Ameresco - Q4 2019
March 2, 2020
Transcript
Operator (participant)
Good day, ladies and gentlemen. Thank you for standing by and welcome to the Ameresco Inc. fourth quarter and full year 2019 earnings conference call. At this time, all participants are on a listen only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this call is being recorded. I will now turn the conference over to your host, Ms. Leila Dillon, Vice President, Marketing and Communications. Ms. Dillon, you may begin.
Leila Dillon (VP of Marketing and Communications)
Thank you, Valerie, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; 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 based on today's call. In addition, we will 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 and in the appendix of the slides, which can be downloaded from our website. I will now turn the call over to George. George?
George Sakellaris (CEO)
Thank you, Leila, and good afternoon, everyone. Before we discuss our results, I would like to quickly address the recent rumors regarding a potential sale of Ameresco. While we do not typically comment on specific market rumors, we can only say that we are not currently engaged in any sale process and that we are aggressively pursuing our business plan as an independent company. With that, now our results. Ameresco ended 2019 with record results across several key metrics. Importantly, we have started this year with a broad technical capabilities and the backlog to produce another year of strong performance. During the fourth quarter, our team did an outstanding job. We leveraged the strengths of every business unit to deliver on all facets.
We grew our total backlog by 15% to $2.3 billion and our assets in development by 80% to record levels. We converted a great number of major awards to contracts as expected, and we executed on our contracted backlog, which enabled us to realize record revenue. We now look forward with great visibility and excitement as we take advantage of the game-changing industry advancements. The economics of advanced technologies have dramatically improved and are now a key driver for renewable energy, energy efficiency, combined heat and power, microgrids, and energy storage projects. Over the last decade, the cost of these advanced technologies have dropped significantly, making many installations and upgrades economical for our customers. While the sharp decline in the price of solar power tends to get most of the attention, other technologies have also seen a significant drop in cost and increase in performance.
For instance, prices for LED lighting have dropped by over 90% in the last decade, leading to tremendous cross-market adoption. Municipalities, in particular, have taken advantage of this technology to retrofit their street lighting. Ameresco recently replaced over 100,000 legacy streetlights with high-efficiency LEDs in the city of Phoenix. The city will save over $3.5 million per year for lower electricity costs, in addition to substantial operation and maintenance savings. The cost of many of these advanced technologies, including LEDs, solar, battery storage, microgrids, and CHP, continue to fall, driving more and more attractive economics for our customers and for Ameresco. As we look to the future, it's clear that the trend is moving towards a low or carbon-free environment and away from fossil fuels.
The recent report from Bloomberg showed that clean energy purchases by corporations through power purchase agreements are setting records, and these purchases increased by an impressive 44% in 2019. The report notes that corporations are facing increasing pressure from stock shareholders to decarbonize their energy consumption and diversify their energy sources, as exemplified by recent releases from Delta Air Lines, Microsoft, and BlackRock. Ameresco is well-positioned to take advantage of this trend, as we work closely with our customers, providing them with best-in-class, advanced technology solutions that fit their unique needs. Furthermore, we are able to give them true financial flexibility. They can own the solutions themselves, or we can retain ownership. We support both models. Our product independence and broad technical expertise, combined with financial flexibility, are important differentiators for Ameresco in this increasingly complex marketplace. We are also seeing the growing demand for resiliency.
The high-profile grid shutdowns experienced in California demonstrate the negative economic impacts of grid instability and power supply interruptions. Increasingly, we are seeing utilities, municipalities, hospitals, higher education, and corporations look to implement solutions that will enable them to rapidly rebound from these ever-increasing, widespread interruptions. The military has proven to be an important early adopter of innovative technologies, providing on-site power, energy storage, and microgrid controls for added energy security and resiliency. There are many bases around the country that are incorporating these solutions into their infrastructure. A good example is our recently announced project at Portsmouth Naval Shipyard in Kittery, Maine. As part of this project, Ameresco will add a new 7.5-MW combined heat and power plant, and install a 1-MW battery storage system to expand the microgrid system for the shipyard. Ameresco will also provide operations and maintenance services.
