Ameresco - Q3 2018
October 30, 2018
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to the Q3 2018 Ameresco Incorporated earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, today's conference is being recorded. I would now like to turn the call over to Gary Dvorchak. Sir, you may begin.
Gary Dvorchak (Head of Investor Relations)
Thank you, Mark, and good morning, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer, and Mark Chiplock, Interim Chief Financial Officer. First, George will review the operating highlights, and Mark will review the financials of the quarter, and finally, we will take questions. Note that we have a deck with supplemental financial information. You can download that 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 or beliefs. Actual results may differ materially as a result of risks and uncertainties that pertain to our business.
We refer you to the company's press release issued this morning and to our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections or 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. A 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 of the slides. I'll now turn the call over to George. George?
George Sakellaris (Chairman, President, and CEO)
Thank you, Gary, and good morning, everyone. Before we begin, I want to quickly introduce Mark. Mark has been with us since 2014, playing an important senior role in the Finance team as Vice President of Finance and Controller. His experience and familiarity with our operations enabled him to step in quickly to manage our financials after John's departure. We have a search underway for a permanent CFO, and we look forward to reporting progress on the search in the months ahead. Now, let's discuss Q3 results, which were very strong, especially in profitability growth and development of the backlog. The growing business momentum continued this quarter. As you know, we focus on growing profits faster than revenue. Net income was up 26%, and adjusted EBITDA was up 23%. Earnings per share also had outstanding growth, up 21%.
Revenue grew only slightly, grew only slightly due to a shortage of control equipment for the Chicago streetlight project, as well as the slippage of a large project into Q4. Nevertheless, the growing contribution from operational maintenance and energy sales, combined with a better mix of project revenue, enabled gross margin to exceed 22%. Our visibility continued to improve. Total project backlog grew to over $2 billion, up 18%. Awarded backlog is solid, up 11% to $1.2 billion, while contracted backlog was a record high of $819 million, up 30%. We also grew the energy asset portfolio, adding 33 MW equivalent to development and putting 4 MW of solar into service. Performance this quarter reflected two themes we emphasize constantly because they are important to our business model.
The first is the growing size and technical complexity of the energy infrastructure projects in our backlog. Complexity plays to our competitive strength in development, design, and construction, and financing of these projects. The second theme is our continued success in winning repeat business. As you know, for several years now, we have been driving Ameresco towards a business model with emphasis on recurring revenue, specifically renewable energy sales and operations and maintenance. In addition, Ameresco is thoroughly winning more repeat business in energy and infrastructure projects. I want to highlight two major contracts we signed this quarter that exemplify our progress towards this attractive business model. The first is phase two of the New York City Housing Authority project, which we call NYCHA. The second is the Joint Base San Antonio ESPC project.
NYCHA phase two will deliver over $100 million in revenue to Ameresco over the next 28 months of design and implementation, with additional operation and maintenance revenue over 18 years. As with phase one project, Ameresco and its subcontractors, including organizations employing residents, will be installing a number of resource-saving measures. Once complete, the improvements are expected to impact close to 15,000 apartments in 15 developments, and to save NYCHA an average of over $8.6 million annually. Managing this project will be complex, as it needs to be implemented while minimizing any disruption to the life patterns of NYCHA residents. NYCHA is an excellent repeat customer opportunity for Ameresco. Phase one will be substantially complete by year-end, and will have produced $54 million of revenue for Ameresco.
In aggregate, the initial two phases will deliver over $156 million in revenue, and our successful track record position us well for future work with NYCHA. The Joint Base San Antonio ESPC is an even larger and more complex project. This joint base consists of three centrally administered Air Force and Army bases in Central Texas. The project includes significant energy infrastructure improvements, as well as a critical energy security system. The energy security infrastructure includes 20 MW of on-site generation, backup generation assets, and 8 MWh of battery storage. All of this is managed via an integrated control system. In total, there will be 17 energy conservation measures implemented across 900 buildings.
