, largely due to the greater number of operating assets compared to last year.
Mark Chiplock: We brought 42 megawatts of assets into operations this quarter, bringing our year-to-date ads to a record 209 megawatts. This already exceeds our full-year guidance, again a result of strong execution.
Mark Chiplock: Our large and growing base of operating energy assets now stands at 715 megawatts.
Mark Chiplock: Our O&M business also had a very strong quarter, with revenue growing 25% as we continue to win more long-term O&M business.
Mark Chiplock: The O&M backlog now stands at over $1.4 billion, an increase of 15% or $180 million compared to a year ago.
Mark Chiplock: Gross margin of 15.4% was lower and reflects a larger contribution from lower margin projects along with additional costs associated with the FCE projects as described during the previous quarter.
Mark Chiplock: Adjusted EBITDA grew 44% to a record $62.2 million, driven by our revenue growth, along with cost savings and operating leverage.
Mark Chiplock: Non-GAAP EPS was $0.32, as the additional contribution from our revenue growth was largely offset by higher interest and depreciation expenses.
Mark Chiplock: Those interest costs also included a non-cash negative adjustment of $3.7 million to mark-to-market unhedged derivatives compared to a $3 million favorable adjustment last year.
Mark Chiplock: Turning to our balance sheet and cash flows, we ended the quarter with approximately $114 million in cash and corporate debt of approximately $273 million.
Mark Chiplock: Our debt to EBITDA leverage ratio under our Senior Secure Credit Facility of 2.8x continued to decline and remains below the covenant level of 3.5x.
Mark Chiplock: Our energy asset debt advance rate remained at a conservative 74%.
Mark Chiplock: Importantly, we continue to believe our access to energy asset capital is excellent, with many financing options available, as demonstrated by us having secured approximately $237 million in new project financing commitments in the quarters and received net proceeds of $57 million.
Mark Chiplock: Our cash flow continued to be positive, with adjusted cash flow from operations of approximately $34 million.
Mark Chiplock: Our eight-quarter rolling average adjusted cash from operations, which we believe best represents the cash conversion over our full implementation cycle, was $39 million.
Mark Chiplock: During the quarter, we reached an agreement with SCE on the substantial completion of two of the three Battery Energy Storage System projects.
Mark Chiplock: We received approximately $110 million in milestone payments, net of a holdback of $52 million for potential liquidated damages, which are still in dispute.
Mark Chiplock: A portion of these proceeds was used to catch up on outstanding vendor payments, as well as to pay down a portion of our corporate revolver.
Mark Chiplock: Final acceptance milestone payments on these two projects of approximately $36 million will follow upon completion.
Mark Chiplock: The third project, which is expected to reach substantial completion in Q4, has two remaining milestone payments, totaling $55 million net of potential liquidated damages.
Finally, let me spend a minute on our 2024 guidance.
Mark Chiplock: We are pleased to be reaffirming our full-year guidance, reflecting revenue and adjusted EBITDA growth of 27% and 35%, respectively, at the midpoints, representing what we believe will be a very strong finish to a solid year of performance.
Mark Chiplock: While we expect higher interest and other expenses in the range of $70 million to $75 million, we are also maintaining our non-GAAP EPS guidance, largely driven by our estimated annual tax benefit rate.
Speaker Change: Now I'd like to turn the call back over to George for closing comments.
Thank you, Mark.
George Sakellaris: Amorosco, he has excellent momentum as we head into the final quarter of 2024.
George Sakellaris: We believe the strong results will carry into the new year, given the growth in our contracted backlog, our energy assets, and oil and gas contracts.
George Sakellaris: The broad range of impactful solutions we provide has never been in greater demand by governments, institutions, utilities, and corporations around the world.
George Sakellaris: In closing, I would like to once again thank our employees, customers, and stockholders for their continued support. Operator, we would like to open the call to questions now.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad.
Speaker Change: Your first question comes from the line of George Genarikas with Canaccord Genuity. Please go ahead.
Good afternoon, everyone. Thank you for taking my questions.
Hi, George. Hey, George. Hi, George.
Speaker Change: Maybe to just ask about the changes in Washington specifically around the potential impact
on your R&G business.
Speaker Change: just help us kind of think through the pluses and minuses to biofuel mandates and also your last quarter you announced the supply agreement with a California based
Speaker Change: Natural Gas Utility. Anything else you can point us to that helps insulate any volatility in RIN prices? Thank you.
Speaker Change: Yeah, good question, George, and we have Mike here, and I think we'll give some good color to that particular question. But we think that that business is strong, and we will continue to be strong.
