Ameresco - Q4 2022
February 27, 2023
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the Q4 2022 Ameresco, Inc. earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star one one on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Leila Dillon, Senior Vice President of Marketing. Ms. Dillon, please go ahead.
Leila Dillon (SVP and CMO)
Thank you, Chris. 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, Executive Vice President and Chief Financial Officer, and Mark Chiplock, Senior 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. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on slide two, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information.
I will now turn the call over to George. George?
George Sakellaris (Chairman, President, and CEO)
Thank you, Lela. Good afternoon, everyone. I am pleased to report on Ameresco's great performance for 2022. We just completed our fifth consecutive year of record revenue and profits. We achieved revenue growth of 50% and adjusted EBITDA growth of 34%. This robust performance reflected how well our advanced technology portfolio and capabilities are aligned with market demand. The Ameresco team delivered these impressive full-year results while navigating challenging global issues. The fourth quarter was impacted by pushouts related to scheduling changes in implementation, supply chain issues, and unplanned maintenance at two of our RNG facilities. Some of these timing-related issues will likely continue into the first and second quarter of 2023, but we believe that they are short-term and that business will normalize in the second half of the year.
Even in light of these pushouts and the very difficult comparisons we will face this year from the unusually large Southern California Edison contracts, we are very pleased to be guiding to growth in our 2023 adjusted EBITDA. This expected year-over-year growth is a true validation of our diversified cleantech business model. Market activity and demand conditions remain very healthy with heightened proposal activity. Our customers continue to evaluate the recently enacted Inflation Reduction Act, and they are working to prioritize the type and timing of their projects. The support for a very broad range of technologies provided by the IRA greatly favors comprehensive solution providers such as Ameresco. We believe this is a more transformational legislation affecting our industry, providing a long-term runway for advanced clean technology deployments for years to come.
2022 marked a year of major accomplishments in Europe, including our decarbonization award with the City of Bristol in the U.K. In addition to being selected for this transformational net zero municipal project, our Greek joint venture was also selected as a contractor for a 100 MW PV project in northern Greece. Both of these projects not only represent very large contracts for Ameresco, but also some of the largest in their respective geographies, thus significantly raising our regional profile. In the fourth quarter, we announced the acquisition of a 5 MW wind farm in Ireland. Today, we are excited to announce an agreement to acquire Enerqos, an Italian-based energy services company. This acquisition further strengthens Ameresco's European footprint by adding local resources, customers, and a new pipeline of work throughout Italy.
This also supports our growth strategy for the C&I markets as Enerqos has a strong portfolio of commercial and industrial customers. They have a history of profitability, and we expect this acquisition to be immediately accretive. Our merger and acquisition strategy is generally to acquire highly regarded companies with great management teams. A strong plan for organic growth in order to create long-term value for our shareholders, while minimizing risk. Now, I would like to talk about renewable natural gas. With over 20 years of vertically integrated experience in self-developing biogas plants, we are one of the leading players in the RNG space. Federal incentives in the transportation market, plus a push by large institutions, utilities, universities, and corporate customers should make this a very attractive market for many years to come.
We believe we have significant competitive advantages in developing, constructing, and operating these plants and navigating the many authorities, permitting agencies, and equipment suppliers. With 20 biogas plants in our assets and development pipeline, we believe our RNG fee franchise will continue to be a significant driver in shareholder value. I would like to provide a brief update for the Southern California Edison project. As we noted in the third quarter of 2022, Southern California Edison instructed us to adjust the project schedules into 2023. We're also continuing discussions regarding COVID-19 and weather-related force majeure relief. We anticipate the projects to be in service prior to the summer of 2023. Our relationship with Southern California Edison continues to be very cooperative.
The knowledge and expertise we have gained from this and other large battery storage and microgrid projects help make us one of the go-to companies in the industry. We look forward to announcing additional wins in these areas in the future. Finally, our environmental, social, and governance programs and goals remain a top corporate focus. We were very pleased to be named a silver winner in the Best Place to Work category by the Best in Biz Awards. I am very proud of our company's culture of caring for the communities in which we serve, as well as our employees, customers, and stockholders. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?
