Ameresco - Earnings Call - Q3 2020

Transcript

Speaker 0

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Ameresco Inc. Third Quarter Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mrs. Juliet Laurent, Vice President, Marketing and Communications. Mrs. Laurent, you may begin.

Speaker 1

Thank you, Nika, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sacolaris, Ameresco's Chairman, President and Chief Executive Officer Doran Hole, Senior Vice President and Chief Financial Officer and Mark Chiplock, Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward looking remarks. 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 afternoon 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 will be referring to non GAAP financial measures during this 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 and in the appendix of the slides, which can be downloaded from our website. I will now turn the call over to George. George?

Speaker 2

Thank you, Lila, and good afternoon. I hope everyone is staying healthy and safe. First, I would like to thank our employees, customers and partners who continue to effectively manage through the ongoing challenges facing all of us in this difficult COVID-nineteen environment. Our performance would not have been possible without them. And the performance this quarter was indeed excellent.

A robust 33% revenue growth with tight expense controls helped us drive outstanding earnings and record levels of EBITDA. We see demand for our services accelerating, given our customers' increasing need for solutions that combine cost savings with advanced technologies. This remote energy resiliency, infrastructure upgrades, the transition to low carbon energy sources and healthy and safe environments, especially in light of the COVID-nineteen crisis. Our core businesses continued to execute well during the third quarter, led by exceptional results from our Federal Solutions Group, which benefited from strong contract execution and improved access to work sites. We work hard to pull in and execute our contracted backlog given uncertainties around COVID-nineteen and future job sites access.

Our renewable asset and operational maintenance businesses continued to provide Ameresco with highly predictable long term recurring revenue, which is especially important during this economically uncertain times. These two businesses support our visibility with a combined $2,000,000,000 backlog of contracted revenue and incentives, which will be generated over the next fifteen years on average. Our industry reputation and strong financial profile put us in excellent position to identify and pursue additional high return renewable asset opportunities. During the quarter, we added 15 megawatts of assets, including a new RNG plant and a stand alone battery storage system. Our renewable assets in development currently stand at a healthy three twenty two megawatts.

While we remain focused on project execution in the third quarter, we were particularly pleased to see a sequential increase in our total project backlog for the second consecutive quarter. Our ability to backfill our strong revenue execution with new awards gives us excellent visibility as our total project backlog grew to $2,250,000,000 We are now seeing an uptick in proposal activity as we leverage our broad geographic footprint and deep long term customer relationships to drive additional project opportunities, and we look forward to sharing more of this with you in the future. Highlighting this effort is our recent project win with the city of Chicago Heights involving the retrofit of over 2,000 street lights with LEDs. The contract is noteworthy as Ameresco made the proposal to the city, which was accepted in less than ninety days. Interestingly, the installation will have to include an intelligent lighting control system, showing how municipalities across the country are embracing smart seating technologies.

We anticipate global growth in similar contracts as Series upgrade their aging infrastructure with smart cost saving solutions. We see numerous opportunities for repeat customer business with our satisfied customer base. Another example of a quick turn opportunistic win is our recent contract with Hamilton County in Ohio. Hamilton County is a valued long term customer that we had that had received stimulus funds under the CARES Act, which needed to be used by year end. The MISCO team worked to identify quick turn safety and efficiency projects that include touchless plumbing fixtures in the public restrooms of the county buildings that will help protect the staff and public as they reopen their facilities.

Also, areas around the world, including large regions of The United States, are facing water scarcity issues. Water can no longer be viewed as a commodity available at the turn of the faucet. We have been seeing increased interest from municipalities across the country to deploy All American Mirror Infrastructure or AMI advanced technologies. AMI promotes a more efficient and effective water distribution system, while enhancing transparency for customers into water consumption and costs. These systems not only save significant amounts of money versus manually reading meters, they also allow municipalities to capture lost water and sewer revenues.