We are currently delivering similar solutions to other federal customers across the country. A recent report from Navigant Research estimates that the global market for microgrids is expected to grow at a 28% annual growth rate through the end of this decade. Our energy asset business was also very active this quarter, with a number of new awards, including 5 additional renewable natural gas opportunities, representing a total of approximately 25 megawatts. Our robust asset development pipeline will allow us to more than double our megawatts in operation in the coming years. This will significantly increase our base of recurring revenues, earnings, and cash flows. While 2019 was impacted by lower RIN prices, we are pleased to see a sharp price rebound already in this first quarter.
As such, we have taken advantage of the positive move and increased our hedging activity for our 2020 RIN production. Renewable natural gas continues to experience a significant increase in demand, as organizations dependent on natural gas look at incorporating this green gas into their mix. While the transportation sector has taken the lead in recent years, we are seeing particular interest from the natural gas utility industry and institutions, with many already announcing plans to increase purchases of renewable natural gas as part of their overall fuel supply. We believe this increased demand will allow us to find good off-take partners for our green gas under long-term contracts, thus giving us better long-term visibility into the cash flows from these projects. At the end of 2019, total assets in development reached 321 MW.
We expect our assets in development to continue to grow at a healthy rate. In addition, our operations and maintenance backlog grew at an impressive 22% to $1.1 billion, further strengthening our future recurring revenue base. As a key enabler of the low-carbon future, we look forward to disclosing more ESG-related data for both our customers and our investors. We are proud to report that in 2019 alone, Ameresco's renewable energy assets and customer projects delivered a carbon offset equivalent to over 11 million metric tons of CO2. This is equivalent to the carbon absorbed by almost 15 million acres of forest in one year. We are entering 2020 with outstanding long-term visibility, exciting market opportunities, and a great competitive position and platform, and the internal resources in place to benefit from this fast-growing market....
2020 should again be a year of records for Ameresco. I will now turn the call over to Doran to review the financials. Doran?
Doran Hole (CFO)
Thank you, George, and good afternoon, everyone. As I review the company's fourth quarter and full year 2019 financial highlights, I ask that you please refer to our press release and supplemental slides for more complete financial information. The investments we've made to build our advanced technology capabilities are beginning to pay off. We had record growth in project and O&M backlog, as well as another solid quarter of increasing our assets in development. Our Smart Energy Solutions project backlog at quarter end was $2.3 billion, comprised of $1.1 billion in contracted backlog and $1.2 billion in awarded projects, with $290 million of new awards won during the quarter.
Notably, our contracted backlog of $1.1 billion grew 52% year-over-year to a new record high, adding to our clear visibility for 2020 and beyond. Our assets in development reached a record 321 MW at the end of the year, representing 80% year-over-year growth. We added a net 34 MW in fourth quarter, including a number of new RNG opportunities and a large comprehensive microgrid project in the C&I sector, which we look forward to talking about more in the future. These new additions reflect our ability to capture market share in the growing green gas and microgrid markets through Ameresco asset ownership. Fourth quarter revenue of $307 million reflected very strong growth as we converted the large federal government contracts in our awarded backlog into contracted backlog.
Full year revenues increased 10% to $866.9 million, from $787.1 million last year, driven by strength in the projects business. Our annual results were negatively impacted by a decline in RIN prices, reducing gross profit, net income, and EBITDA by approximately $7 million, $4.3 million of which directly impacted fourth quarter. However, since year-end, we have proactively taken advantage of the recent rebound in RIN prices by hedging more of our expected production. We believe this strategy will decrease the impact of RIN volatility on our 2020 results. Offsetting the RIN pricing impact was the retroactive extension of the 179D tax deduction that increased fourth quarter and full year net income.