Speaker Change: Yeah, George, I mean, I think to answer the last question on the utility, we're waiting now for the PUC approval.
Speaker Change: So the staff is going through the process to make the recommendations of commissioners And we continue to see a big uptick in the voluntary segment with many utilities issuing RFPs for similar requests
Speaker Change: with longer terms as well. So that market remains pretty active.
Speaker Change: As far as the change of administration, you know, I mean, a couple things to think about. Much has changed in the last four years in our space.
Speaker Change: We have big oil that has invested billions into the space, into the industry. There are many tax incentives that you're aware of that actually would benefit red states that we expect will stay in place.
Speaker Change: The Farm Bill, and remember the RFS program is really a Farm Bill at the end of the day. The Farm Bill that came out big for President-elect Trump and Vance, and remember Vance is someone from the rural roots and has great support from the Farm Bureau.
Speaker Change: I'd also point to the fact that Elon Musk invested almost $120 billion into Trump's campaign and he does stand the most to gain if the EVEN pathway should open up.
Speaker Change: One of the things that that a lot of folks haven't been watching either is thinking about
Speaker Change: is the cellulosic waver credit, right? This year we didn't have it, but it can come back into effect next year. And remember how that works. It's inversely proportional to fuel costs.
Speaker Change: So gasoline costs actually go down the way the credit goes up and creates a much more robust ceiling for us And I think Trump has been very vocal about Open the spigots and trying to drive costs below $2 per gallon for gas, which will only help our market
Speaker Change: You know, I think overall when you think about the incentives and everything else with hydrogen as well, I think the market remains strong and that's reflective in what we see in the trades. The trades the last couple of days have been pretty steady at about $3.05 a rem.
Thank you.
Speaker Change: Your next question comes from the line of Pavel Molchanov with Raymond James. Please go ahead.
Yeah, thanks for taking the question. Follow up on the...
election comments.
If you go back to Trump's first term,
Were there...
Speaker Change: Any differences in the federal contracting landscape in terms of kind of demand patterns or the contract structures compared to the last four years or has it basically been status quo?
Speaker Change: Yeah, I will let Nicole add a little bit more color to that, but during the Trump, the first Trump years, the performance contract in business was very, very strong. Because one of the things, I remember talking to Speaker Boehner, and we were lobbying for something else.
Speaker Change: And he says, you know, the business, your performance contracts, the big guy really likes them.
Speaker Change: some of the solace from the roof. It is not that excited about. No, actually, you know, the number that we used, that we did three times as many contracts as the
Speaker Change: Trump administration that we did under Biden and one of the reasons, but I will let Nicole explain it. One of the reasons behind it is because some of the programs, the incentives that they provided even in the Obama administration or the Biden.
Nicole Bulgarino: Many of the customers, they wait to see how much money they can get as an incentive before they sign the contract. So it slows down the process. Nicole? No, just to add to that, I think the other, what we saw in Trump's administration was the alignment with the military.
Nicole Bulgarino: So our work, a lot of good work that we did for the Department of Defense under the performance contracting to do infrastructure. They used that as a tool to do a lot of infrastructure improvement.
Speaker Change: were by administration still doing some of that but not near the volume of it and a lot of focus on farm power cogeneration facilities we had under those that Trump administration under those contracts so just a just a difference in the type in the parts of the federal business that we were you see you in between the two
Bye.
Speaker Change: Let me follow up on the kind of international side of things. I saw several announcements recently about projects in Greece. Is it safe to say that Greece is now on par with the UK as basically your main operating areas in Europe?
Speaker Change: Yes, I mean, in Greece, because we have a good partnership with Sunel, and people know us, and what happened there, and we're doing an excellent job, not for the Greek government or the local utility, but for many of the funds.
that invest in solar farms in Greece.
Speaker Change: And because we have the reputation of executing and they know us and we teamed up with them and we're getting great traction in that particular part of the world.
Speaker Change: And that's why I appointed Peter Christakis, who has been with us for a long, long time, as president of Greece, in order to monitor the performance of those projects.
Speaker Change: But don't forget Italy, Italy we are doing very well and we are expanding that particular market as well.
Thanks very much.
Speaker Change: That's why I brought her up. You know, the fact that we have the Trump administration and things might change in the United States, it's a good diversification a little bit. Nothing's going to happen to the Europeans. There's more and more demand.
Speaker Change: Your next question comes from the line of Stephen Gingaro with Stiefel. Please go ahead.
Good afternoon, everybody.
Hi there.
Hi, so I mean, can you help us just
Speaker Change: And I think part of it's the energy asset deployments you had in the quarter. But can you just help us sort of bridge the third quarter to the fourth quarter? Because you're kind of implying, I think, about $81-82 million of EBITDA, which would be...