Our recent AMI projects in Texas with the city of Gatesville and Woodlands Water are two great examples of projects we are managing in this increasingly important area. Ameresco's addressable market is rapidly expanding, driven by customer demand for comprehensive solutions, including advanced technologies such as cybersecurity, solar, battery storage, advanced lighting controls and more. A good example of this type of project is our recent $36,000,000 utility energy services contract at Fort Bragg in partnership with Duke Energy. Here, we will be deploying a number of advanced technologies, including a 1.1 megawatt floating PV system and a two megawatt battery energy storage system. And Moralesco will also implement a host of traditional energy conservation measures.

Energy efficiency and renewable distribution generation continue to benefit from their resilient and low carbon qualities, but it's their ever improving economics that creates the large and rapidly growing long term market opportunity. In the end, our solutions provide substantial cost savings and healthy returns for our customers, often with no upfront costs. COVID-nineteen and the ongoing economic pressures it has created has stressed the financial health of companies, institutions and governments around the world. This impact will more certainly be felt for years to come. Again, against this backdrop, is seeing increased interest in providing our solutions under an innovative energy as a service financial structure.

In this structure, Ameresco will deliver energy related infrastructure improvements, energy conservation measures and related technologies directly to a customer under a long term service agreement with no upfront capital. Our customers benefit by maximizing their financial resources while Ameresco gains another highly visible long term recurring revenue stream. We look forward to announcing upcoming energy and service contracts in the near future. In summary, Ameresco continues to overcome challenges in this difficult COVID-nineteen environment. We are expanding our expertise and offerings to create comprehensive and flexible solutions for our valued customers.

At the same time, we maintained our entrepreneurial spirit and approach, allowing us to creatively serve our customers and opportunistically seek out additional revenue opportunities. I will now turn the call over to Doran to provide some comments on our great financial performance. Doran?

Speaker 3

Thank you, George, and good afternoon, everyone. I'm pleased to review the company's third quarter financial performance. Please refer to our press release and supplemental slides posted on our website for additional financial information. In the third quarter, we achieved strong double digit revenue growth and increased operating leverage leading to record EBITDA levels and accelerating earnings growth. Revenue grew 33% year on year with growth across our core businesses led by the exceptional performance of our Federal Solutions Group as we executed on a number of new projects and pulled forward some existing contracts, thanks to improved site access in many locations.

Gross margin of 18.2% remained consistent with our year to date performance as revenue and mix of projects remain similar. We anticipate our gross margins to remain at these levels for the rest of the year. Ameresco continued to benefit from our past investments and the highly scalable nature of our business model. Revenue growth, higher utilization and reduced spending levels, including travel related expenses were key drivers of our strong net income and EBITDA performance. And while SG and A expenses will increase in a post pandemic environment, we believe a portion of the savings are permanent and will benefit our operating leverage in the future.

Net income attributable to common shareholders was $20,000,000 Non GAAP net income was $18,500,000 an increase of 117%. Adjusted EBITDA, also a non GAAP financial measure, was the highest we have achieved in the company's history and earnings per share more than doubled year on year. Even with our strong project revenue, we continue to replenish and grow our contracted backlog. We ended the quarter at over $1,000,000,000 in contracted backlog, representing 1% sequential and 31% year over year growth. Our total project backlog now stands at $2,250,000,000 at quarter end despite the pandemic related slowdown in new business development activity.

Our high margin recurring revenue businesses, accounted for 70% of our year to date EBITDA, have approximately $2,000,000,000 in long term contracted revenue and incentives between O and M and renewable assets. These businesses will provide us with annuity quality revenue streams for years to come. Ameresco's cash flows and liquidity remain strong with ample cash and available credit to execute on our asset development pipeline. We ended the quarter with cash on hand of $45,000,000 after paying down $10,000,000 on our line of credit. Despite the pandemic challenges, our continued focus on cash collections during the quarter further reduced our DSO to eighty eight days from ninety seven at the end of Q2.

In addition to strong working capital, we have broad access to project financing and tax equity and we also have the ability to monetize development assets. As noted in our release, we received a request for information from the SEC concerning the timing of revenue recognition in our SaaS businesses. While these businesses contribute a relatively small amount of revenue to our business as a whole, for the sake of transparency to our stakeholders, we want to emphasize that we are taking this matter very seriously. In the short time since we received this SEC request, we have spent considerable time and effort investigating and assessing these matters using outside counsel and an external forensic accountant, all under the supervision of our audit committee. To date, we have found no material revenue recognition errors.