This benefit was recognized fully in fourth quarter 2019, and included $4.2 million, or $0.09 per share, for projects completed in 2018, and $3.3 million, or $0.07 per share, for projects completed in 2019. The 179D benefit will continue through the end of 2020. Now let me provide some color on our financial expectations. 2020 should be another year of solid revenue and earnings growth. Supported by our strong backlog, Ameresco expects 2020 total revenue to be in the range of $910 million-$980 million, representing 9% year-on-year growth at the midpoint.
We are forecasting Adjusted EBITDA to be between $102 million-$112 million, representing 17.5% growth at the midpoint. Non-GAAP EPS is expected to be in the range of $0.86-$0.96. We anticipate gross margin will be in the range of 18.5%-19.5% due to a greater mix of lower margin projects in our contracted backlog that will be executed during the year. Interest and other expense will grow to approximately $17 million-$19 million as we continue to finance additional company-owned assets. We expect an effective tax rate of approximately 8%-12% for the year as the company continues to benefit from the extension of the 179D tax deduction.
This guidance excludes the impact of any non-controlling interest activity and any additional charges relating to the company's restructuring activities, as well as any related tax impact. Now I'd like to turn the call back over to George for closing comments.
George Sakellaris (CEO)
Thank you, Doran. Here are four points I would like to leave with you. First, market conditions are strong, and Ameresco continues to gain recognition for our flexible and great value propositions. Second, we expect to have a strong 2020, thanks to our substantial contracted project backlog and our fast-growing asset development pipeline. Third, the investment that we have made in technology, people, and platforms should benefit Ameresco and its shareholders in 2020 and beyond. And fourth, we believe that we are in the early stages of this industry's growth as we continue to drive towards our mission of a sustainable, low-carbon future. We look forward to seeing many of you at our upcoming investor conferences. And with that, now, Valerie, we would now like to open the call to questions. Thank you.
Operator (participant)
Thank you. To ask a question, you need to press star one on your telephone. To withdraw your question, you may press the pound key. Please stand by while we compile a Q&A roster. Our first question comes from Chris Van Horn of B. Riley FBR. Your line is open.
Christopher Van Horn (Managing Director and Senior Research Analyst)
... good afternoon. Thanks for taking my call.
George Sakellaris (CEO)
Good afternoon, Chris. Thanks.
Doran Hole (CFO)
Hi, Chris.
Christopher Van Horn (Managing Director and Senior Research Analyst)
So, I just wanted to talk about the guidance for a minute. You know, could you give us a sense of, of the puts and takes on that, on the revenue range? Is it mainly due to timing of awards, or are there other macro factors that you might be thinking about there?
Doran Hole (CFO)
Yeah, I think my take is, Doran, is it's probably more about timing of converting awards to contracts than it is about, you know, actually getting awards, when I look at that range.
George Sakellaris (CEO)
And, you know, we're in very good position regarding it to how much revenue we expect to come from, executed contracts and how much it come from awarded contracts that plan to convert. But, we feel pretty good with the range that we have, given. I don't know, unless you want to add anything.
Christopher Van Horn (Managing Director and Senior Research Analyst)
Okay. Okay. Got it. Thanks. And then, you know, you mentioned in your comment around the outlook, that gross profit will grow at a higher rate, but that margin might be, you know, somewhat affected by mix. Anything specific to call out there on the mix side?
George Sakellaris (CEO)
Yeah, that is a good point. What is happening, the business is shifting a little bit, and we get more, what I would call, design-build projects. And a good example might be a couple customers where we were designing the plant's assets, which we will own and operate at the end of, during the process, they say, "No, we will own those assets, so you will design, develop them, and build them for us." And the margin on those particular projects, of course, the risks are substantially lower and not similar to the margins that we get on the performance contract.
We have several what I call legacy some of the street light jobs that we have and some of the design-build jobs that we have for the federal government that they are considerably lower margins, and some of them they have two-year time horizon to get implemented. But one of the goods, and now whether it's we built an asset for a particular customer or a street lighting job for a particular municipality we have pretty good trail in operation and maintenance contracts associated with those particular clients. They give us pretty good margin on the O&M contract. In addition to that, many of these clients they are our customers. Many repeat business associated with them.