Other conservation measures include 140,000 LED upgrades, enhanced central plant controls, upgraded distribution systems with enhanced controls, extended thermal storage capacity, and an upgraded direct digital control system. This project will be implemented over the next 2.5 years and should generate revenue of over $133 million to Ameresco. Furthermore, the project includes approximately $35 million of operations and maintenance over 32 years, adding to our long-term visibility. Joint Base San Antonio is another great example of repeat business for us with the Department of Defense. We were awarded this project under the Department of Energy IDIQ framework. This framework has produced many attractive projects for us, such as the Marine Depot at Parris Island and the recent VA projects that closed earlier this year. Of course, our repeat business extends beyond these two projects.
We are also winning repeat business in one of strategic focus regions, the Southwest. In Texas, we were just awarded our third project with a higher educational client, as well as the second phase of an LED streetlight project. We also were awarded phase two of an LED streetlight project in California. On that subject, I am proud to tell you that based on a recently published report, Ameresco is the largest energy services company in terms of streetlight projects in the U.S. According to the report, we buy more LED streetlights than any other non-utility purchaser in the U.S. The trend to larger, more comprehensive, and more complicated projects extends beyond the United States as well. As we have noted in the past, we are gaining traction in the United Kingdom. Those projects are getting larger as well.
We were recently awarded a project with the National Health Service Basildon complex, valued at $15 million. We were also awarded the initial phase of a project with the City of Manchester, that is valued at $10 million. Manchester has the potential for additional phases. As a follow-on to our implementation project with the National Health Service Wexham facility, we secured our first operation and maintenance contracts in the U.K. Consistent with our project portfolio in the U.S., we are focused on building our U.K. business with both project and recurring revenue sources. On the subject of recurring revenue, let's review renewable energy sales. We placed 4 MW of solar into service during Q3, which includes 2.5 MW for the Drug Enforcement Administration facility located at Fort Bliss, Texas.
However, we did not start operations at the renewable gas plant in Phoenix, as we had originally planned. We encountered some additional administrative delays, and now we expect to commence operations before year-end. Naturally, we are a bit disappointed in these delays, but these issues are not unusual for these types of projects. Our energy asset portfolio is in very solid shape. We estimate that our current portfolio of operating assets can produce at least $850 million of revenue over the next 20 years. This number consists of energy sales plus revenue from incentives during the contract periods. Of course, we expect to sell energy beyond the contracted periods, which is not reflected in this number. Furthermore, this revenue estimate will grow materially, as it does not yet include any current or future assets under development.
In fact, let me elaborate on our development pipeline, which is healthy and getting healthier. During Q3, we added 23 MW equivalent to the pipeline and now have 133 MW equivalent that we expect to be operational in the next 12 months-24 months. In addition to Phoenix, we have one green gas project that we anticipate to start operations in that time frame. We also have five to seven more of these projects in various early stages that are not yet in our formal development metric. With that, I will now turn the call over to Mark for comments on our financial performance. Mark?
Mark Chiplock (Interim CFO)
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 results. Keep in mind that we are referring to Q3 figures unless I say otherwise, and all the comparisons are year-over-year. As George mentioned, the quarter was solid. Gross margin performance was excellent, and profitability exceeded expectations. We also strengthened the balance sheet. We believe we are set up for a strong finish to the year. So let's go through the income statement first. Revenue was up slightly, supported by higher O&M and energy sales. The recurring revenue from these lines of business offset the natural variability in project revenue.
Gross margin performance was excellent, driven by high margin energy sales, better project mix, and strong execution that resulted in higher than average project closeouts. Over time, as energy sales and O&M continue to grow, they will give some lift to corporate gross margin. In contrast, project margins are a bit more variable from quarter to quarter. Similarly, operating margin was also higher as we controlled OpEx, which grew far slower than gross profit. The strong operating profitability flowed through to solid growth in net income, EPS, and adjusted EBITDA, continuing our long-term theme of growing earnings faster than revenue. Now, let's quickly review the balance sheet and cash flow, which remains strong. Our cash balance more than doubled sequentially. GAAP cash from operations was $25 million, while adjusted operating cash flow was approximately $70 million.
Cash flow was most impacted by operating income and ongoing efforts to optimize working capital. The principal change in that regard was receivables, which we brought down meaningfully. Turning to funding, we raised gross proceeds of $30 million in non-recourse financing for our energy assets, including the first two transactions under our brand-new $100 million committed master sale leaseback facility. We paid down our corporate revolver in Q3 and have ample liquidity available to fund the development and construction of energy assets. Our project finance team is outstanding, and we are confident we will have no issues in raising future project financing. Finally, turning to the outlook, we are raising our 2018 earnings guidance. EPS is now anticipated in the range of $0.71-$0.79, while adjusted EBITDA should come in in the range of $81 million-$89 million.