Now turning to our outlook. We're very pleased to be increasing our twenty twenty full year guidance as detailed in our press release. We now estimate revenues in the range of $960,000,000 to $1,000,000,000 adjusted EBITDA of 107,000,000 to $115,000,000 and non GAAP EPS of $0.94 to $1 The midpoint of our revised guidance now represents a very robust 13% growth in revenue, 22% growth in adjusted EBITDA and 17% growth in non GAAP EPS. This assumes we will have the same level of access to our worksites and does not account for discrete items. We'll be providing a more detailed 2021 outlook during our Q4 earnings report.

When evaluating our year over year comparisons in Q4, keep in mind that our results are variable from quarter to quarter. And last year, our fourth quarter results were exceptionally strong due to contract timing. Now I would like to turn the call back over to George for closing comments.

Speaker 2

Thank you, Jordan. Our unique business model and value proposition to our customers will allow Ameresco to continue to thrive for years to come. Our project backlog and recurring revenue stream give us excellent visibility into what should be another record year of growth and profitability for Ameresco in 2021. The entire Ameresco team hopes you and your family stay safe. Operator, I would now like to open the call to questions.

Thank you.

Speaker 0

Your first question comes from the line of Noah Kaye from Oppenheimer. Your line is now open.

Speaker 4

Good afternoon, everyone. And you mentioned the 4Q, you'll be a comp to be aware of, but certainly, I think it's good to be going into 4Q with the strong results you've had already in hand and not not dependent so much on contract revenue timing. So with that, the first question is on capital structure. I think here on an adjusted basis, produced really strong free cash flow year to date. You've been able to finance most of the energy project CapEx with operating cash flow.

But as you look at the energy projects in development and what that will mean for your recurring EBITDA and cash flow profile over time, how should we be thinking about your do you have an optimal capital structure, target leverage and how you want to be financing the growth going forward?

Speaker 2

Good question Noah. I will let Doran follow-up on that.

Speaker 3

Yes Noah, thanks. So I think while we're not making any particular statements about our leverage levels or any specific plans, The truth is as a public company and with the track record we have, we have a lot of tools at our disposal. We continue to pursue creative project financing. As you mentioned, strong cash flow has allowed us to continue to fund that expansion. And we'll continue to monitor the project finance markets, the tax equity markets, M and A capital markets for ideas and opportunities.

Speaker 4

Okay. That's very helpful. Thinking about the development, particularly on the RNG side, wins coming back here nicely over the course of 2020. I'm sure helps with your view of future project economics. Just how are you taking advantage of the current increase in wind prices?

And in general, can you talk about the bankability of RNG projects at this time?

Speaker 2

Yes. As you probably you are aware, the RNG prices have been relatively constant around the $150 to $165. And as you might recall, we have hedged 70% of our output for the year. And for the balance of the year, we are about 60% hedged. The other thing that we have done for the new plant that we the Macari Road that's gonna be in operation early next year, the first quarter of next year, We have long term contracts for about 50% of the output of that plan and, I would say, 50% of the output of our Woodland plan and a little bit more of the San Antonio plant.

So we are hedged for 2020, I would say close to 50% of our output. And as far as going beyond that, we look we are working with various, good credit worthy, off takers to execute long term contracts. So for the two plans that will probably come into service as we have indicated, so next year, we are looking to execute some kind of a long term contract, hopefully longer than the ones that we have right now with the two plants under contract. And then for 2022 and beyond, where we plan to bring three plants into operation again, where this the market is evolving into long term contracts. I think we might have to sacrifice a little bit on the return in order to execute those long term contracts.

But the bottom line is that these projects, even under those conditions, they are very profitable, much better return on equity and a levered return than anybody else. So far Sorry.

Speaker 4

Go ahead, Jeff. Go ahead.

Speaker 2

And so far, we were able to finance on a credit finance basis all the plans that we have developed. And actually did it. The leverage, of course, is probably not as good as we would like it unless we get seven to ten year contracts because the ones we have right now, they are three year contracts.