Doran Hole (EVP and CFO)
Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today. The Ameresco team delivered another year of record financial results as all four of our business lines experienced solid growth and profitability. Full-year revenue growth of 50% was led by our projects business as we continued to execute on the SoCal projects. This growth was complemented by the strong performance of our other three business lines, energy assets, O&M, and other, leading to adjusted EBITDA growth of 34% to a record $204.5 million. We started to face difficult year-over-year comparisons in our projects business during the fourth quarter of 2022, given that our work on the large SCE projects commenced during Q4 of 2021.
We expect this to continue through the third quarter of 2023. These difficult quarterly comparisons, together with the challenges that George mentioned previously, resulted in year-over-year declines in project revenue. Energy asset revenue was down year-on-year by 6% due to unplanned maintenance issues at two of our RNG facilities in Q4, but these plants are now operating at their expected output. On the other hand, our O&M business line delivered another solid quarter of 5% growth as we continue to attach O&M contracts to our projects, especially those with the federal government. Our other revenue line had another quarter of double-digit growth, up 16%. As we expected, our gross margin increased to 18.6%, 150 basis points ahead of the prior year, as the lower-margin SoCal Ed contract declined as a percent of our total revenue mix.
We generated adjusted EBITDA of $41.3 million in the quarter. It is important to note that the quarter was impacted by higher than expected interest expense as the extension of the SCE projects required us to carry substantial working capital. Our contract allows for cost relief, and we have included this additional interest expense in the proposed cost recovery that we have been discussing with SoCal Ed. Total project backlog was a healthy $2.6 billion at the end of the quarter, even in light of the substantial conversion of SCE projects backlog to revenue. Of note, our awarded backlog grew 6% compared to last year, continuing to build momentum for future project revenue.
Ameresco expanded its portfolio of operating energy assets to 389 MWs. Our owned assets in development was 470 MWs at the end of the year. As a reminder, we are disclosing in our supplemental slides both the total assets in development as well as a pro forma net megawatt total after adjusting for our partners' equity interests. Our nationwide greenfield solar and storage development group continues to build up its pipeline of early-stage front of the meter opportunities. We expect the volume of these opportunities to grow, driven by the numerous IRA incentives related to these assets. Our ability to finance these energy assets remains strong as we secured $137 million in additional project financing during the quarter, bringing our total financing for the year up to $468 million.
We believe Ameresco's unique business model affords us substantial forward visibility given the combination of project backlog, O&M backlog, and the estimated contracted and market pricing revenue from our energy assets. Together, these lines of business provide a path to over $6 billion in future revenues. In previous quarters, we have only reported estimated contracted revenue and incentives for our operating energy assets. As George noted earlier, we believe that our RNG franchise is a significant driver of value to our stockholders. To help show a more complete picture of our RNG asset value proposition, we started providing an estimate for the uncontracted RNG revenues that we expect to generate over the life of these assets.
Using conservative assumptions for asset life and merchant market pricing for RINs, we estimate these revenues, again, just from our operating RNG assets, to be an additional $1.2 billion on top of the over $1 billion of contracted revenues from all of our operating assets. This projected RNG revenue is based on RIN prices of $1.50 per gallon, brown gas at $3.50 per MMBTU, and LCFS revenue, where applicable, at $3 per MMBTU. We've assumed an average asset life of 20 years. Of course, we still have the option to enter into longer-term offtake contracts if we feel we are creating additional value by doing so.
I'll reiterate that the $2.3 billion in revenue visibility only relates to our assets that are currently operating and does not include any expected revenue from our 470 MWs of energy assets in development and construction. As those assets begin operating, we in turn expect to add significantly more revenue visibility to our profile. Turning to guidance. 2023 guidance anticipates adjusted EBITDA growth of 5% at the midpoint. We're very pleased to be guiding to this growth even as we face difficult comparisons due to the large SCE projects. We anticipate placing between 80-100 MWs of energy assets in service during 2023.
The 3 RNG plants we had expected to be mechanically complete by the end of 2022 continue to progress as their schedules were impacted by permitting delays and longer lead times on certain types of equipment. Looking forward, we expect these three plants to be operational this year, and we also have several additional RNG assets in late stages of development. We expect that four or five of those will come online during 2024. Our expected asset CapEx for 2023 is $325-375 million, the majority of which we expect to fund with non-recourse debt. As we look to the first quarter, we estimate revenue to be in the range of $220-240 million and adjusted EBITDA of $20-30 million.
