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Edited Transcript of AMRC earnings conference call or presentation 31-Oct-17 12:30pm GMT

Q3 2017 Ameresco Inc Earnings Call

FRAMINGHAM Oct 31, 2017 (Thomson StreetEvents) -- Edited Transcript of Ameresco Inc earnings conference call or presentation Tuesday, October 31, 2017 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gary Dvorchak

The Blueshirt Group, LLC - MD of Asia

* George P. Sakellaris

Ameresco, Inc. - Founder, Chairman of the Board, President & CEO

* John R. Granara

Ameresco, Inc. - CFO, Executive VP & Treasurer

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Conference Call Participants

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* Carter William Driscoll

FBR Capital Markets & Co., Research Division - Analyst

* Craig Edward Irwin

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* John Salvatore Quealy

Canaccord Genuity Limited, Research Division - MD and Analyst

* Noah Duke Kaye

Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 Ameresco Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Gary Dvorchak. Please go ahead, sir.

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Gary Dvorchak, The Blueshirt Group, LLC - MD of Asia [2]

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Thank you, Christie, and good morning, everyone. We appreciate you joining us for Ameresco's third quarter 2017 earnings conference call. On today's call are George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer; and Executive Vice President and Chief Financial Officer, John Granara. George and John will review the operating and financial highlights of the third quarter, then we'll take questions. Keep in mind that we have a deck with supplemental financial information. You can download the deck from the Investor Relations section of our website.

Before I turn the call over to George, I'd like to make a brief statement regarding forward-looking remarks. This call contains forward-looking information regarding future events and the future financial performance of the company. We caution you that such statements are predictions based on management's current expectations and beliefs.

Actual results may differ materially as a result of the risks and uncertainties that pertain to our business. We refer you to the company's press release issued this morning and our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections of forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call. In addition, we'll be referring to non-GAAP financial measures during the call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Our GAAP to non-GAAP reconciliation as well as an explanation behind the use of non-GAAP financial measures is available in our press release, prepared remarks and in the appendix to the slides.

I'll now turn the call over to George Sakellaris. George?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [3]

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Thank you, Gary, and good morning, everyone. We started 2017 optimistic about our prospects. With 3 quarters done, we believe that optimism was justified. In Q3 we grew revenue by 13% and earnings per share by over 50%. Our total backlog is up 15% from a year ago and contracted backlog is up 41%. With 1 quarter to go, we are confident in Ameresco's performance for 2017. Our results are important, but equally important is how we are achieving our objectives. We have laid out a clear strategy to grow earnings faster than revenue by increasing our high margin recurring revenue streams. We also laid out a clear strategy to sustain growth and increase the profitability of Ameresco's core project businesses. As the results show, we continue to deliver on our strategic objectives. First, let me discuss high margin recurring revenue. In Q3 energy sales were 9% of revenue and 41% of EBITDA. Operation and maintenance was 7% of revenue and 14% of EBITDA.

Ameresco's energy asset portfolio in operation grew to 187 megawatts equivalent of capacity, 10 megawatts higher than the start of the quarter. The growth was from Massachusetts solar projects that were mechanically complete earlier in the year, but were waiting for the electric utility interconnection. Another 10 megawatts are now mechanically complete and should be placed in service this year. This will bring us in line with our expectations of placing approximately 30 megawatts of solar assets in service in 2017. Also 6.9 megawatt of newly operational capacity was in community solar, a segment in which we are seeing a lot of interest. In August we announced a project with Blue Cross Blue Shield of Massachusetts and a Massachusetts based developer, BlueWave Solar. Nearly 200 residents and small businesses will also benefit from the net metering credits produced by the project.

We are optimistic about our ability to grow our energy asset portfolio. Ameresco has approximately 87 megawatt equivalent of energy assets under development, which we expect to become significant profit contributors in the near future. Solar is still the majority of our development pipeline, but our assets expand beyond solar. Ameresco previously announced 2 renewable gas plants under construction in the Southwest and Midwest. A biogas plant in Phoenix, Arizona is the largest of its kind in the US and recently won a leadership award from the industry think tank, Energy Vision, for advancing renewable gas made from organic waste. These plants are expected to come online in the near future and the 2018 EBITDA contribution from those plants should be significant. During Q3, we also demonstrated the effectiveness of our strategy to drive profitable growth in our core project solutions business.