So even though that, on the top line, we might see that the gross profit margin dropping a little bit, but what is accretive or the profit point of view, they're contributing considerably. So it's a good, it's a good thing at the end of the day.
Christopher Van Horn (Managing Director and Senior Research Analyst)
Yep. Okay. Got it. Last for me, you know, SG&A, you know, was flat from a dollar perspective, you know, on really good, strong growth in revenues. Is that just based on, you know, the operational controls you have in place, or is there anything else that we should be thinking about there?
George Sakellaris (CEO)
No, it's the operational control that we have in place. We're always cognizant of the fact, one of the things in a growing company, and especially based on the fact that last year we had to invest about $5 million in OpEx, in what I call the peoples and platform, in order to be able to compete with this competitive market, the advanced technology market. But on the other hand, we have done a good job for maybe fine-tuning the organization a little bit and make the additions where we need them and the subtractions where they are not as effective.
Christopher Van Horn (Managing Director and Senior Research Analyst)
Okay. Got it. Thanks so much for, for the time, and congrats on the quarter.
George Sakellaris (CEO)
Thank you.
Doran Hole (CFO)
Thanks, Chris.
Operator (participant)
Thank you. Our next question comes from Noah Kaye of Oppenheimer. Your line is open.
Noah Kaye (Managing Director and Senior Analyst)
Okay. Thanks very much. A couple questions to run through here. First, what were the megawatt equivalent placed in service in 2019?
George Sakellaris (CEO)
Placed in service?
Noah Kaye (Managing Director and Senior Analyst)
Yeah, how many megawatts placed in service-
George Sakellaris (CEO)
30, 36 or 34?
Doran Hole (CFO)
Thirty-four.
George Sakellaris (CEO)
Yeah.
Doran Hole (CFO)
34 placed in service.
Noah Kaye (Managing Director and Senior Analyst)
Okay, and what are you assuming for 2020?
George Sakellaris (CEO)
About 50. What, what I'd like to point out, we were a little bit disappointed on the installation for what we placed in service for megawatts this year. You, you might know, most of our assets that we were planning to place in service, they were in Massachusetts and Rhode Island, and some they were in New York. But especially in Massachusetts and Rhode Island, we had a substantial delay because of the cluster studies that the utilities they have to do. That set us back, I would say, 6 months-9 months of about 20 megawatts of installation. Actually, some other projects were impacted, and it shifts the timing to a later date.
Noah Kaye (Managing Director and Senior Analyst)
Okay. Then you added 25 megawatts to the RNG pipeline in development. So can you tell us or remind us when do you see the 66 megawatts coming online, and when will those projects reach full ramp? Just the general schedule for the next couple years.
George Sakellaris (CEO)
Yeah. We have given some kind of color before. McCarty Road, it will be at the end of this year. Otherwise, starting some late in the fourth quarter. Then we have two more, Keller and Forward, that they will be coming at close to the end of next year. And then right now, we plan, we're hoping that we will have three for the year after that. That's the plan. We're building the organization to be able to get one, two, and then three of these plants in service. And what I'd like to point out, regarding the green gas development, it's an area that we put a lot of emphasis because of what's happening in other markets besides the transportation sector.
We're hoping that by the end of this year, we'll be able in a position where we will have executed some long-term contracts with some of the good creditworthy entities, and that will give us better visibility as far as the revenues, earnings, and cash flow associated with this project.
Noah Kaye (Managing Director and Senior Analyst)
Okay, and thanks, George, for anticipating my next question. So, you know, you noted in the release that RINs were a $7 million drag in 2019. What RIN price are you assuming in 2020 guidance?