Speaker 4

Right. You think that some of those future contracts, whether it's for the projects next year or the ones in 2022, you think they'll be able to bundle, you know, the incentive, streams along with the other revenue streams? Is that how you're

Speaker 2

thinking about the contracts? Will they still be a deciding thing? Yes. No. We we we are looking that we will bunch them up, and we will be able to get some pretty good terms in financing as long as and I feel very com very comfortable with that.

We will be able to execute longer term contracts. Because so far, even colleges and universities are approaching us because many of them, as you know, they have combined hidden power plants. Right? And they wanna be a 100% carbon neutral. The only way they can do it is by replacing the natural gas with its grid gas.

And we are talking to some of them, but quite a few of them, they have not stepped up to the prices that we would like them to do. And, and some of the gas utilities, you know, it's coming down the pike that, the next evolution that originally we started with the electric utilities. Now it's going to be with the gas utilities to reduce their carbon footprint. And again, we are talking to some of them, but we are not in a position that we can announce any specific contracts yet.

Speaker 4

All right. Well, thanks very much for taking the questions. Nice quarter.

Speaker 2

Thank you. Thank you very much, Benoit.

Speaker 0

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

Speaker 5

Everyone. Thanks for taking the questions. Yes.

Speaker 6

Hi,

Speaker 5

Eric. Maybe I'll just stick with RNG. I'm just curious, when you think about your pipeline longer term and I guess some of the projects that may be in California, I mean any thoughts on the breakdown there between dairy versus landfill? And obviously, I'm getting at the much better CI score and the LCFS revenues, which were quite a bit higher and would be a pretty nice component, depending on what that looks like in your pipeline.

Speaker 2

No, that's a very good question. And right now, I think we if you total all the plants that we have in development, RNG plants, it's about 12 of them. And they represent a very good chunk of our pipeline in Megawatts. But you hit the nail on the head. We are looking at, besides landfill, other sites, but at least a couple of them, but I cannot talk about we don't have the agreements in place yet in order to be able to discuss them.

But I agree with you, they have higher value. And the other thing, don't be surprised that down the road, some of these plants, the landfill plants that we have developed in right now, we might go into hydrogen and have a higher value.

Speaker 5

Got it. Okay. I guess we'll stay tuned on that. Maybe just thinking about fourth quarter, and I know you took up the guide, I mean, it was a very good third quarter. But with COVID and concerns about another wave and conditions worsening in some areas, I mean, are you seeing any change to working conditions now?

I know your guidance is predicated on that it roughly stays the same, but just curious what you're seeing early in the quarter.

Speaker 2

Yes. And I will add some provide some color and then Dorit might want to add something to it. Look, we are in a very good position as to where we are as far as the total backlog. We are executing the teams very, very well. And unless they shut us down on a good number of sites for prolonged periods of time, then I will say there would be some disruption.

But I do not anticipate it based on what we have seen in the past. You know, going back in March, if you remember, when they did shut down, and we did have some shutdowns on some of our sites. But, it was a week or maybe a few more days than that. We cleaned up the sites, then we started up again. So I don't envision any problems.

And then, Doron, I want to add something to that because that's great question, and we think a lot about it and try to be prepared as much as possible. And that's why we say the sites have been available for this last third quarter. So we pushed to accelerate as much revenue as we possibly had. That's why we put some revenue from the fourth quarter to this quarter because we have access to the various sites, especially in the military bases and actually some schools as well. So we took advantage of the opportunity and we will continue to do that.

And now, I might as well say, we are one month into the fourth quarter and I haven't seen any interruptions. John, do want to say?

Speaker 3

Yes. I think it's all about monitoring the infection rates and how things are going in the various states where we're operating and where our projects are located, which as you can imagine are all over the country. Being able to react to that, I think our experience from earlier in the year will allow us to react to any situations that arise. But as George said, we haven't seen anything thus far.

Speaker 5

Yes. Okay. And then last one for me. Just George, you mentioned the military opportunity. And clearly, a number of awards here announced over the last couple of months, and that was a big driver of third quarter.

I mean, how do you think about that opportunity? Or I mean, is there any way to size that opportunity? I mean, it would seem like what you're seeing right now is a very sustainable trend for you.