We expect non-GAAP EPS to be slightly positive. As George noted, we expect Q1 to be impacted by pushouts on a couple of large projects on top of our normal energy asset and project seasonality. Net income will be impacted by the continued carrying costs of SCE-related working capital. We expect the remainder of 2023 to follow our normal cadence with progressive improvement throughout the year. I'd like to turn the call back over to George for closing comments.
George Sakellaris (Chairman, President, and CEO)
Thank you, Doran. We maintain an excellent line of sight to our 2024 target of $300 million in adjusted EBITDA. Governments and institutions around the world invest in solutions, addressing climate, geopolitical, and budgetary challenges, Ameresco continues to enhance our expertise to provide the solutions, positioning us for robust, profitable long-term growth. We look forward to welcoming analysts and institutional investors to our European Investor Day being held in London on May 11th. This event will feature presentations and panels by key executives from our leadership team, with discussions focused on our expanding growth opportunities, including our plans for continued expansion in Europe. Operator, we would like to open the call to questions now.
Operator (participant)
Thank you. As a reminder, to ask a question, please press star one one on your phone and wait for your name to be announced. We ask all participants to limit themselves to one question and one follow-up. To withdraw your question, please press star one one again. Stand by as we compile the Q&A roster. One moment, please, for our first question. Our first question will come from Noah Kaye of Oppenheimer and Company. Your line is open.
Noah Kaye (Managing Director and Senior Analyst)
Good afternoon. Thanks for taking the questions. Wondered.
George Sakellaris (Chairman, President, and CEO)
Yeah.
Noah Kaye (Managing Director and Senior Analyst)
You could start by... Hey, thank you. Wondering if you could start by giving us just a bit more color on some of the timing and scheduling challenges around the RNG development. Obviously, you mentioned permitting supply chain. You know, I don't know the degree to which you can get granular, but just your line of sight to those challenges being resolved here in the first half of the year. Anything that we should consider top of mind in terms of key milestones that you have to hit to bring those projects online?
George Sakellaris (Chairman, President, and CEO)
I guess, we started out, we had some difficult permitting issues. Even though in some cases we got the environmental permits, we got stuck in the building permits. Things that would take you normally few weeks, they took several months. In one case, as much as six months. There was a big delay. The other thing that happened a lot, for example, a couple sites were expecting the major equipment delivery last July and August. As it turned out, we got the delivery in late December and early February for the other one this year, for example. What we did going forward, we scrubbed the schedule very carefully. That's why we said we will have these three plants completed this year.
Actually, they were all mechanically completed by the middle of the year. Then, the other four to five plants, a good part of them, they are in the construction or permitting or advanced development stages right now. So we built it by the bottoms up. We never anticipated the supply chain issues would be the way the things are. Another example, the rainstorms in California. One of the sites we had built the road, we've done all kinds of excavations and so on. So for everything got wiped out, we had to start basically from fresh.
I don't know if Donnie wanna add any more color to it, but we have scrubbed the numbers very carefully in the schedule, and we have factored it in our guidance, not only for this year and for the next year as well.
Noah Kaye (Managing Director and Senior Analyst)
That's very helpful. I guess sticking with the theme of RNG development, as you talked about having, I think you said 20 biogas projects in development. Said biogas rather than RNG. I'm just wondering, with all the policy developments that are supportive of biogas assets, some perhaps more for RNG, some perhaps more beneficial to landfill gas to electricity, just how are you thinking now about planning and optionality for your biogas assets? I think it's pretty clear what you're expecting to bring online this year for RNG. Yeah.
George Sakellaris (Chairman, President, and CEO)
Actually, you know, when last year we had said that five to six plants, we think one of two sites, actually one site that it was electric, we're going to convert it to renewable natural gas. We stopped that because we think the optionality now to the eRINs, subject to what comes through EPA, we didn't. There was another plan that we're going to expand it and add, go to renewable natural gas. Now we are in the permitting stages, most likely will go electric. Economics will. The ones that we have right now, that we have all the equipment, the four that we talked, four to five, you know, there will be renewable natural gas.