We still expect full year revenue in the range of $780 million-$820 million. I want to give you a couple of reminders. First, achieving the annual guidance requires us to convert some of our awarded backlog to contracts so that we can begin recognizing revenue. Second, we anticipate fourth quarter gross margin to revert to our historical norm of around 20% based on our anticipated revenue mix. While we are not providing detailed 2019 guidance at this point, I do want to share some color on how the year should shape up based on our current forecasts. We expect revenue to grow somewhat faster than our recent compound average. We also remain committed to growing earnings faster than revenue through continued operating leverage and the contributions from high-margin recurring lines of business.
Now we would like to open the line for your questions. I will turn the call back over to our coordinator, Mark, to run the Q&A session.
Operator (participant)
Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of Noah Kaye of Oppenheimer. Your line is now open.
Luis Amadeo (Equity Research Associate and Director)
Hi, good morning. This is Luis Amadeo for Noah.
George Sakellaris (Chairman, President, and CEO)
Morning.
Luis Amadeo (Equity Research Associate and Director)
Hi. You're keeping your revenue guidance intact, but raising your profit outlook. Can you better help us understand the key drivers for the outperformance on the EBITDA margin line? Where are you getting better cost control?
Mark Chiplock (Interim CFO)
Yeah, sure. So let me talk about the guidance on the revenue first. So, you know, with respect to keeping that range the same, we considered the projects that we still need to convert from awarded backlog and the sensitivities around that. You know, we also had to consider the delays which were impacting revenues in Q3 and how much of that revenue could be recovered during Q4. You know, keep in mind, as we mentioned, we're still impacted by the equipment shortages on our Chicago streetlight project, and seasonality is going to come into play into Q4. So all of those went into our sensitivities for revenue. Additionally, our Phoenix RNG plant, which we had anticipated coming on in Q3, you know, once that comes online in Q4, it's still going to need time to ramp up production.
So with respect to revenue, that's where we came out and felt comfortable with not changing those ranges. With respect to the earnings guidance, you know, we certainly considered the strong performance in Q3, but part of that upside we saw was from project closeouts, as we mentioned, that really came from Q4. You know, I guess we would have expected those closeouts to be a bit more balanced across Q3 and Q4. The Chicago street lighting delays is going to push some lower margin revenue into Q4. You know, so we ran some sensitivities to see where the mix of revenue was going to land, as well as where we could see operating expenses come in.
So I think, again, we, you know, we use some of the strong performance to raise the ranges, but I think, some of the sensitivities kind of helped to temper that, and that's how we got comfortable with the ranges where we came up with.
Luis Amadeo (Equity Research Associate and Director)
Okay, that's helpful. We also saw another sizable increase in project assets on the balance sheet. Can you update us on the megawatts of solar you expect to place in service this year? And how are you thinking about total capacity additions for the fiscal 2019?
George Sakellaris (Chairman, President, and CEO)
I can start with that. You know, originally, we had estimated that we would install about 40 MW-50 MW of new asset projects on our balance sheet, and so far, we have about 35 that we have installed. In this quarter, we installed 4 MW of solar. And the original plan was that we would install the 6 MW associated with the Phoenix plan, but that slipped into the next quarter. In addition to that, we have about 15 MW-20 MW, actually 20 MW, 15 MW of which is already constructed for the last six months, and we anticipate that they will be interconnected to the utility by the end of the year. We have encountered some delays on the interconnection on those particular plans.
By the end of the year, we will have in the range of 40 MW-50MW. Then, like, as I pointed out in my remarks, we have very good pipeline going forward to next year. Mark, you might want to add something to that.
Mark Chiplock (Interim CFO)
Yeah, I mean, I think as we're looking forward, you know, we certainly would expect to put some additional megawatt equivalents into operations. You know, we haven't set specific guidance on that, but we'd certainly expect that to grow.
Luis Amadeo (Equity Research Associate and Director)
Okay, thanks. And then lastly, with the interest rates tight, getting tighter, how much movement are you seeing in ESPC project finance rates?