Speaker Change: Obviously a really healthy quarter, can you just kind of help us understand the moving pieces?
Mark Chiplock: Sure. Yeah, Steve, this is Mark. I mean, I think we're certainly expecting a strong revenue quarter in Q4. You know, I think we've got good visibility to, you know, not only where the revenue's coming from, you know, the heavy part of that's coming from contracted revenue.
Mark Chiplock: But the mix of that revenue, we expect to have a better gross margin profile. So EBITDA margin-wise, we should expect to see a better EBITDA margin in Q4. And I think that's really...
Mark Chiplock: That part of it, for the EBITDA bridge, and then obviously the EPS bridge is tied largely to the tax benefit that we're expecting at the end of the year.
And is that margin comment applicable to projects and assets?
Speaker Change: Yeah, I mean, I think we've seen some pretty steady margins on the assets. It's really more focused on the projects because we've seen, you know, certainly in the last couple of quarters, project margins be a bit lower, you know.
Speaker Change: just based on a combination we've talked about, the FCC costs, but also just some larger, more design-build type projects that carry a lower margin profile. So, yeah, I think, again, mix of the project stuff will also help that improved margin.
Speaker Change: Okay, thanks. And just as a follow-up to that, when you when you highlighted in a release kind of the next 12 months of project backlog that you call out as part of the press release,
Speaker Change: Any comments on what that margin profile looks like relative to what you've kind of registered in projects over the last few quarters? Just trying to get kind of a glimpse into 25.
Speaker Change: Hello. This is Luke on for Eric We've got a couple of questions here for you first off looking at the mix between utility and transportation. The RMG business, what's your outlook for growth with utility customers going forward and where do you see that mix trended long term. Thanks.
Speaker Change: Mike go ahead.
Speaker Change: Yeah.
Speaker Change: Utility customer.
Speaker Change: Talking about utility customer in terms of the voluntary market yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Well look what I would tell you is that the.
Speaker Change: The voluntary market is picking up in a big way I think thats really the long term growth of the addressable market.
Speaker Change: We are seeing some gas dying leave the country as well, which is freeing up some capacity in the RFS program.
Speaker Change: Think long term, you'll see at some point the voluntary segment will surpass.
Speaker Change: The demand in the transportation sector.
Speaker Change: Perfect. That's helpful and just one more quick follow up for US here. So touching on the long term partnership with Bristol do you see opportunities to offer full service to other municipalities that are you seeing any other competitors really pursue similar arrangements in the space.
Speaker Change: No question about are there other competitors that they are pursuing in that space.
Speaker Change: Since we got the first one.
Speaker Change: Leg up on them.
Speaker Change: Yes, we are talking to several other.
Speaker Change: Sirius in the U K and in other parts of the Europe.
Speaker Change: And.
Speaker Change: We envisioned that thinks it will happen.
Actually if we can find.
Speaker Change: A couple of quick follow <unk>.
Speaker Change: Europe.
Speaker Change: It'll help us.
Speaker Change: Dave.
Speaker Change: Particular market perfect.
Speaker Change: Thank you that's it for us.
Speaker Change: Your next question comes from the line of Noah Kaye from Oppenheimer <unk> Company. Please go ahead.
Speaker Change: Thanks for taking the questions I wanted to ask about the leadership structure that you highlighted at the beginning George.
Speaker Change: Folks that have been with the company a long time lots of experience here.
Speaker Change: So happy for all of them, but just help us understand what does this do or where should this maybe effect of change in terms of the way. The business is run going forward is it around capital allocation project selection.
Speaker Change: How should we think about this this change impacting the business going forward.
Speaker Change: It is.
Speaker Change: No question about it.
Speaker Change: Project selection.
Speaker Change: As well as investments how we invest.
Speaker Change: Abdullah procurement.
Speaker Change: Consolidated.
Speaker Change: Yes.
Speaker Change: All units together.
Speaker Change: And it gives us a little bit more responsibility and visibility around the company.
Speaker Change: On the call has taken over.
Utility infrastructure.
Speaker Change: Being the president has been there for a long time, the same with Lewis basically.
Speaker Change: Now men agenda.
Speaker Change: The better part of the United States and Canada.
Speaker Change: He has broad visibility and then.
Speaker Change: And the same happens with beta, but one of the things that we're doing.
Speaker Change: Yeah.
Speaker Change: Well see the amendment is now along with Mike and it works very very very well together, so basically not only procurement, but how we execute contracts and so on we Saturday as a consequence, the organization and thereby of one team helped me out there.