As we go down the road, I think some other ones, they might turn out to be landfill to electricity.
Noah Kaye (Managing Director and Senior Analyst)
Okay, great. Many more, but I'll turn it over. Thank you.
George Sakellaris (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. One moment please for our next question. Our next question will come from Stephen Gengaro of Stifel. Your line is open.
Stephen Gengaro (Managing Director)
Thanks. Good afternoon, everybody. I guess two for me. What I'd start with, George, you mentioned some confidence on your $300 million EBITDA target. That's a pretty steep ramp. I think it's 40% growth in 2024 versus 2023. Can you talk a little bit about sort of the path to get there?
George Sakellaris (Chairman, President, and CEO)
Yes. I mean, we looked at it very, very carefully, and we look at the contracted backlog, awarded backlog, and the contributions that we will get, not only from the RNG assets, but the other assets that we place it into, whether it's solar or battery storage and so on. We feel very comfortable. The way I look at it though, it's a 40% jump from 2023 to 2024. If you were to look at it from 2022 to 2024, it's not that much out of line. Between the two years, it's 45% growth, which is 32% growth for each year. If you go in the past, you know, we are in a little bit lumpy business.
Building up to the 24 number, we feel very comfortable because it's basically contracted backlog, awarded backlog, and assets that we have a very good handle in putting in operation.
Stephen Gengaro (Managing Director)
Great. Thank you, George. The other thing I wanted to just ask about was just on the contracting side in general. It feels like things have progressed pretty well sequentially as far as your backlog is concerned. Just when you're talking to customers and, you know, given the inflationary environment and interest rates, what are the conversations like? Has there been any impediment to getting these deals across the finish line?
George Sakellaris (Chairman, President, and CEO)
Yeah. Because of the interest rate, you know, jump, it has impacted the business. Couple of the push outs that we had, and they're very large projects, I'm talking in the hundreds between both of them, over $150 million project. One of them is the federal facility. It's a good, excellent example to remind everybody of the process. We do the detailed energy audit, then we negotiate the scope with the client and then the price, and then we go out to get the financing. Then what happened in this instance, the financing now, we had almost a couple points jump in this interest rate, then the save is we didn't finance the overall the project.
We go back to the drawing board, renegotiate the scope of the project and so on. The other one, it was a municipality, but because of the higher interest rates, they had to go out and refinance, you know, solicit a new bid. It's a concern. Lately though, what's happening a little bit, and that's why on my comments, I said the customers, they're trying to prioritize the projects and the timing, because some of them now they're getting money from the IRA, and they're waiting to see how much they're gonna get from the IRA and how it will impact them. We have a couple projects that we think they will be getting a good chunk of money from the IRA, and actually the projects will grow.
The reason I would say is a little bit, wait and see until everything comes out. The activity though, the request, the activity, the pipeline is growing a lot. That's why we feel very comfortable for the business going forward.
Stephen Gengaro (Managing Director)
Very good. Thank you for the color.
George Sakellaris (Chairman, President, and CEO)
Thank you.
Operator (participant)
Thank you. One moment please for our next question. Our next question will come from Gregory Wasikowski of Webber Research & Advisory LLC. Your line is open.
Gregory Wasikowski (Partner and Senior Equity Analyst)
Hey, guys. Good afternoon. Thanks for taking our questions. Wanted to ask about Enerqos. Could you just talk about the origination of that relationship? You know, was Italy a market that you were actively targeting before this? Does it make it easier to expand into additional territories, thinking like France, Spain, Portugal, those areas? Does the business help with any other existing operations that you have in Europe? Kinda thinking probably more like Greece, but just trying to understand, you know, any synergies there. Thanks.
George Sakellaris (Chairman, President, and CEO)
That's a very good question. You know, you might recall that we have targeted Italy as one of the countries that we wanted to expand. What we had basically an internal intensive effort marketing that we did in identifying potential companies that we might wanted to acquire. We approached this particular company, and then people made the arrangement that I will make a Zoom call and meet the management of the team and so on. We had a good meeting. I went over there, we met with them, and then the whole team went over. They are very, very, very similar to what we are doing. Basically, it's an energy services company, and they are more focused, actually almost exclusively, on the C&I customer.