We are expanding our opportunities by focusing on delivering highly innovative value-added capabilities as well as by serving new known traditional segments. Let me address innovation first. While technology is usually the first thing that comes to mind, Ameresco also innovates in project contract models. For example during the quarter, we signed a contract to develop a 2.5 megawatt onsite solar project for a DA center in Texas. The contract is unique because it includes energy sales within the traditional energy savings performance contract for the federal government. In a similar way, we are utilizing the utility energy services contract structure to finance and implement federal solution projects. Ameresco recently partnered with Eversource to implement a large energy infrastructure project at the US Coast Guard Academy. A comprehensive energy efficiency project will replace their end-of-life central boiler plant with high efficiency natural gas boilers.

We will also install 1 megawatt of combined heat and power and 450 kilowatts of onsite solar PV along with lighting, HVAC and other campus improvements. With our utility partner, the academy will gain access to natural gas to fuel their new central plant. This will displace early lines on fuel oil and increase the reliability and resiliency of their energy systems. We are still driving technical innovation as well. Energy infrastructure resiliency is a topic of particular interest. For example, many of our projects now include storage. Similarly, microgrids are becoming more prominent. Microgrids can sustain mission critical power and greater energy security at military base or public facilities. We are also incorporating other types of renewable energy. For instance, our recently completed project at Monroe Community College in Michigan is utilizing geothermal power. A majority of our federal projects include solar, combined heat and power and other distributed generation sources.

Because we are technology independent and as unbiased, we are able to identify and utilize the best solutions for our customers across a broad spectrum of technologies. In addition to the value-added innovation, we are expanding our addressable market by serving new non-traditional segments. We have discussed at length a large urban street light opportunity. The Chicago project is now being implemented and is contributing to revenue. Our success in Arizona is translating into new awards and contracts in smaller cities surrounding Phoenix. We have demonstrated our expertise with schools, universities, airports and city streets. We also have expertise in sports stadiums. We just signed a contract to upgrade Hamilton County's Great American Ball Park, home of the Cincinnati Reds. The project will include LED lighting as well as other efficiency measures. This follows on to a smaller project we did at the adjacent Paul Brown Football Stadium where The Bengals play.

We also continued to build momentum in the U.K. While this is still a small and growing market for us, the success we are seeing is encouraging. We mention the awards at the 4 Surrey colleges. Those are now under production. We have also been awarded work in a school district outside of London as well as a hospital in [Wexone]. We are addressing there 3 different vertical markets under 3 different award frameworks and we believe we will continue to grow our presence in the U.K.

With that, now I will turn the call over to John for comments on our financial performance. John?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [4]

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Thank you, George, and good morning, everyone. Our press release and supplemental slides contain all the figures and comparisons you need so I'm not going to repeat all the numbers. Instead we are going to focus on the analysis of the factors that influenced the results. Keep in mind that we are referring to Q3 figures unless I say otherwise and all the comparisons are for the year-over-year changes. The growth in revenue was driven mostly by an increase in project revenues in our federal group where we continued to execute ahead of schedule and pick up additional wins. The strength in federal was partially offset by softness in the rest of our U.S. region, some of which are behind schedule. For instance, Hurricane Harvey delayed 3 projects we were expecting to start in Texas.

Also, there were a couple of other larger projects that were delayed for various reasons, which impacted revenue in the quarter. O&M revenue was down slightly due to the contract amendment last year and another contract that expired. However, year-to-date we have added over $60 million to our O&M backlog bringing the total to over $800 million. That $800 million has a weighted life of over 14 years. Energy sales were very strong due to new assets coming online. We also got a meaningful contribution from the recovery in integrated-PV. We sustained the gross margin consistent with prior year. We did this through a better revenue mix with a greater proportion of the higher margin recurring revenue stream. We also got a positive contribution from the recovery in integrated-PV sales.

We continue to control our operating expenses with the growth well below the growth in gross profit. Keep in mind that operating expense last year included a bankruptcy reserve and restructuring charges. Excluding that, the change in operating expense was driven primarily by higher project development costs from federal projects. As we always emphasize, we continue to invest more in the front end of project development in order to drive pipeline growth. With revenue growth and better margins, our net income and EPS were up substantially. The additional project revenue also resulted in a high single-digit increase in adjusted EBITDA. Turning to the balance sheet, our financial position is strong. We increased our cash balance even as we continued investment in energy assets. Receivables were up, but that increase was offset by a similar increase in payables.