George Sakellaris (Chairman, President, and CEO)
You know, every time we're gonna finance a particular project, we have very good sources of capital. You know, people are competing for our projects. The rates have gone up a little bit, but it does not have impacted materially the projects. Sometimes, let's say, if it's a $100 million project, maybe it would have been $105 million or $110 million in order to get self-funded, and maybe it will come down a few million bucks. But overall, they have not impacted our business materially. Looking forward, looking at our backlog and the kinds of projects that we have and what they will require for financing, we feel we are in very, very good shape.
Luis Amadeo (Equity Research Associate and Director)
Okay, thank you very much. Have a good day.
Operator (participant)
Our next question comes from the line of Craig Irwin of ROTH Capital Partners. Your line is now open.
Craig Irwin (Managing Director and Senior Research Analyst)
Good morning, and thanks for taking my questions.
Mark Chiplock (Interim CFO)
Good morning, Craig.
Craig Irwin (Managing Director and Senior Research Analyst)
Good morning, George. In your prepared remarks, you mentioned five additional green gas projects in some state of development. Can you maybe give us color on these projects as far as the gas supply agreements from different landfills or other green gas sources, the potential status on permitting, any other items that you see as key for these projects to make a go versus no-go move over the next number of years?
George Sakellaris (Chairman, President, and CEO)
Well, good question. We have those five projects, and I think I mentioned five to seven, two of which I will say that they are in advanced stage of development, and we will see them entering our awarded backlog, probably before the end of the year. And we see those two plants be up and running within the next 24 months. Both of them are located in California, and as you can understand, that permitting. That's why we are not giving specific dates as to how long it will take us to get these plants up and running. It takes anywhere from one year to 18 months to get the permits. But this particular two, they are very well advanced, that we feel very good where we are.
Then in addition to that, the other plants, they are in the early stage of development. So, if you were to develop a business plan, we will see, like, the Texas plan probably coming up, next year, late next year, early the year after. Otherwise, you won't have any material impact on the earnings next year, but it will, 2019, will have 2020. And then 2020, you probably get another, late 2020, 2021, the other two plants up and running. And the other plants, they are further behind. As far as where we stand with getting long-term agreements, the market has moved to being able to get longer term contracts than we have in the past, especially in California.
But, the prices, though, that you will get for RINs, of course, they would be lower than what you would otherwise, get in the if you were in, in merchant. In the plans that we have to date, especially at Woodland, 50% of the output is on a fixed-term contract. The rest of it is on merchant. And as you probably know, the RIN prices have come down considerably on the merchant side, and we'll see where we end up. But I will say this much on the business, it's, it's, it's a great business, continues to be a great business, even with the reduced prices of the RINs, and we think we have a very good development pipeline when it comes to the green gas plants.
Of course, we have excellent relationships with the various people that own these landfill sites, and we will develop more. But I try to balance, we try to balance, you know, how much capital we'll put in green gas and how much capital we will put in the renewable, other renewable assets, such as solar. We wanted to maximize the amount of solar that we get over the next couple of years, because pretty much, the capital required on those solar plants that we own is, it's minimum, because we monetize the ITC and the accelerated depreciation. So, I hope I answered your question, but the business development pipeline is very healthy on ESPCs.
Craig Irwin (Managing Director and Senior Research Analyst)
Yeah, that was very helpful. Thank you, George. So my next question is about the plants that you brought on over the last 12 months, the green gas plants that have come online. My understanding is that the EBITDA contribution of these plants increases incrementally over time as shakedown is completed, and the operating efficiency of the plants goes up. Can you maybe give us color on the sequential EBITDA contribution? Of how much greater was the EBITDA contribution in your September quarter versus in your June quarter?
Mark Chiplock (Interim CFO)
Yeah. So Craig, this is Mark. I can answer that. I mean, I think, you know, sequentially from Q2 to Q3, you know, we probably saw an incremental tick up of about $3 million-$3.5 million for the one green gas plant that we have in operation. You know, as I think we spoke about, we had expected originally for, you know, our Phoenix plant to come online in Q3. That did not happen. That's gonna slide to Q4. So, you know, I think from the one that we have, we probably saw about a $3 million-$3.5 million incremental pickup in the quarter.