I asked him, I said, "Why are you focusing only on the C&I?" He says, because the government agencies in Europe, finally they're beginning to get their act together trying to do something. The C&I customers, because of the higher cost, of course, what happened in Europe, they are very conscientious about it and we have a good program that's gonna help them. It's a very good little company and we are very excited about. We have been doing some other work in Italy with some other part-partners that we had in that area. We have some very good traction through those companies. This one gives us a solid foundation. What we like the most about this company, tremendous, world-class management team.
Even though it's a small company, it operates like a large company. I mean, could probably serve as a very good platform for us in Europe. It's not a great secret, we are looking for other companies and we don't have anything to talk about it right now, but don't be surprised that we might have something else to announce in the near future.
Gregory Wasikowski (Partner and Senior Equity Analyst)
Got it. Okay. Thank you, George. I know you guys, you know, can't say too much about numbers, but worth asking, if you think or if you expect this to be accretive on an EBITDA or earnings perspective in 2023, and if it's baked into the guidance.
George Sakellaris (Chairman, President, and CEO)
2023, by the time we close the deal and so on, it will be slightly accretive because it's included in our guidance now.
Gregory Wasikowski (Partner and Senior Equity Analyst)
Okay. Got it. All right. Thank you all, guys.
George Sakellaris (Chairman, President, and CEO)
Thanks.
Operator (participant)
Thank you. One moment for our next question. Our next question will come from George Gianarikas of Canaccord Genuity. Your line is open.
George Gianarikas (Managing Director and Senior Analyst)
Hey, good afternoon, everyone. Thank you for taking my question.
Operator (participant)
Thank you.
George Gianarikas (Managing Director and Senior Analyst)
Last quarter, Doran, you spent some time discussing interest rate exposure. You know, first with regards to how it impacts your capital stack and then how it impacts projects, and asset, deployment. Can you just kind of go over that again and just remind us, exactly how rates are impacting your business and, your balance sheet? Thank you.
Doran Hole (EVP and CFO)
Yeah, sure, George, thanks for the question. I mean, I think, what I'll start with is, you know, broadly speaking, we, you know, we'll talk about the SC piece in a second, but the financing we do on our energy assets is long-term. We're talking about looking at the longer end of the curve for purposes of interest rate exposure. As I think you guys have seen, despite maybe some recent volatility, you know, the overall shifts there haven't been near as impactful as what you've seen on the short end of the curve. That's kind of point 1. We did talk a little bit about the heightened interest expense on the SoCal Ed pushouts.
I think it's important for folks to kind of recognize that that's, you know, an element that we have the ability to include in the overall settlement of costs related to their change. You know, we'll continue to monitor that, and we're, as you might expect, doing all the calculations and ensuring that that information is front and center from the perspective of those discussions. You know, I guess the last piece is just kind of looking at, you know, the overall short-term debt.
I think that, you know, beyond the working capital required for SCE, you know, we're expecting all of that to normalize so that our interest rate exposure on anything related to SOFR or short-term unhedged rates should be much more muted as we get through the rest of the year. In particular because, despite the fact that we do invest some of our capital in construction and development of assets, our ability to hit non-recourse financing like the, you know, large, RNG refinancing transaction that we did in Q4, is, you know, is still there. That lender market hasn't loosened up. We're still able to get, you know, great tax equity financing using sale-leasebacks. We don't expect the overall impacts to be long term.
George Gianarikas (Managing Director and Senior Analyst)
Thank you. Then just as a follow-up. You talked a lot about scrubbing permits and other potential delays in your 2023 and 2024 EBITDA guidance. Can you also help us understand, you know, much ink is dedicated to discussing and trying to analyze movement in RIN pricing. I'm wondering as to if you can help us kind of understand what your how much exposure you have there is, and how much we should be monitoring that and potentially handicapping your 2023 and 2024 EBITDA guidance based on volatility in that index? Thank you.