We paid down the term loan and revolver and closed financing on $9 million worth of solar PV projects. We repurchased a little more than 100,000 shares during the quarter under our ongoing repurchase program. Looking at our energy producing assets, the portfolio continues to grow. As George noted, we placed in service 10 megawatts of energy assets in the third quarter, which included several projects that were completed earlier in the year but for which interconnection was delayed. Our pipeline of energy assets in development and construction is 87 megawatts. So, the prospect for intermediate term growth is strong. Also as George mentioned, that construction pipeline includes 2 large renewable gas assets that we expect to contribute materially to our profitability next year. Backlog reached new highs again this quarter. The significant year-over-year growth in contracted backlog was due to the signing of the Chicago streetlight project in the second quarter.

We are keeping the pipeline full, however, as we added $230 million to new awards in the quarter. The composition of our backlog is balanced with all U.S. regions and federal contributing. Now, let's turn to guidance. As George discussed, we are confident in our ability to perform in the higher range of the annual guidance we offered at the start of the year. We are tightening and raising our revenue guidance to a range of $680 million to $705 million. The range of adjusted EBITDA goes to $61 million to $65 million and EPS goes to $0.39 to $0.43. The guidance update mainly reflects our ability to execute. We're doing a good job signing contracts, implementing projects on or ahead of plan and growing the energy asset portfolio. These numbers rely in part on our ability to sign a few additional contracts, but with a couple of months left in the quarter, we believe we can reach our goals.

Now, we'd like to open the line for your questions. I'll turn the call back over to our coordinator, Christie, to run the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Craig Irwin of Roth Capital Partners.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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Congratulations on the strong contracted backlog growth again. First question I wanted to ask is about the longer-term opportunity in landfill gas. So if we assume that Pruitt does what our sources are saying, which is issue the original RVOs that came out of OMB, it actually had a little bit of growth in cellulosic for '18 and if we think the Trump administration's a friend of biofuels and we do see some modest growth for the next few years, seems like this could be a very attractive longer-term market. Can you maybe comment on the range of additional plants you might be looking at? Could we see additional plants move into construction in '18 or '19 above and beyond the Canton and Phoenix plants that you're looking to to commission?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [3]

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That's a very good question, Craig. Look, I mean the way that the situation is right now in this particular market, we are cautiously optimistic if they don't do something to adversely impact it. So looking forward; a, we have many asset landfill projects that we are operating right now and some of them, especially couple of them, we are looking to see if the opportunity is to convert them to green gas. In addition to that, I will say we have 3 to 4 others that again they are in the development stage. So if I were to plan out let's say for 2018 and '19 and beyond, I wouldn't be surprised to see us bring in 2 lines of those 5 or 6 plants that we are looking to right now and most likely will be in the development how things go probably 2 to 3 plants of those plants to see them in operation in 2018 and '19 and most likely will come late 2018 or early 2019. So, we are cautiously optimistic about that particular business line and that's why we've been watching it for some time going back to when we developed the San Antonio plant. Originally we had a long-term contract and then a few years back when that contract expired, we were selling into -- the range into the California market and that was very encouraging. That's why we developed the 2 plants that we have right now and we are hoping that they will contribute substantially next year.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Great. And then regarding the Michigan and Arizona plants, can you maybe update us if there is any significant change to the commissioning schedule and maybe update us on the process of developing financing and offtake agreements with the necessary parties?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [5]

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I can take that. So, what we've previously said is we expected one of the plants to go online in Q4 and the other one to be in Q1 of 2018. So, I can tell you where we sit today. We are going through the commissioning process of that first plant so it's not yet operational and we need to go through the EPA certification process as well to get qualified for the D3 RINs for that plant. So, it's not yet operational. We are hoping to get it operational this quarter and the other plant is still on target. In the event we do see a delay, that would just be a timing where it would push out when we would begin to start recognizing the revenue there. For the financing for these plants, I should mention that for one of the plants we're currently -- we currently funded that through the cash from operations of our core business and then the second one, we did obtain financing for. So from that standpoint, we're all set from a liquidity and capital standpoint.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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Great. And then last question, if I may. Another quarter with 40% growth in contracted backlog year-over-year, it's an impressive base of business to drive the company over the next couple years. When we look at the performance contracting side of the business, can you say whether or not you feel this market continues to accelerate and would you agree that this does create an upwards bias even though the duration of some of the contracts is longer than maybe what you've seen in the past, that we do see an upwards biased momentum in both the short and medium term?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [7]