George Sakellaris (CEO)
We don't disclose that number, but I will say to you that more than 50% we have hedged in the marketplace right now. I think it's 52-54, and we're continuing to find opportunities. Pretty much, though, we put those hedges the last couple of months, and it does not take a great scientist to figure out what those prices are. I think that's. You will find as we are closing around the neighborhoods of whatever the numbers are trading.
Noah Kaye (Managing Director and Senior Analyst)
Well, I mean, RIN prices, because of the court rulings, have doubled in the last couple of months. So you say you put your-
George Sakellaris (CEO)
Yeah.
Noah Kaye (Managing Director and Senior Analyst)
Put your hedges on after prices doubled?
George Sakellaris (CEO)
We put the hedges after the increase.
Noah Kaye (Managing Director and Senior Analyst)
Yeah. Okay. Very good. Very good. So, you know, longer term here, if I listen to your previous answer, you're indicating that there's potential to get long-term off-takers for some of these projects. How close do you feel you are to signing some of those contracts? Is that a 2020 type announcement you expect?
George Sakellaris (CEO)
I wouldn't comment on it. Most likely towards the end of the year. We keep going back and forth, and some of them, they are large institutions or some of the utilities, they take time.
Noah Kaye (Managing Director and Senior Analyst)
Mm-hmm. Okay.
George Sakellaris (CEO)
But, I will say this much, though, that we have a lot of interest.
Noah Kaye (Managing Director and Senior Analyst)
Okay.
George Sakellaris (CEO)
We got the-
Noah Kaye (Managing Director and Senior Analyst)
And then quick one-
George Sakellaris (CEO)
We gotta get them to the prices that we like, too, you know, for the long term. Many of them, they're trying to get 20-year contracts.
Noah Kaye (Managing Director and Senior Analyst)
Right. 20-year contracts, you said?
George Sakellaris (CEO)
Well, we have a couple of people that are looking for it.
Noah Kaye (Managing Director and Senior Analyst)
Okay.
George Sakellaris (CEO)
Yes, that doesn't mean we're gonna give them.
Noah Kaye (Managing Director and Senior Analyst)
Okay. Just one quick one on, on the project side, and congratulations on this massive increase in contracted backlog. I mean, this is, obviously by far and away, the biggest number you've had going into a year. Just want to understand, as you look at what's in that backlog as far as mix, do the mix headwinds that you are calling out for 2020, do, do those continue, in 2021 based off of the mix of what you've, what you've booked in the contracted backlog? Or as you look out a little bit farther beyond 2020, is the margin profile look a little bit better? How should we think about that?
George Sakellaris (CEO)
I will say this much, that, you know, the headwinds that we forecasted in 2020 has a lot to do, of course, with the mix of the project. And the fact that the other thing on these projects that people have to realize is that many of them, they are 2-3-year projects, and it's 2-3-year construction. However, having said that, in 2021 and further down the road, we're seeing that the margins gradually will start becoming up. And the other thing that 2020, that it sharpness a little bit, let's say you get 30 MW of solar plants that will get delayed, deferred by 6 months-9 months.
If we had them completed this past year, they will contribute, if you go back to our analysis, $250,000 EBITDA per megawatt, we would have another $5 million of EBITDA coming in this year. So-
Noah Kaye (Managing Director and Senior Analyst)
Mm-hmm. Very good. Thank you for taking the questions.
George Sakellaris (CEO)
You're quite welcome.
Noah Kaye (Managing Director and Senior Analyst)
Thanks.
Operator (participant)
Our next question comes from Craig Irwin of Roth Capital Partners. Your line is open.
Craig Irwin (Managing Director and Senior Research Analyst)
Good evening, and thanks for taking my questions.
George Sakellaris (CEO)
Hi, Craig.
Craig Irwin (Managing Director and Senior Research Analyst)
George, when we take the different disclosures over the course of the year for EBITDA by line of business, I know the math is not perfect, but it walks us into a number for the fourth quarter for the assets business. It's actually more than $20 million, more than 70% of the EBITDA in the quarter off the assets business, and you know, materially higher than any number you've had in history. Can you maybe describe for us things that were driving strength in the asset business in the fourth quarter? Were there any specific items that you were able to monetize? And you know, how does this progress sequentially going into 2020?