George Sakellaris (Chairman, President, and CEO)
Well, you know that 50% of the RINs, that we plan to generate for the year, they're hedged. The other 50%, we are on the market, and we sell them as when we feel that the market is right. We have incorporated, the prices that we think we would be able to get in our guidance right now. Anything to add?
Doran Hole (EVP and CFO)
I mean, I think, you know, as you, as you might expect, we're heavily engaged in following what's happening with the EPA and what adjustments will be made. We have, just like you, our eyes on the summer as to what will happen when they finalize the RVO. We do feel confident in where we've like, kind of established our estimates for the year based on the unhedged portion, at least.
George Gianarikas (Managing Director and Senior Analyst)
Thank you.
Operator (participant)
Thank you. One moment for our next question. Our next question will come from Eric Stine of Craig-Hallum. Your line is open.
Eric Stine (Senior Research Analyst)
Hi, everyone.
Doran Hole (EVP and CFO)
Hi, Eric.
George Sakellaris (Chairman, President, and CEO)
Hi.
Eric Stine (Senior Research Analyst)
Hey, maybe, we can just go back to the 2024 EBITDA outlook, and great that you reiterated that. Just wanna, just be clear. If you're thinking about backlog awards not yet signed, plus the operating assets that you've not yet contracted, when you take that all together, I mean, is this something where you feel like you've got, you know. What is your percentage visibility into that number from all of those buckets? I mean, is it a high level of confidence? Is there stuff that you still need to fill in? How should we think about that when looking at 2024?
George Sakellaris (Chairman, President, and CEO)
I would say it's a very high level of confidence because when Mark does his numbers, unless we are at the 70%, 80%, he whatever he sees in the pipelines, he takes it out pretty much. No, we feel pretty good. You know, can something happen that's totally out of our control? It's possible, but we feel pretty good that we'll be able to deliver that number. Because, you know, when we established that number way back, I think we were a little bit conservative, and we have a little bit, you might say, in the bag. So that's why and even though we had some things happen last, that number still stands, and we feel good about it.
Eric Stine (Senior Research Analyst)
Got it. That is great color. Then, I guess last one for me, just on the SoCal Edison project, I don't know if you're willing to discuss how much of that project is left, but I guess more interested in. You mentioned that as a result of that, you've got a growing number of projects in your pipeline, so maybe some color, around those projects, you know, maybe not as big as SoCal Edison, but big nonetheless.
Doran Hole (EVP and CFO)
I mean, I'll start by just saying that on the proposal front, they're definitely coming in large and small. You know, as you know, it's a competitive market. We feel like we're very, very well placed to win a good number of those projects. There is a mix of some of these projects that are going to be assets on our balance sheet, as well as straight construction contracts like we did for SoCal Ed for other utilities or other types of asset owners. From a sizing perspective, you know, maybe don't see any single one that's quite the size of SoCal Ed, but when you add them all up together, you know, they're certainly in excess of what SoCal Ed is when you, when you look at the proposal activity.
I think there's more to come there. We'll talk about them as they get into the awarded backlog. But I think we're, you know, definitely seeing a move toward, you know, being pulled into discussions about some of those design build projects that we're really, really excited about. For SCE itself, you know, we probably, you know, 90 plus.
George Sakellaris (Chairman, President, and CEO)
Ninety-five.
Doran Hole (EVP and CFO)
95% complete by the end of 2022. You know, we're from a practical perspective, focusing on, you know, grid integration and getting the substantial completion, as we said, by, before the summer.
Eric Stine (Senior Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you. Again, one moment for our next question. Our next question will come from Christopher Souther of B. Riley. Your line is open.
Christopher Souther (Senior Equity Analyst)
Hey, guys. Thanks for taking my question here. Maybe just follow up on the Enerqos. Do they have projects on the balance sheet that you're acquiring, or is this more of a project business? I'm curious if that, you know, kind of evolves over time where you'd be owning assets over there as well. You know, can you talk through just from a market by market perspective, what other markets are ones where, you know, acquisition to kind of gain foothold is most helpful? Thanks.