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So I think looking at the backlog where we are, as you know, we believe that gives us a good 2 to 4 years of visibility. What we've said in the federal space specifically, we haven't seen any decline since the change in administration through last year. So, the opportunities appear to keep coming in consistently and what we're seeing there is that they are larger more complex projects. And so with that, those projects do take a little bit longer to develop and so our average project takes about 18 months to develop. The larger projects in the federal space for example can take upwards of 2 to 3 years and then the implementation periods can be a little bit longer. So looking at -- when you look at the contracted backlog of the 40% growth, it doesn't necessarily translate to meaning that we're going to be growing 40% year-over-year because the projects are larger and are extending over a longer period of time. But that being said, we do think it puts us -- we do believe that we have better visibility than we have had in years past and with the stronger awarded backlog, that provides us with even more long-term visibility. So, we believe the backlog supports the growth. It's just a matter of now executing not only on the -- for those projects that are in contracted, but also converting those projects that are in awarded.

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Craig Edward Irwin, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [8]

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Thank you for that and congratulations again on the strong progress.

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Operator [9]

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Our next question is from Noah Kaye of Oppenheimer & Co.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [10]

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If I could just pick up on something during your prepared remarks. You called out a couple of project delays, hurricane and then a couple of other things. One, could you kind of ring fence what the sort of revenue magnitude was associated with the storm because certainly that's something that is kind of a common theme for companies this quarter? And then maybe give a little bit of color on the other delays, is this really sort of a short-term timing thing, were these budgetary or are there other factors at play?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [11]

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Yes, I would probably say for the quarter, it was probably in the $5 million to $10 million range and that might even be the -- maybe even includes the second half of the year, which includes Q4 because not only it does impact Q3, but that's actually impacting Q4 for these projects. We're not going to -- they're probably going to get delayed most likely into the beginning of next year. They're not going away, which is -- based on our initial assessment, none of the projects are going away but they are delayed. In addition to Harvey, we actually did have a project in Florida impacted by Irma as well, but we didn't want to be too focused on the hurricane because there is -- there are other projects within the portfolio that have been delayed as well that we're trying to convert. But if you're looking for the impact for the year, I would probably put it in that $5 million to $10 million range for the second half of the year and that would be in the fourth quarter.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [12]

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Yes. But you still raised revenue guidance so obviously overcoming it there. And then just as Craig was talking about the LFG project. Can you just remind us how to think about the magnitude of the 2 that are coming online; the CapEx associated with that, the contribution?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [13]

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Go ahead, John.

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [14]

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So, the CapEx associated with those are largely baked into our project assets in construction now or in development. And the plant that's getting ready to go in line now or this quarter is largely paid for and it's on our balance sheet and it's within the balance sheet there. And we haven't typically given specific guidance on the dollar amount there, but I can tell you that right now on our balance sheet in the $25 million to $30 million range. The other isn't as far along, but -- and it's not as large so that's going to be a little bit less say in the $10 million to $15 million range so in terms of what's on our balance sheet today. So in terms of the magnitude, we haven't yet come out with the guidance. There a couple of things that I would say that impacts these plants, I want to make sure everybody's clear about it. And that is you have the timing of the construction and commissioning obviously and if you were to go back in time, we have seen some slippage over time so -- for some of these projects to come online. So you have the timing variance of when they're completed, you have the timing variance related to the certification for the EPA to get qualified for the D3 RINs, you also have the timing difference of revenue recognition and that determines -- and that's basically determined whether or not you have the RINs and the offtake pre-sold or if you' actually go into the market and you could have a portion of that actually contracted and you could have a portion of that on a merchant basis. And if you're on a merchant basis, you haven't pre-sold them; it can take upwards of 30 to 90 days to recognize the revenue and there have been times where we have actually put these RINs in inventory, compiled them and then sold them in a large transaction. So, there's a lot of variability related to the timing of all of this. That being said, we do expect this to contribute materially and we do expect in February we're going to have a lot more clearer picture as to the timing of all of those things that I just mentioned and we'll be able to provide that within the guidance for the year 2018 when we get to February.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [15]