Speaker Change: They share resources on the technology side and so on.
Speaker Change: And the project management.
Speaker Change: A lot of saving costs.
That's helpful. George and then on that subject of capital allocation, particularly I think it's.
Speaker Change: The company talked much in previous quarters about maybe going a little bit more capital light on some of the energy asset development.
Speaker Change: Other than our N G.
Now that Youre seeing leverage consolidated leverage decline just talk a little bit about the philosophy around capex and what you're keeping on the balance sheet. How are you going to manage the development very good question very good question look we have said before that we want to grow the asset base by about 2%.
Speaker Change: About 20%.
Speaker Change: 100 200.
Speaker Change: <unk> hundred 50 megawatts per year one.
Speaker Change: On average.
Speaker Change: Four or five years, and we will continue to do that we just don't want it to all of our stress our balance sheet and the other thing that we get some lower.
Speaker Change: Alright.
Speaker Change: Lower than our cost of capital.
Speaker Change: Jacksonville, we monetize less because it's a very good business for us.
Speaker Change: Third parties out there that they will get those projects.
Speaker Change: So.
Speaker Change: It generates very good cash flow for that.
Speaker Change: Like I said before a great Tam and basically we develop many more projects than we can.
Speaker Change: Can hold on our balance sheet, and so we monetize them and I think it's a great great business is helping a lot.
Speaker Change: That makes a lot of sense, thanks for taking the questions.
Speaker Change: Okay. Thanks, Bill Thanks.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Sam Kaufman with William Blair. Please go ahead.
Hey, thanks for taking our questions here.
Speaker Change: Hi, I guess it starts really.
Speaker Change: Relating to your election in your project business do you ever see federal contracts that are already funded ever get delayed or the bidding process sort of pause due to changes in the administration I guess.
Speaker Change: I'm wondering if it can be kind of comments were sort of a slowdown in federal projects that the GSA or other agencies to occur.
Speaker Change: At least for a short time, given kind of the noise associated with the presidential transition.
Speaker Change: The first part of that would be that there actually will be a push to get projects done in this quarter for to be able to accomplish the goals of this.
Speaker Change: Administration and.
Speaker Change: I wouldn't normally expect there to be a slowdown into the next administration I mean, there'll be time to adjust messaging again looking at the projects that they put out but there is an active pipeline now and a lot of projects that we have under construction and in the world that we can convert this year.
And then continued CBL to convert in 2025 year.
Speaker Change: Got it Thats helpful.
Speaker Change: Switching gears here.
Speaker Change: Please go ahead.
Speaker Change: I was going to say and then I'll say keep in mind too.
Speaker Change: So the stuff that we're getting the federal government is not I mean, it's budget neutral and that his performance contracting so it's not depending on capital allocation from the federal government. So that makes a big difference.
Speaker Change: Bipartisan supported.
Speaker Change: Got it thanks for that.
Speaker Change: Yes.
Speaker Change: Maybe more related to your supply chain to I think you mentioned, maybe George in previous quarters that your supply chain and labor were kind of constraints that havent, yet improvements, but we're sort of stabilized which made it possible planned around.
Speaker Change: I'm curious.
Speaker Change: The market.
Speaker Change: Yeah, how would you characterize them.
Speaker Change: It has stabilized a little bit, but we still find bottlenecks here and there.
Speaker Change: So does this parts of the country, whether it's labor.
Speaker Change: A lot of the.
Speaker Change: The biggest constraint is that we have right now is trying to transfer risk.
Speaker Change: For some of that battery storage projects in the solar plants and so on and the other one.
Speaker Change: And that's why it's really hard sometimes to make estimates of how many megawatts with online.
Speaker Change: The connected utilities.
John: Thanks, John.
John: But it's better than what it was before.
John: Okay.
John: Got it I appreciate the color there.
Speaker Change: Again, if you would like to ask a question press Star one on your telephone Keypad. Your next question comes from the line of Caitlin with Baird. Please go ahead.
Speaker Change: Good evening. Thanks for taking my question just following up on that last point, George you made about interconnection taking longer.
Speaker Change: As we look into next year, how comfortable are you guys with the 150 megawatts or thereabouts.
Speaker Change: Assets coming on line.
Speaker Change: Yes.
Speaker Change: The average we believe we're going to put.
Speaker Change: This year by the time, we get done we have one more I mean is your plan coming online that's about 16 megawatts and probably another.
Speaker Change: Five bed 10 to 15 megawatts of solar.
Speaker Change: Depending on making sure that they think until it didn't go negative next.
Speaker Change: Next year, we are looking for.