George Sakellaris (Chairman, President, and CEO)
Yeah. They do not have any assets on their balance sheets right now. They are basically, let's say, a solar plant and some of the marquee customers that they have, they built them, and then they have a conduit that buys those projects out. They look on their balance sheet as a design build projects. They do very little O&M. That's why we think that there's tremendous potential for us to expand the O&M business. At the end of the day, we might take some of the assets on our balance sheet as well. I think with us bringing some more additional financing and management and marketing capabilities, I think we can accelerate the growth of this particular business.
Some of the other companies that we are looking in Europe, they are similar companies, because in Europe, what has happened with the energy prices being what they are, you know, especially some of this distributed generation for the commercial and industrial customers, and now it's beginning the institutional accounts or the governments and the cities and towns, the market is picking up. I think for us, we developed a good management team in this particular company. I think we can grow it.
Doran Hole (EVP and CFO)
I think if you look at the landscape over there, you know, having gone outwards and, you know, found this company, you know, kind of no banker process here, you know, this is kind of outreach that we're doing as we're looking to expand our own business across the region. There aren't any particular geographies that are where we're focusing 100% of our time. You know, we're being opportunistic. We're finding, you know, we're finding the opportunities where, you know, businesses like Enerqos can be, you know, kind of tucked in. You know, I think the, you've seen the expansion of our activities in Greece. We certainly like Italy. We're not gonna go into markets where we're not gonna be able to compete.
I think it's, you know, again, it's opportunistic and we think there's certainly gonna be some more opportunity out there for us.
Christopher Souther (Senior Equity Analyst)
Got it. No, that's very helpful. Then maybe just on the SCE progress, I think you had called out $35 million last quarter that you expected to be 2023 revenue. I wanted to kind of focus on, it looks like the cost and estimated earnings and the excess of billings came down again. I wanted to get a sense of, you know, timing around payments, if we have a sense of when that starts to, you know, look like a more normal number again, if you have any visibility on that.
Doran Hole (EVP and CFO)
I mean, from an unbilled perspective, you know, you're talking about more or less...
You know, the bulk of it is when substantial completion . That's right. Yeah. You know, as we said, timing-wise, we're looking to complete these projects by the summer. You know, I think that's kind of when you'd see the invoices start going.
Christopher Souther (Senior Equity Analyst)
Okay, great. Then maybe just last one. Of the 80 to 100 MW equivalent additions for this year, can you give a mix between solar batteries and RNG? Then any sense of the cadence would be helpful there. Then I'll hop in.
Doran Hole (EVP and CFO)
I think we're looking at. Sorry, give me a second to get the numbers.
Christopher Souther (Senior Equity Analyst)
Yeah.
Doran Hole (EVP and CFO)
We think out of that, the RNG, we're talking about 22 MW out of that 80-100 MW.
Christopher Souther (Senior Equity Analyst)
Yep.
Doran Hole (EVP and CFO)
The rest of it is a mix between solar and battery.
Christopher Souther (Senior Equity Analyst)
All right. Okay. Thanks, guys.
Operator (participant)
Thank you. One moment, please, for our next question. Our next question will come from Tim Mulrooney of William Blair. Your line is open.
Tim Mulrooney (Analyst)
Good afternoon, everybody. Apologies for the overly simplistic question, but I had in my notes that you expected to complete one RNG plant in 2021, three in 2022, and five to six in 2023. Today, I think you said three in 2023 and five to six in 2024. Did the whole RNG completion timeline essentially get pushed out by a year, or were my notes incorrect?
George Sakellaris (Chairman, President, and CEO)
The one in 21, that was 21, 22, that came in. It was mechanically complete to 21. The ones in 22, there were three. You were correct. There were five to six going beyond that. The delay, the actual delay is between four to eight months on between the three and the five to six. The five to six became four to five because actually two plants that originally were contemplating to go to renewable natural gas because they were conversions. Now we stopped doing any work on them because we will most likely keep them go to the eRINs. I would say four to eight months delay.
Tim Mulrooney (Analyst)
Got it. Thanks, George. You know, you talked about, for my second question, you talked about that 20%, essentially 20% EBITDA CAGR between 2022 and 2024. I understand given the timing of projects and such, that, you know, the two-year timeframe is probably a better way to look at things. Stepping back and thinking about that two-year timeframe, you know, how should we think about how much of that growth is coming from projects versus, you know, EBITDA coming in from your energy operating assets?