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Thank you very much for the detail on that. I think in the past we have typically thought about these types of projects kind of on a longer-term basis is having maybe like a 10% or low-double digit IRR. Is that still kind of right ballpark or do the RINs kind of significantly bump that up?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [16]

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It's better than that. It's double-digit plus IRR.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [17]

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Okay, great. And then maybe --

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [18]

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And why because you don't know what the RIN price will be down the road and so on. I'd say you do the IRR pro forma over the next 5 or 10 or 20 years what you assume for this. We have a pretty good channel for the next 2 years to 3 years, but what do you assume for the balance of the contract, but they look pretty good.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [19]

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And may be one last one from me. I mean we fully appreciate that the financing for the energy assets are typically the non-recourse post-op or limited recourse, but there is still kind of a headline leverage metric that comes out of putting all these assets on the balance sheet. Can you just remind us of kind of any covenant restrictions and maybe even kind of internally how you think about kind of a ceiling on leverage for the full company?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [20]

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So we typically will -- so the way we evaluate it is we'll have our core company debt, which essentially is our term loan in our line of credit and then we'll have the project debt, which is non-recourse and that's why you'll see us starting to break that out. With regards to the non-recourse project debt, we're fully comfortable in leveraging up the assets because we know that the returns are and that's not supported by Ameresco Inc as the creditor. They're 100% supported by the contracted cash flows. So from that standpoint, we're very comfortable adding leverage with regards to the assets. On the corporate side, again I would say that given where we're at right now with the $20 million to $25 million term loan plus the letter of credit for $75 million, we actually think we're okay right now. But we do have an appetite to add a little bit more as well as we continue to invest in the strategy of owning assets and so we're using that. We're using that line and the core -- the cash generated from our core business to fund the development of the assets. So, we probably have a little bit of more room on the corporate side as we look to invest in the future.

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Operator [21]

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Our next question is from John Quealy of Canaccord.

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John Salvatore Quealy, Canaccord Genuity Limited, Research Division - MD and Analyst [22]

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Maybe John, some math. The 87 megawatts of assets in development, how much is the landfill gas in Phoenix out of that?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [23]

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So, the 2 of them together are 23 megawatt equivalents for the gas.

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John Salvatore Quealy, Canaccord Genuity Limited, Research Division - MD and Analyst [24]

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Okay. And the remainder is mostly solar and other, got you. So you gave us timelines I think at least partly on the gas side, but generally is that the 2 to 4 years to get all those assets producing or is it on the shorter time frame like 3 years or I don't know? How should we think about the whole portfolio producing EBITDA?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [25]

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For the assets in development?

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John Salvatore Quealy, Canaccord Genuity Limited, Research Division - MD and Analyst [26]

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Yes, the 87 megawatts.

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [27]

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So of the 87 megawatts, most of that is what I classified as intermediate, but we would expect the majority of that to be online within 2018 with maybe about 25 megawatts to 30 megawatts going into 2019. But the majority of that we would expect to come online next year and then of course we'd get the full benefit in 2019 when all the assets are up and running for the full year.

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John Salvatore Quealy, Canaccord Genuity Limited, Research Division - MD and Analyst [28]

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Okay. And then just take a step back for us a little bit, obviously this administration has been all over the place in terms of messaging RVOs and different limits. How do you focus internally when you look to monetize RINs? I mean is it a quarterly exercise, is it a full-year exercise when you get financing for a plant? Remind us again your strategy around any tax equity or related incentives, how you bake that into the IRR? George, I think you were referencing that lever in the IRR.

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [29]

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Yes. On the solar, the market is very liquid on monetizing the agency and so on so the tax equities basically we shop around. We line up the projects and then we go out and get competitive quotes. On the RIN, and Craig asked the same question kind of, on one of the plants we have a long-term contract for at least half of the output and the rest of it is quarter-to-quarter I will say. And based on our experience for the San Antonio plant when we do the pro forma, we have extrapolated on the price and what's going on in the marketplace. So, we have a group that pretty much watches what's going into the marketplace associated with the RINs. So, that's a more I would say fluid market and we watch it month-to-month and monetize it quarter-to-quarter as John said and sometimes we might have to wait for 6 months or so until we actually monetize it. We did that with the renewable solar credits as well. A couple of times we held them back for 6 months and then we get a better price down the road. So, we are in that business so we have to be up to date as to what the prices are and we're in a situation where we can wait. Otherwise the solar fares there well, the prices went down and we did not sell any because we didn't have to. We waited until the price came back and we got what we thought was a good price. So it's an active market and one is very liquid, the other one we are in the early development of that particular market. But on the other hand because we are early in the development stage, the prices are pretty good. There are not many players yet into it.