Should we expect to build incrementally on this in the fourth quarter of 2020, as we continue to commission new projects?
George Sakellaris (CEO)
... Yeah, as we have said during the past periodically, because we don't want to over-lever our balance sheet. And if you look at our backlog and you say, "Oh, George, you guys have 321 megawatts of assets in development." A good chunk of that we will be monetizing, especially when we find the rates or the cap rates that people underwrite, especially solar projects. So in the fourth quarter, we did monetize not one, some projects that we have in construction, rather than take building them for our own balance sheet, we sold them. And you will see us continue to do that periodically. We did it in the past, and it will be part of our business. And even this year, we have in our plan.
But most likely, though, we will not wait till the last quarter, the fourth quarter to do that. And, we're planning to do it throughout the year.
Craig Irwin (Managing Director and Senior Research Analyst)
Okay, excellent. Can you-
George Sakellaris (CEO)
The EBITDA, but the EBITDA contribution from the assets, when you look at it from the whole company on a year, and that's why we're driving the recurring revenues, we are, for the year, up to 68%, when you combine o&M&Assets.
Craig Irwin (Managing Director and Senior Research Analyst)
Very strong.
Doran Hole (CFO)
Craig-
Craig Irwin (Managing Director and Senior Research Analyst)
Very, very strong.
Doran Hole (CFO)
Craig, Craig, let me jump in. One, one quick thing. If you're looking at the supplemental slides, just to note that we did make a slight adjustment the way we're allocating our corporate OpEx for-
George Sakellaris (CEO)
That's another point.
Doran Hole (CFO)
Creating those donut charts this time. So just note the difference in the footnote on that slide. We kind of took a look back at that and decided that it would be more appropriate for us to allocate this on the full year based on the percentage contribution of revenue of those varying lines of business, as opposed to,
George Sakellaris (CEO)
Yeah
Doran Hole (CFO)
... where it was excluded. Okay. So just to-
George Sakellaris (CEO)
Understood.
Doran Hole (CFO)
As you're analyzing this, it's worthwhile taking a look at the comparison of those two footnotes. Okay?
Craig Irwin (Managing Director and Senior Research Analyst)
Okay. Thank you for that. So then, can we talk about the projects that are likely to start contributing in 2020, the new projects that you'll be building this year, that you should commission before the end of the year? What are the specific geographies and, you know, should we expect above or below trend startup and then intermediate-term profitability on these projects, based on geography or other operating parameters, like it's a landfill gas plant or a wastewater plant or maybe something else?
George Sakellaris (CEO)
Well, we have one plant that will be coming on this year. You're talking about the renewable natural gas plants, and that's the McCarty Road plant, and that will not contribute any revenue or EBITDA this year. We planning to see that plant coming late in the fourth quarter. And if I were a betting man, with the Christmas holidays and so on and so forth, and trying to debug this plant, you won't see much until the first quarter, so. And the other two plants now that they will be coming in 2021, right now, they are scheduled for contributing late, I would say, the third and fourth quarter, and primarily the fourth quarter of 2021.
Craig Irwin (Managing Director and Senior Research Analyst)
Okay. And then, given the geography is in California, that you qualify for both, RIN generation and the Low Carbon Fuel Standard-
George Sakellaris (CEO)
Yeah.
Craig Irwin (Managing Director and Senior Research Analyst)
Would this be typical in profitability?
George Sakellaris (CEO)
The plants, the two plants, Forward and Keller, that they are in California, yes. The other one is the McCarty Road, that's in Texas. We're trying to get it there, and we think we might be able to do it. But right now, I wouldn't plan on it. Yeah. You go ahead.
Craig Irwin (Managing Director and Senior Research Analyst)
Okay.
George Sakellaris (CEO)
Yeah.