Speaker 2

No question about it. And this is that's why I made the remark. Our market is expanding. The opportunities are expanding because each and every base that we're going into now, we are more concerned about not only infrastructure upgrade, but resiliency. And then, not only about resiliency, about some kind of renewables, reduction of their carbon footprint.

So that's why we think it's very sustainable. And that's why you see that we're going to talk about a couple of projects that we have announced, and they combine solar, microgrids, generation and so on. The other thing that's happening too, regardless of what administration we have in place, the economics are driving more and more of this business because the distributed generation, solar and so on, and microgrids, they pencil out. Otherwise, they make good economic sense for the client. And to me, that's the best driver that you can have in this business.

And I've been in it for forty years or so, and my biggest amazement is the cost reduction and the technological improvements that we have seen.

Speaker 6

Your

Speaker 0

next question question comes from the line of Jed Dorzheimer from Canaccord Genuity.

Speaker 7

On the quarter and the strength.

Speaker 6

A couple of questions.

Speaker 7

You're welcome, Matt. First, I guess, question on the it seems that you're continued to execute really well in the municipality in military and universities. I didn't see anything noted on the commercial side, which I know is under pressure right now from an end market dynamic and also a relatively small portion of your revenues. But I'm just curious in terms of any activity that you'd call out in that business. Yes, start there.

Speaker 2

No, no, very good question. Actually, we didn't call it out. I wanted to get approval from some couple actually, one, two, three large CMI customers I wanted to talk about, but they did not get the approval in a timely fashion. But and that's what makes me feel very, very good about this business. That market finally is beginning to move.

And it's beginning to move because I think it's economic driven. In addition to that, the carbon sustainability reduction, and many of them, as you probably know, they have the ESG programs. And finally, they're beginning to talk to us and, we are seeing some very good projects with implementation. It's a you know, I've been in this a long time and I said, you know, the next major catalyst that can happen to this business is get, the CNIs to move. On the other hand though, you know that many of them, they want us to develop the project, design the project, and then we built them for them.

So they squeeze us so much, they have quick turnaround and they move much faster than the federal or the state or the Marsh market as we've been so successful. And it's encouraging. That's what I can say right now. And the other thing, that's why you see us develop the Energy as a Service agreement because many of them, they will have some financial constraints. And they have approached us for some kind of a different type of financing of the Performance contract, and we said sure.

And that's why you see us talking. And in the near future, we'll be able to announce some of those deals.

Speaker 7

Got it. Well, you hit the second question that I was going ask you in terms of the Energy as a Service. So should we be thinking of that as a separate line item breakout? I recognize it's relatively small at this stage, but I'm just thinking of that as kind of a separate business. And it seems like that may start and kind of focus on the C and I side of your business.

Is that the right way to think about that?

Speaker 3

I'll jump in here. I'm not sure

Speaker 2

that it's exclusive to the C and

Speaker 3

I for sure. Certainly, desire for energy as a service financial structure is coming from all of our customer bases. I would also probably think about it a little bit more like another category of the energy assets in development. We're going to be exploring those situations with our customers. Those will become assets that are on our balance sheet that will generate the long term recurring revenue streams.

It. That's helpful. I think that's probably the best way to think about those.

Speaker 7

Okay. And then I guess, George, if you do you feel as if there are any constraints in the business? And what I mean by that is it seems as if there's the work from home dynamic as well as the pressure on tax revenues has kind of created this perfect storm for your business as well as a focus on reducing carbon footprint. And I'm just wondering, as it relates to headcount in your ability to expand the business, do you feel like there's any limitations that you now have with respect? Or do you feel like that you're well balanced?

Speaker 2

Well, right now, I would say that we are well balanced. But as the business accelerates, especially on the distributed generation side and the green gas plants and whether it's hydrogen down the road and things like that, we are looking for additional help there. But the rest of the business was from the administrative side, legal side, accounting, financing and so on. And then generally engineering on the energy services side, I think we are very good. And actually, have a little bit bit extra room, I would say.

We're executing with more business than we've been doing in the past. And that's why we're getting a little bit leverage from the operations. And but, you know, I I I said this before, we were lucky. And the fact that we are technology independent and non affiliated with a large utility or a large manufacturer, and we approach the solution from the agnostic technology agnostic and what makes a good sense for the customer. We have people that have the passion for this business, and we've been able to attract the talent.