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John Salvatore Quealy, Canaccord Genuity Limited, Research Division - MD and Analyst [30]

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Second question, a smaller piece of your business, but one that's been incrementally better is the Canadian business. You folks I think repowered and repurposed that a couple of years ago. Just talk about relative performance versus budget, the overall opportunity there, I mean $12 million to $14 million this quarter versus last. But just talk about that and any opportunities still left or is that kind of a run rate for Canada?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [31]

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Actually if you were to [inaudible] runs that particular group. He will be cautiously excited about the Canadian group. I think restructuring, reorganizing the company has helped a lot. In addition to that, the market activity we feel very good. The EBITDA was up, they are contributing I would say considerably to the overall profitability of the company. But what we are more excited about is the awards that they have received in the last few months and the market activity. The new government up in Canada, as we all know, is very much behind energy efficiency and renewables. So, I think that's inaudible one place that we see quite a bit of activity. So, we are again cautiously optimistic. This market's changed as we have found out pretty fast, but right now the market out there is pretty good.

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John Salvatore Quealy, Canaccord Genuity Limited, Research Division - MD and Analyst [32]

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Okay. And then last, maybe George for you. At least from a disclosure perspective, it's been awhile since you've done any sort of tuck-in acquisition. I can imagine with the valuations out there, this isn't the environment that you generally like to shop, you tend to be value centric. But talk about -- seems like the tailwinds are pretty good for the business right now and some potentially nice step-ups coming in EBITDA in the not too distant future. Talk about perhaps uses of cash, do you still want to mine the energy asset side of the business or would you potentially look to bolt-on more project services in other parts of the country? Thanks again, folks. Take care.

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [33]

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First, we will continue the strategy because that's a good strategy to invest in assets -- renewable assets because we want to grow like we said before annuity-based revenues and as long as we get very good returns for our investment, we'll focus on that. On the other hand, we will always look. If we can find a good bolt-on acquisition, we will look at it and if we can step up the EBITDA considerably, we will. As John pointed out, we are not overleveraged in any way, shape or form and the company generates very good cash flow. And if an opportunity comes, we will step it up, we will look at it; but on the other hand, it has to be accretive and it has to contribute to the overall [profitability] of the company.

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Operator [34]

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(Operator Instructions) Next question from Carter Driscoll with FBR Capital Markets.

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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [35]

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Can you talk about what you have or have not planned for the looming decision from the U.S. ITC in terms of potential remedy being imposed in the solar industry? Any impact or anything you're planning? Just trying to get your thoughts particularly how it impacts. Your current operating portfolio obviously doesn't get impacted, but going forward just get a sense of what you're seeing out there?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [36]

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So I would say that everything within our portfolio in development or specifically in construction not only for us, but for customers where we may have committed to price. We've actually been able to procure the panels. So from that standpoint, no immediate term impact. We do have I would probably say 1 project in particular that we're planning to go live with in probably 2019 where we haven't secured the P&L. So, there is some projects and there is some risk associated with that to the extent they were to add a significant tariff to that. I think big picture the way we think about this is one, we don't want to speculate so we're just operating under what we know today. But two, the overall thought long term is that the cost of the panels and modules are going to continue to come down and so -- and it will get to the point where the projects will make sense. With regards to PPA contracts that we sign with customers, there are some that we'll sign that will allow us to go back and adjust the PPA price to the extent there's a significant change. That being said, it not only needs to work for us economically, it needs to work for the customer. So, I would say no near-term impact. There could be a long-term impact for sure, but we are not isolated in that instance and it's going to be impacting everybody. We're obviously advocating against any significant tariffs along with everybody else in the industry and so we're waiting to hear what comes out today just like everybody else is.