Craig Irwin (Managing Director and Senior Research Analyst)
Last question, if I may. You know, reading the details-
George Sakellaris (CEO)
Sure
Craig Irwin (Managing Director and Senior Research Analyst)
of the Canadian... Sorry, Doran, I think you wanted to say something? I interrupted you.
Doran Hole (CFO)
No, go ahead. Craig. Nope, go ahead.
Craig Irwin (Managing Director and Senior Research Analyst)
Okay.
Doran Hole (CFO)
Go ahead.
Craig Irwin (Managing Director and Senior Research Analyst)
Reading the details of the Canadian Clean Fuel Standard, and what's expected to come out, this summer, many people are interpreting what's been said, to say that basically, customers can start banking carbon credits for compliance in the future off green gas projects starting, you know, probably the end of June of this year.
George Sakellaris (CEO)
Mm-hmm.
Craig Irwin (Managing Director and Senior Research Analyst)
It seems like there's about to be a flood of green gas projects now in Canada. You know, and we'll have two significant markets, not just California and the other LCFS markets, but the Canadian LCFS markets, coming on as well.
George Sakellaris (CEO)
Mm-hmm.
Craig Irwin (Managing Director and Senior Research Analyst)
Can you maybe talk about the breadth of your capability to handle incremental projects? You know, I know you mentioned your balance sheet as a constraining factor, but you know, would you maybe take on another five projects if you could find credible projects with really attractive economics that could generate attractive returns over the next few years?
George Sakellaris (CEO)
Yes, yes, yes, we can. The only thing that, and that's why in the past, I did not go very aggressively on this business, even though I think we both have the capabilities, better capabilities than anybody else in the business, because we develop our own projects, design them, build them, operate them, and maintain, where many others buy other people's projects. The thing that has held me back in the past is exactly what happened to us this last quarter. Being able to have what I call reasonable long-term contracts, you know, ten-year contracts and so on.
And even though we may sacrifice and take lower price than what we might get on the open market for RINs, it will give us better leverage on those projects and better return, better predictability and better return on equity at the end of the day. Because many of these projects that we have right now, we have 50% equity, 50% debt. So even though they, from the unlevered point of view, they look great, they put more strain on your balance sheet. So, but we have the capabilities, and we are building up. I said we're gonna go to three projects on by 2022. And if we could get the projects, we could build that little bit sooner.
The other thing I wanna question you, Craig, and everybody else on the call, it's, I, I've been licensed, you know, many, and permit in various plants. The plants that we have in California, they are very, very difficult to site. Whether it's the transmission line that we have to interconnect into the main pipeline or the local permitting of this plant, that's the biggest bottleneck that we have right now. That's why the timing of, we are cautious on the timing of this project. It's, they are difficult to permit. I will say that, not much. But on the other hand, once you get them up and running, they are great assets to have.
Craig Irwin (Managing Director and Senior Research Analyst)
And one last question I should ask on the, on the live call. Your, your contracted backlog, $1.1 billion, I think was almost $290 million higher than your last record, I think, at, at, at just under $820 million.
George Sakellaris (CEO)
Yep.
Craig Irwin (Managing Director and Senior Research Analyst)
You did increase your guidance above sort of where we and the street were looking for this year. But that magnitude of strength in the contracted backlog kind of suggests that you're looking at contracted backlog as maybe longer in duration than what you've seen in contracted backlog, looking back over the last many quarters.
George Sakellaris (CEO)
You hit the nail on the head.
Craig Irwin (Managing Director and Senior Research Analyst)
This is longer duration?
George Sakellaris (CEO)
Yes, you hit the nail on the head. They are longer durations. And the other thing that you have with some of these longer duration contracts, you know, that you don't have that much flexibility to accelerate revenues and so on. And they are financed over the 3-year terms. The payment schedule is over 3-year terms or 2, whatever the case might be, or 30 months. So you build according to the schedule that it's in on those plans. But on the other hand, it's great, great visibility. And we lever the company by taking some of the design-build opportunities where they might be with existing client, with the federal government. I mean, and you heard about the great Post Office job that we did in New York, but the Post Office is a great client of ours.