And the fact that we're independent, just helped us a lot.

Speaker 7

Great. I'll jump back in queue. Thank you.

Speaker 2

Thank you. Thanks, Jed.

Speaker 0

Your next question comes from the line of Craig Irwin from Roth Capital. Your line is now open.

Speaker 6

Hi. Good evening. Congratulations on the really strong performance this quarter. Really knocking it out of the park.

Speaker 2

We're trying. And succeeding.

Speaker 6

George, can you remind us the timing of your next couple, cellulosic plants? When you expect those to come on online? How firm are those approximate start dates? You know, do we do we maybe have some ribbon cuttings coming up?

Speaker 2

Yeah. That's a good question. McCoy, the one down in, Texas, we had that to get in basically commissioning the plan, this quarter. And, because of the various storms down there and little bit of COVID-nineteen, but not as much on some delivery of equipment, but primarily from the storms, that will slip delayed by a couple of months. So that plan will start the first quarter of next year.

Then in addition to that, we have two plans that's supposed to start by the end of next year. One of them definitely will start by the end of next year. The other one might slip to the first quarter of twenty twenty two. And then that particular year, we have three more. Greg, so you understand.

The primary bottleneck in developing these plants, especially California, they are more valuable there, of course, but permitting them. And especially with what's going on, getting the right of ways for the gas pipelines and getting the utilities attention because of what's going on with the fires and everything else. And then COVID nineteen, it has brought up, the the permitting process. And

Speaker 8

Understood. Understood.

Speaker 2

But but we do it as much as we can, and we have our local people, and we're we're hiring more and more local talent in order to help us in California to expedite those, those plans. Because we we wanna build this to be able to do at least three plans a year. And I was waiting and we were waiting until we see the, the light at the end of the tunnel to be able to execute long term contracts. And, it's gonna happen. It's only a matter of time that, that will happen.

And therefore, we we are building up.

Speaker 8

So then as we look

Speaker 6

at the project EBITDA in the third quarter, it was up almost 80% sequentially, increased by 5,600,000.0 on an EBITDA basis. That's well above any peak prior performance for your project business. Can you talk about any specific items in there? Is this really the debugging of some of your plans and maybe some of the rings in there? What were the contributing items to the strength that we saw both sequentially and year over year there?

Speaker 3

Craig, I'll start. Mark might jump into that. But I think as we talked about, the performance of the Federal Group was quite strong in the quarter. When we look at operating leverage, I think that's a business that actually operates extraordinarily efficiently. So the EBITDA contribution is a bit stronger even versus some of our other businesses.

So I don't know that I could actually isolate any particular items there. Mark? Don't think there's much more to add. There were no real unusual. It really just comes down

Speaker 2

to mix of those federal projects and overall

Speaker 3

project revenue across the company. It was just a stronger mix and continued execution and led to the contribution.

Speaker 6

That's excellent. That's excellent. So the other business that was particularly strong in the quarter was O and M, dollars 5,800,000.0 in EBITDA, up $4,000,000 sequentially. That's again a big chunky number. Were there any maybe project closeouts in the quarter or any other items that that lifted that and gave that strength?

No. Or is this really just a steady state number based on the number of projects that Ameresco has built into its its book that runs off over many, many years.

Speaker 2

Yeah. No. That's that's why we love that business, you know. That's why we when we say we want to improve or increase our recurring revenue base, And the O and M is one that basically doesn't require any capital, but it comes after the large energy savings performance contracts that we implement. And then it's lumpy, but once we get wind on them, they add quite a bit.

It's a great, great little business line and that's the one that we focus a lot, but maybe we will find some niche player that will fit in our our gearbox and then we'll acquire a small company and grow that business more. It's a it's a great opportunity for us. And it's sticky. I mean, many of the federal contractors we have, they are eighteen to twenty two year contracts, so I have an agreement.