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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [37]

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Just as a follow-up, can you talk about what you have or what you've learned from kind of the early implementation of Chicago's street lighting project and any takeaways you can take there? I'm particularly interested to see what competitive environment's like, it seems like a very robust opportunity, but we don't have a lot of insight into the competitive headwinds you're facing right now in that segment?

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [38]

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Well, it's certainly very competitive and it's not only people within our core industry, but it's actually people that we haven't traditionally competed against. So, we have some very large players participating in that because they actually see what we do and that it's a large opportunity. So, I don't know that we have anything to share with you in terms of the early implementation. I will say that we have seen a pipeline of activity, George alluded to some of it, for projects that we've actually won being able to leverage our experience and we're pursuing other projects that are large. So -- but in terms of sharing anything we learned, I mean I think it's still a large opportunity as we said in the past and it is one that we believe we're positioned to take advantage of.

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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [39]

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And then maybe just lastly you referenced to a few of the other potential large opportunities. Is that a similar scope to what you're doing in Chicago?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [40]

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That is correct. And generally where we have an advantage where there's some kind of a sophistication and some kind of telecommunications what we call smart series otherwise add-on and that's usually where we have some competitive advantage otherwise it's just replacing.

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John R. Granara, Ameresco, Inc. - CFO, Executive VP & Treasurer [41]

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We're not going to compete if somebody's just looking to replace the lights, it's -- and just go in and basically do a retrofit. Where we differentiate ourselves is with adding on and the different technologies in the smart cities and from that standpoint as George referenced. So, that I can tell you because we're -- if you just want someone to come in and install your lights, then we're not going to be the right person for that.

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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [42]

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And maybe just last question, if I may. You talk about you had a lot of increase in activity in the microgrid side, maybe specifically talk about the storage opportunity is a lot more interest obviously, been a lot of false starts in energy storage market but it seems to resonate as a combined total solution rather than necessarily pairing in on a standalone basis for some of the largest renewable projects. Just some general commentary. Pricing obviously continues to improve with the fall of battery prices, is it becoming more economical or does it still largely need to be paired with other types of renewable solutions as a complete solution?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [43]

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Again we are optimistic about storage and where it's going and that's why we have made an effort you may say with the folk for our business to develop the expertise and we have several projects that we have installed already and in the development stage. So, we are again optimistic about that particular market segment especially when we see the prices coming down the way they have and it reminds us of being in solar -- which happened in the solar industry. And I say that at the end of the day what's going on in microgrids and so on that storage once it becomes economically attractive, it will become the glue that accelerates the potential of the microgrids in that potential market. And going back to Craig's question, one of the things in the traction that we see in the marketplace, the fact that performance contracts include more and more of these new technologies and as these new technologies become mature in the marketplace and the customer acceptance is there, the projects are getting larger. And of course the way we have built this company, they fit more with our strategy and it helps us out. So, I will tell you we developed this strategy to grow our storage couple of years back and I'm very glad that we did and we see pretty good traction in the marketplace.

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Carter William Driscoll, FBR Capital Markets & Co., Research Division - Analyst [44]

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I'm assuming virtually everything is lithium, are you seeing any other chemistries making any inroads in storage?

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [45]

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Right now everything that we have been working with is lithium and again we are not a technology -- the company that will invest in technology or something like that, but we wait until a particular technology is developed, matured a little bit and then we integrate it basically.

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Operator [46]

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Thank you. And that concludes our Q&A session for today. I'd like to turn the call back over to George Sakellaris for any further remarks.

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George P. Sakellaris, Ameresco, Inc. - Founder, Chairman of the Board, President & CEO [47]

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Thank you, Christie. To conclude, our results this quarter support our belief that we have the right strategies in place to continue to grow our revenue and profitability. We are focused on sustaining the pace of development of our energy asset portfolio and further building our stream of high margin recurring revenue. The [algorithm] lies in innovative contract structures, innovative technologies and strategies to drive more value-add in efficiency and renewable energy projects and we are addressing new non-traditional segments to expand our addressable market. These strategies drove excellent results this quarter and enabled us to raise our guidance for the full year. We are confident we will conclude the year with solid momentum and look forward to even greater success in 2018. Thank you for your interest and support. I will now turn the call back to the operator.

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Operator [48]

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Ladies and gentlemen, thank you for participating in today's conference. This does concludes today's program and you may all disconnect. Everyone have a great day.