Speaker Change: I think it's a better estimate maybe they'll go up to 120.
Speaker Change: Based on where we are.
Speaker Change: Okay. Thank you for that and but we haven't we have you know all of the almost 600 megawatts in development.
Speaker Change: We will see how many we we ended up putting on service but for.
Speaker Change: For the time being because we did so much this year.
Speaker Change: I'd say next year it would be.
Speaker Change: On your range.
Speaker Change: Thank you and then just back to Kevin uncertainty.
Speaker Change: IRA.
Speaker Change: Uh huh.
Speaker Change: You answered this on the government side, a little bit, but does it impact any of your customer.
Speaker Change: Orders or projects and then for your own assets or any kind of slowdown in a particular asset class.
Speaker Change: As you await for change or is it just all speed ahead.
Speaker Change: I mean look it's been.
Look at our business, we have the projects business.
Speaker Change: I don't see any issue associated with.
Speaker Change: Any incentive associated with the federal government as we were waiting for.
Speaker Change: And then on the assets.
Speaker Change: The ITC.
Speaker Change: The key issue.
Speaker Change: I don't think that especially on the batteries.
Speaker Change: That's going to go away because it's great bipartisan support.
Speaker Change: And.
Speaker Change: And the other one don't forget.
Speaker Change: It will take.
Speaker Change: The act of Congress right now.
Speaker Change: It's going to be very hard to reverse it it might be some slight modifications.
Speaker Change: One of the things that.
Speaker Change: President elect has pointed out with some of the subsidies for the electric vehicles.
Speaker Change: Other than that.
Speaker Change: I don't see any issues.
Speaker Change: It anymore.
Speaker Change: Would suggest that some of the benefits go again to the Red States yes.
Speaker Change: Big support there so I don't see much material and we're not counting on a lot of that stuff the gecko beginning indoors.
Speaker Change: Thank you guys appreciate it.
Speaker Change: Yes.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: Our next question comes from the line of William <unk> with UBS financial. Please go ahead.
Speaker Change: Good evening, Thanks, very much I just wanted to come back to the ITC point here quickly.
Speaker Change: Just we've heard of some larger utility scale focus developers actually looking to safe Harbor equipment.
Speaker Change: Just as a matter of prudence.
Speaker Change: Right I hear your point on the ITC.
Speaker Change: Tend to agree with you its likely to stay it's Ben.
Speaker Change: It's been a fairly <unk>.
Speaker Change: <unk> policy through multiple administrations, but is that something you might look to do.
Speaker Change: Just again as a matter of prudence here.
Speaker Change: Into 2025.
Speaker Change: I'd say one of the.
Speaker Change: We will save.
Speaker Change: Some.
Speaker Change: Equipment, where some of the LNG plants definitely we will do that too and some of the solar plants because they are smaller we might.
Speaker Change: We might do on a couple but not that much.
Speaker Change: I don't think the ITC for solar is going to anyone anywhere anytime soon.
Speaker Change: The other thing I wanted to find out because.
Speaker Change: President elect has come out against.
Speaker Change: The offshore wind farms.
Speaker Change: Do you think what they are.
Speaker Change: The previous previous administration with flattening.
Speaker Change: 30000 megawatts of wind farms offshore.
Speaker Change: Those things don't have done about half of them you will play to our market because we are focusing much more on the five to 50 megawatts solar plants and they are well distributed across the various states. They don't require as much transmission. So they are much more resilient and better and then when you combine it with battery storage.
Speaker Change: It's.
Speaker Change: A much lower risk profile that provides as much though.
And because.
Speaker Change: You people have come to do their work in the solid group.
Speaker Change: I've talked to me that's why so I told him at the end of the day a year from now we might be busier than we are today.
Speaker Change: Yeah.
Speaker Change: Got it I appreciate that and then.
Just on the on the R&D side some of your peers have both public and private have announced ITC.
Speaker Change: Sales.
Speaker Change: Related to that.
Speaker Change: Their R&D capex.
Speaker Change: Is that something that you're maybe getting a little bit closer to doing.
Speaker Change: Yes, we just start looking at those that because we have great great potential that it might put some numbers together.
Speaker Change: We took it.
Speaker Change: You guys can do your own arithmetic.
Speaker Change: We are looking at do it.
Speaker Change: We'll see where it goes.
Speaker Change: I appreciate it thanks very much.
Speaker Change: Thanks, Paul.
Speaker Change: If you do not have any more questions. At this time, we have come to the end of our question and answer session, Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Please wait the conference will begin shortly.
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Speaker Change: Okay.
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Speaker Change: Yeah.