Craig Irwin (Managing Director and Senior Research Analyst)
And the historic one, the other one that you have, the historic one that's much smaller, was that basically flat essentially?
Mark Chiplock (Interim CFO)
Yeah.
Craig Irwin (Managing Director and Senior Research Analyst)
Okay.
George Sakellaris (Chairman, President, and CEO)
That I don't think even goes to this.
Mark Chiplock (Interim CFO)
Yeah, no.
Craig Irwin (Managing Director and Senior Research Analyst)
Thank you. Then, yeah, thank you. So then my last question is, you know, on the last couple of calls, you've talked about project sizes trending larger, and that kind of has an interesting dynamic where, you know, I guess, the potential margin at risk on an individual project goes higher, but then the potential earnings could also see some sort of a benefit. Can you maybe give us a little bit of color on how the character of the backlog is shifting now versus maybe a year or two years ago? Any updates as far as what you see as the timeline to convert the backlog versus what we were looking at maybe a year or two years ago?
George Sakellaris (Chairman, President, and CEO)
Yeah. I put, you know, the projects have trended larger, no question about it. And I will put them in two classes. One is they are larger, but not as complex. And those projects, generally, they have lower margin than the projects that I put in the complex category, and they have a higher margin. But the overall profitability, though, for the company, for both projects, for either project, the complex or the not so complex, they contribute to the profitability of the company because we leverage. Otherwise, for less operation and maintenance expenditures, you get more EBITDA on a per employee or per project manager, per development engineer, and so on. So it helps the leverage of the company, this project.
As far as the mix looking forward, and we do have that analysis, it doesn't materially change the overall project margin, let's say, of what we have in the backlog. Maybe there is 1 point ±, but not substantially different. And I think Mark made a confusing remark, too. Even for the fourth quarter, our gross profit margin, we will pivot back to what we were normally around 20%, 20%-21%. So we don't anticipate major changes to our gross profit margin, primarily because of the larger and more complex projects. And then, of course, the asset and the annuity-based revenues, the higher margin, the overall the company looks better from that perspective.
Craig Irwin (Managing Director and Senior Research Analyst)
Great. Thanks again for taking my questions. Congratulations on the strong quarter.
George Sakellaris (Chairman, President, and CEO)
Thank you very much, Craig.
Operator (participant)
As a reminder, ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, to prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our next question comes from the line of Carter Driscoll of B. Riley FBR. Your line is now open.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Good morning, George, Mark. Thanks for taking my questions. First one is on, maybe on the, on solar side. So we're seeing obviously a lot of, price degradation or resumption of, component pricing pressure. Are you seeing any benefit from that? And then maybe just maybe characterize return environment in solar. Has it been fairly steady, or are you seeing any pressure from, you know, the installers to bring down those project returns? And then I have a couple of follow-ups.
George Sakellaris (Chairman, President, and CEO)
You know, on the cost, on the implementation cost, bringing the cost down, I think we're doing a pretty good job being competitive in the marketplace because we hire subcontractors in order to build those particular solar plants, but we have our own group, and we sometimes execute ourselves. The prices are coming down, and that helps the overall return on the projects. You know, the panels for a while, like, we were buying them at $0.38. You know, when the tariffs came in, they went up to $0.60. Now, they're back down to $0.38, which is very good. So the trend in that business is very good. But the competition, you know, for good projects, especially from the large houses and what return of capital they are looking for, it's very large.
But, because it, it's very competitive, and they bring the, those returns down. And, that's why we are growing at what I would say in a balanced way and measured. We will not change the returns to where some of the large houses we will go. We have a limited amount of capital, and we want to make wise investments. And the infrastructure we have across Ameresco, because we have a lot of good customer relationships, it lends itself for us to self-develop projects and thereby get the returns that we are looking for.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Yep. So no real fundamental change because the costs are coming down, at least relatively commensurate with the pressure on the return side?
George Sakellaris (Chairman, President, and CEO)
The costs are coming down, but which means, you know, the projects, if you didn't have competition on the other side from the financial house wanting to own a lot of the assets themselves-
You'll be able to get, hopefully, higher returns. But the competition is such that, it balances out. I-
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Okay.
But on the other hand, though, what happens? It expands the market, though.
George Sakellaris (Chairman, President, and CEO)
Yeah. Yeah.