Speaker 6

A great business to be in. My last question is about the the environment for cellulosic plants. I understand there are actually a couple plants that are being offered for sale right now. You know, they're definitely not cheap given the the value on these properties. But should we be surprised if Amerenco maybe chooses to to acquire one of these one of these plans in the market, particularly given that, you know, your equity has a much more fair valuation than it has for the last several years, And investors seem to understand this business and the long term profit potential pretty well right now.

Speaker 2

Look, we are looking at all kinds of opportunities. If they make sense to us, otherwise, price is right, and we will do it. But, on the other hand, we're very, very cautious. And, I know the expectations out there on the street, they are very, very high. Mhmm.

And, I think you know me a little bit better than that, Greg. I like deals, but I can make money.

Speaker 6

And I like to be cautious as do most of your investors. So congratulations on another

Speaker 2

really But on the other hand, there are some opportunities that you might not be aware of. We are looking that if they are not as expensive as they might other things might be. So I I wouldn't be surprised that we might acquire something, but it's going to meet with our key criteria, a great economic sense for the company and strategic fit.

Speaker 6

Would you consider buying maybe one of the portfolios? You know, there was a portfolio that was up for sale that a bulge bracket bank butchered the transaction, didn't know really who to go to on. Would would you consider any portfolio of multiple plans?

Speaker 2

That's that's a little bit beyond our reach. I will look at it. But like I said, that we're extremely careful because some people, they they want some crazy prices out there. And I'm not look, we're a developer. You know?

We develop our own assets. We know our own assets. And we built and you know last time you brought it up that we operate in a little bit better than some of our competitors. We built these plans to last. And it has helped us that strategy so far, we will continue it.

On the other hand, I did say somewhere, opportunistically we will be opportunistic, but we will continue. And look, we have 12 plans that we want to develop, execute on them, and then we have a couple that they will be different than Lansfield Gas. So there is no shortage.

Speaker 6

That's good to hear. Congratulations on the progress.

Speaker 2

Thank you very much, Craig. Thanks, Craig.

Speaker 0

Your next question comes from the line of Pavel Molchana from Raymond James. Your line is now open.

Speaker 6

Thanks for taking the question. Your portfolio that's in operation, solar is exactly 50% of the megawatts. And in the development portfolio, solar, I believe, is 65%. Is there a mix that you're aiming for? Or does it not matter either way as long as the economics make sense?

Speaker 3

Yes. Pavel, thanks for the question. I think it's more of the latter really. You'll see as we talked about energy as a service asset opportunities start appearing and developing those in proposal stage. It's all going to be down to risk reward and what makes sense economically and what the returns look like.

Solar in the last twelve to eighteen months for the company I think grew pretty substantially because the opportunities were available when we were finding good deals. At the same time, that doesn't necessarily mean that that's what's going to continue to happen.

Speaker 2

One more Yeah. And then

Speaker 6

Yep. Please.

Speaker 2

What I might what I might add there, one of the advantages of the solar is the fact that, across the country, all of our offices now, they can develop the solar, plants. And, of course, many of them, are behind some customer accounts like schools, colleges, universities, so on. So you will see us developing what I would say the smaller scale sites for solar. They have five kilowatts to five megawatts happening a lot, where the green gas plants, there's much more specialized item. And we have one group basically that does that for across the country, all the plants.

So we have little bit limitations as to how many green gas plants we can do where that's why we're building the capabilities up on that side, whether the solar plants, they are easier to develop and hopefully everybody around the company will be able to do that and that will help us, but accelerate that as much as possible. Yeah.

Speaker 3

I mean, I guess I would also sorry for that, I'll just add that, you know, solar plus storage is certainly something that's starting to emerge a lot in our in our in our development pipeline here. You know, you're not seeing that actually in this metric. I think as we've talked about before, we're relatively conservative in terms of putting things in this metric, in terms of milestones that our projects have to reach before they actually get recorded here. But there's certainly plenty of activity there as well.

Speaker 6

In that context, since we're a day away from from the election, so let's let's suppose that the ITC for solar, expires or drops to the statutory 10% at the end of twenty one. Is it fair to assume that for your development efforts, if if that's the scenario, you're gonna pull in as many projects as possible for solar into next year and then perhaps take your kind of foot off the accelerator in 2022 and beyond?