We're doing some assets that we will own about five of their facilities and so on. So it's a good opportunity.
Craig Irwin (Managing Director and Senior Research Analyst)
Well, congratulations on the strong progress. Again, another great quarter. Thanks for taking my question.
George Sakellaris (CEO)
Thank you very, very much. Thank you. Thank you, Chris.
Operator (participant)
Thank you. Again, if you'd like to ask a question, please press star then one on your touchtone telephone. Our next question comes from Pavel Molchanov of Raymond James. Your line is open.
Pavel Molchanov (Managing Director and Equity Research Analyst)
Thanks for taking my question, guys. Good to get on your call the first time. First, about the kind of-
George Sakellaris (CEO)
Thanks for being there.
Pavel Molchanov (Managing Director and Equity Research Analyst)
First, about the quarterly progression. So this past year was unusually back-end loaded. More than a third of your full year revenue came in fourth quarter. Do you anticipate 2020 being equally back-end weighted?
George Sakellaris (CEO)
I would say, not as much, but it will be back-end weighted to as far as the third and the fourth quarter. And, Mark knows the schedule of these projects much better than I do.
Mark Chiplock (VP and Chief Accounting Officer)
No, I think that's just generally that's typical. I mean, I think 2019 was a little bit more unusual, just given some of the, the large federal projects that we contracted late in the year. But I think, yeah, next year would be a little bit more normal, you know, compared to previous years. But generally, just given construction schedules and seasonality, it's generally heavier in the back half of the year.
George Sakellaris (CEO)
Yeah, yeah, that's a good point. And, we had almost $35 million, or close to it, of, what we call investments in development, that once all those contracts were executed, immediately that goes into revenue. And, we do not have that this year. And, that backlog, it was developed for the last two or three years, and it was imperative that those contracts get executed by the end of the year because of the IDIQ expiration date, the sunset date there. And I'm glad to say that each and every one of those contracts did get executed.
Pavel Molchanov (Managing Director and Equity Research Analyst)
Understood. Let me ask a more kind of high-level, conceptual question. You-- we're seeing more and more private sector companies, you know, large Fortune 500 enterprises, setting these low carbon or, or even zero carbon targets. And historically, your business has been, you know, more oriented towards the, the public or the nonprofit sector. Are, are you seeing actual uplift in business from these ESG-driven corporate decarbonization initiatives?
George Sakellaris (CEO)
... Yes, very, very much so. I mean, we have talked before, Kaiser Permanente, and actually, just about every major bank is one of our clients now. And we're doing design-build. So we can pivot. We're doing a considerable amount of work right now, what I would call for the C&I sector, primarily, solar plants or combined heat and power and microgrids, resiliency issues that they face. But the ESG issue, that's why I mentioned it on my remarks, is becoming the driver. And it's a driver because the economics of all these advanced technologies have come down, and these projects, they pencil out for the particular customers. And Don, you want to say something?
Doran Hole (CFO)
I, Pavel, and what I would say is that the C&I customers are starting to look at the cost of carbon as they evaluate these projects, and taking that into account when considering the cost. It's a different calculus than your traditional ESPC calculation, but they are moving forward with it. I'd say that the ESG motivation is definitely there for all of these, you know, enterprise contracts that we've gotten on the, on the solar side with, you know, nationwide coverage. We've got, you know, as I mentioned in the comments, we've got a microgrid coming in the, in the C&I sector that's going to be an asset on the balance sheet. That, you know, that's a very exciting, exciting move. So it's definitely happening.
George Sakellaris (CEO)
Thank you very much.
Doran Hole (CFO)
Thank you.
George Sakellaris (CEO)
Thank you.
Operator (participant)
Thank you.
George Sakellaris (CEO)
Thank you.
Operator (participant)
I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may all disconnect.