It does expand the market, and solar and battery storage is coming down thereby, projects that before did not pencil out, they do pencil out now.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Can you talk about the magnitude of the reduction you need to see on battery prices to really drive greater attach rates to solar, particularly for, say, microgrid opportunities?
George Sakellaris (Chairman, President, and CEO)
Ooh, depends on where you are and what the demand charges are.
So on and so forth. In some applications, I would say even 20% drop from where they are right now between installation, it will make sense without it. And, but, what we find in a great application is where people are looking for resiliency and security. And that's getting to be a bigger and bigger, part of, the need for battery storages. But on the other hand, though, there are some other applications, and we have a couple of battery installations where they pencil out because of the various incentives or the demand reductions or the frequency regulation, or the utilities, what they pay for particular installation on, batteries.
Otherwise, we want a contract from a particular utility to install X amount of battery storage, and they will pay us, Y per kW installed, per kWh.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Maybe a higher-level question.
George Sakellaris (Chairman, President, and CEO)
Yeah.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
If you look at the I mean, obviously, you had a project that slipped a little in this quarter, and that's just a natural part of your business in terms of when it falls. Is there any way to quantify, maybe in some range, the amount of backlog that is subject to this type of variability, maybe say, one- to two-quarter variability, maybe not just a single quarter, whether it's by size or the type of project? Is there any way to quantify that?
George Sakellaris (Chairman, President, and CEO)
It's very hard, and that's why I try to guide people to look at us in that year-to-date or twelve months to date-
Because it's a very lumpy business. I tell you, for example, this particular project would, which gets slipped into for three months because a board meeting. It's supposed to get approved, and then something happened, didn't go on the agenda, and then it got moved by at least three months. I can tell you, even on this past quarter, we had some delays on some projects that were under construction, but we had nothing to do with that. But access to the building wasn't available for various reasons, so that took a certain portion of our revenues out. So that it's a lumpy business.
That's why I tell people, and I try to put the year to date, especially after three quarters, and we feel very good where we are, that the revenues have grown 13%, and the historical revenue growth was 7%, but so far, year to date, we're 13%. So, we know exactly-
We know, we know the amount of dollars that we lost because of the delay, but to do it on a normal way and being able to determine, it's impossible.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Yeah. No, I understand.
Mark Chiplock (Interim CFO)
I mean, the only thing I'd add there, I mean, again, you know, there's gonna be the variability, you know, in terms of the length of time it's taking to convert some of these projects. We're still seeing, you know, kind of the average conversion in our awarded backlog of about 18 months.
You know, as we've talked about in the past, you know, larger projects can take anywhere upwards of 24 months and even longer. So again, that, that's definitely gonna create some variability.
George Sakellaris (Chairman, President, and CEO)
Right. And it's a good time to bring up a very interesting point, why I accent the fact that we have $819 million of contracted backlog right now, because that's a good driver. Where we sometimes, when we make our forecast for the year, we have fallen short. When we estimate various contracts, when they from the awarded category, they will flip over to the executed category. And that has been very difficult to predict. That's why the less we depend, let's say, for next year on awarded moving to contracted, the better off the company is. And that's why we feel very good where we are today on the contracted backlog.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Yeah.
George Sakellaris (Chairman, President, and CEO)
Hopefully, we can build the next quarter, and then we'll be in very good shape.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Maybe ask a slightly different way. Are there any component shortages or other equipment shortages you envision that, you know, whether you're seeing lead times extend, that could contribute to, maybe that 18 months extending longer? Or is that natural part of what you built in, in terms of your forecasting?
George Sakellaris (Chairman, President, and CEO)
Other than the street lighting job, and that's yet to do with the controls, capacitors and resistors, we were getting them delivery in four weeks, and then it went to not being available at all.
And now it's 20 weeks delivery schedule. So basically, we stretch out the schedule of that particular project. That's why we impacted the revenues for the third quarter, and it's gonna impact the revenues on the fourth quarter. And other than that, we have seen some extension of delivery of step-up transformers in some of the solar plants.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Okay.
George Sakellaris (Chairman, President, and CEO)
The other one that we have totally no control, and it has been a challenge, is utility interconnections. The utilities, especially in Massachusetts, they are overwhelmed. Those two projects that I mentioned, the 15 MW, they've been actually mechanically complete for eight months now.