Speaker 3

Foot off the accelerator is a little bit of an extreme, reaction. I think that like any other developer, we will be reasonable in terms of our desire to safe harbor, equipment in order to preserve '26 '22. Yep. Costs, you know, as we all know, costs should come down. They'll continue to come down.

We have to continue to strive to increase efficiencies and bring down balance of systems. And then, know, keep in mind that a lot of the work that we do in solar and battery storage is in our project business. So, don't think we're necessarily going to slow down as a contractor in the sector.

Speaker 2

No. Where am I at? Solar, it's here to stay. Even if all the incentives go away, let's say, three years from now, by that time, I think the drive, whether it's from the mass market or the C and I, and they they will be happening. Mhmm.

And

Speaker 3

Just just think about where solar module pricing is today versus the wattage of modules, the standard module that you can get and the increases in efficiency that you're seeing. You know, if that's gonna keep going that direction, there are going to be ways to make these deals pencil.

Speaker 6

Thank you, guys.

Speaker 2

Thanks. Thank you. Thank you.

Speaker 0

Your last question comes from the line of Christopher Zodder from B. Riley. Your line is now open.

Speaker 8

Hi, guys. Thanks for taking my question and congrats on the quarter. To piggyback on that last point when you're talking about solar and additional the addition of storage, which seems to be continuing to be an opportunity there. Could you just talk about within that mix, do you have a sense of what the percent that includes storage? And then I think you also mentioned a standalone battery system in the prepared remarks.

Could you talk to provide a bit more color on that project maybe?

Speaker 2

Right now, the percentage that has storage on the bases, the military bases, The ones that we have done recently, I wanna say just about every one of them is some kind of form of storage. But as far as the other applications besides, I would say very small percentage. Mhmm. And maybe 10%, if not. But, the storage is evolving right now.

We are I will will say in the first inning, if at that. And as far as the cost concern and as far as the acceptability of various customers out there. But like the state of Massachusetts, many many schools right now that we did solar installations a couple of years back, they want us to go back and put some battery storage and we have a couple of examples of that. So we are at the early stages of storage, so it doesn't represent a large portion of our portfolio. And then, John, want to add anything?

No.

Speaker 3

I think as those projects start going into the asset and development metric, we'll talk more about it and talk about how the volumes are looking versus the rest of the categories of assets. The standalone storage is actually a small utility contract. I don't think we're in

Speaker 2

a position to disclose anything further about that.

Speaker 8

Okay. Understood. Appreciate the color. And then just on this past quarter, you discussed having improved access to work sites, which probably allowed some pull forward and then new projects popping up during the quarter, which seemed to be kind of the delta with the full year guidance. I just wanted to get a sense of how many of these projects are COVID related upgrades like the UV disinfectant HVAC upgrades You talked you mentioned being a strength last quarter.

Were these what kinds of projects were the incremental types of projects you're seeing?

Speaker 2

It wasn't that many projects, but, I would say, we get one, about five projects that I know, the catalyst was the fact that they had to do something because of COVID-nineteen. But the other thing that's happening though, we incorporate COVID-nineteen measures, so we get the customers to talk to us and get moving. So it's we but I know four projects at least that the catalyst was COVID that the customer ended up moving ahead. And one of them, as I mentioned, that Columbus, they had gotten some money out of the CARES Act and they needed to do something.

Speaker 8

Got it. And then just maybe an update on kind of that's in the hospital business, which it seemed like had seen a slowdown earlier in the virus pandemic outbreak. Is that business starting to come back? Or are there any other, I mean, beyond the federal strength that we should kind of, you know, be monitoring here?

Speaker 2

No. Actually, they no. Recently, we haven't seen any slowdown in the hospital business at all. And we are moving full speed ahead, I might say. And then we are doing a couple of large hospitals in the solutions.

And we did experience some delays early on, but not lately. The other thing that just happened, you know, the COVID nineteen cases in the hospitals have dropped substantially even with the uptick, and we haven't seen any slowdowns.

Speaker 8

That's good to hear. I'll hop in the queue. Thanks.

Speaker 2

Thank you. Thank you.

Speaker 0

At this point, I don't see any further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker 2

Thank you.