Oh, nothing you could do there.
Mark Chiplock (Interim CFO)
Yeah, so-
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Any pressure on employee hiring? I mean, have you lost any, you know, not necessarily key employees, but have you lost any of your attracted staff to simply a tight job market? Have there been any pressures there?
George Sakellaris (Chairman, President, and CEO)
Not really. We are doing pretty good. Actually, the turnover is relatively, it's good. In effect, I think that the company is doing well, and we challenge our people to get familiar with all what I call the advanced technologies. And that challenges engineers and development engineers and business developers and so on, 'cause not only the market opportunity for them has grown, but they get to do more than just change lights, and chillers, and boilers, and so on.
So it's more fun of a job, and that's what we're trying to do. So far, so good. Cross your fingers. But it is getting harder and harder to get good people.
Carter Driscoll (SVP and Senoir Analyst of Clean and Sustainable Technologies)
Yep. Appreciate you taking all my questions, gentlemen. Thank you.
George Sakellaris (Chairman, President, and CEO)
Thank you.
Operator (participant)
Ladies and gentlemen, as a reminder, if you have a question at this time, please press star and then the number one key on your telephone keypad. Our next question comes from the line of Chip Moore of Canaccord. Your line is now open.
Chip Moore (Director of Equity Research)
Morning, thanks.
George Sakellaris (Chairman, President, and CEO)
Good morning.
Chip Moore (Director of Equity Research)
Hey, George, maybe you could talk a bit about the project pipeline in the U.K. It sounded like you were a little more positive there, talking about similar trends that you've seen here in the U.S., and maybe a little bit more about the outlook on for O&M activities there.
George Sakellaris (Chairman, President, and CEO)
Actually, you know, it took us quite a while to get traction in that particular market, but the last six months or so, we've been very, very successful in winning new awards. And we're developing very good brand name in that region. So-
Chip Moore (Director of Equity Research)
Mm-hmm.
George Sakellaris (Chairman, President, and CEO)
Yeah, what can I say? The business is getting to be better. And the O&M contract that we won, again, we think there's tremendous potential. There's more potential in some of the buildings and the infrastructure in the U.K. than there is in the United States, 'cause it's much older infrastructure than we have in the United States. But, moving them to getting to do the energy savings performance contract, it has taken some long time, and you have to win certain frameworks. And I think we are qualifying about five frameworks with various cities, towns, and agencies. And now under those frameworks, we're able to win new contracts. So the market is developing.
It took some time, and we feel very good where we are right now for the next 12 months-24 months and beyond that.
Chip Moore (Director of Equity Research)
That's great. Maybe just one more from me. You know, you offered a little bit of color on the outlook for next year. You maybe can talk a little bit more about when you talk about recent CAGR, you know, how we should think about that. Thanks, guys.
George Sakellaris (Chairman, President, and CEO)
Yeah. I mean, look, our goal, we always said that we wanted to grow faster than the competition, the 7%-8% growth that they have. And if you look at our compound annual rate for the last six years, is about 7%. And the closer I get that to 10%, the better I will feel. And I think that would be a target that we'll be trying to shoot. So that's what we're talking about higher, somewhere between 8%-10%, somewhere in that range. And the EBITDA, I wanted to get it as close to 20% as possible growth.
I think based on where we are, I think it's doable for the foreseeable future.
Chip Moore (Director of Equity Research)
Sure. Appreciate it, George. Thanks, guys.
George Sakellaris (Chairman, President, and CEO)
Yeah, thank you.
Operator (participant)
I'm showing no further questions at this time. I would now like to turn the call back to George Sakellaris for closing remarks.
George Sakellaris (Chairman, President, and CEO)
Thank you. To conclude, our strong results this quarter confirms the momentum we are building and set us up for a strong finish for the year. We are well positioned for another very good year in 2019, due to our healthy backlog in both projects and assets. Long term, we benefit from the trend to more advanced technologies like distributed generation, microgrids, and battery storage. These more complex projects and infrastructure upgrades give us confidence in the long-term prospects for our Ameresco. With accelerating growth, high visibility, and a growing portion of high margins recurring revenue, we are confident in the strength of our business model. Thank you very much, and have a good day.
Operator (participant)
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.