George Sakellaris (Chairman, President, and CEO)
I think the project business includes a contemplate that's gonna grow in the 10% to 12% to 13% CAGR if you were to take it from 2021 going forward, rather than taking it from last year to go forward. The rest of it comes from the assets and the O&M. The O&M business is growing very well and the other business. They are contributing quite a bit as well.
Tim Mulrooney (Analyst)
Got it. Okay. Thank you very much.
Operator (participant)
Thank you. Once again, one moment for our next question. Our next question will come from Kashy Harrison of Piper Sandler. Your line is open.
Kashy Harrison (Senior Research Analyst)
Good afternoon, everybody, thank you for taking the question. I guess just a quick question on the Q1 guide. $230 million of revenues implies a, you know, a pretty big ramp into Q2, Q3, and Q4 to get to the full-year guide of $1.5 billion. I think you indicated there's some pushouts behind the soft Q1, can you maybe share some more details on, you know, what exactly gives you the confidence in that, you know, big recovery as we think about Q2, Q3, Q4? Maybe just share some color on how much of the revenue guide is already secured by the 12-month projects and O&M backlog.
Mark Chiplock (SVP and Chief Accounting Officer)
Yeah, I mean...
George Sakellaris (Chairman, President, and CEO)
Go ahead.
Mark Chiplock (SVP and Chief Accounting Officer)
No, yeah, this is Mark. No, I think, again, as we've talked about before, our confidence in anything that we guide comes from the visibility that we have from the, from the backlog. On the project side, so we have better than 80% of the project revenues coming from our either contracted or awarded. And then from a total revenue perspective, more than 70% is coming from what we consider contracted sources. I think, you know, we have really good visibility in terms of how we're able to achieve that ramp throughout the, throughout the end of the year. You know, there's always some amount that's gonna come from pipeline, but again, I think we have decent line of sight to what those opportunities are going to be.
We're gonna be able to fill that in between Q1 and the end of the year.
Kashy Harrison (Senior Research Analyst)
Helpful. Thank you. As my follow-up, just a quick question on cash flows. You know, 2022 adjusted cash flow from ops was a $100 million use of cash. I'd imagine that was driven by the Edison project. With the billings looking to go out in the summer of the year, I was wondering if you could just maybe give us some color on how you're thinking about adjusted cash flow from ops in 2023 based on the midpoint of your guidance.
Mark Chiplock (SVP and Chief Accounting Officer)
I mean, we haven't generally guided to that, but as Doran was saying, you know, we expect to wrap these projects up by the summer, and a lot of that is tied up right now in the unbilled revenue. Everything to date that we, you know, that we have been able to bill contractually, we have been paid for. You know, we would expect those cash flows to come in, soon after the projects are completed, you know, which I think should, you know, directionally, should point us to, you know, a much improved adjusted cash from ops number.
Doran Hole (EVP and CFO)
Yeah. I mean, there's, you know, as we talked about substantial completion being the next important billing point. Depending on when we, well, if we can get the weather to continue to cooperate in California, we wrap these projects up. I think with the payment terms, you might see some of the cash flow actually coming in in beginning Q3, depending on when the bills go out. you know, can't say that it would be, you know, a specific quarter here, but that's the timeframe we're talking about when you'll see that kind of turnaround.
Kashy Harrison (Senior Research Analyst)
Got it. Thank you.
Operator (participant)
Thank you. One moment, please, for our next question. Our next question will come from Joseph Osha of Guggenheim Partners. Your line is open.
Joseph Osha (Managing Director and Senior Research Analyst)
Thank you. It is a mouthful. Following on what Kashy was asking, I'm wondering, you know, as we think about that EBITDA run rate, which obviously comes out of 2023 at a considerably higher year rate than it goes in, is this just, you know, straightforward cost absorption? Are there some, you know, mix shifts on a quarter-by-quarter basis in terms of the revenue mix that we should think about? I wanna understand what the walk from Q1 to Q4 EBITDA looks like.
Doran Hole (EVP and CFO)
I don't know that we have, any, you know, anything really granular to share with you there, Joe. The pushouts that George talked about where we're, you know, kind of going back and recalculating some things, and we're expecting contract signing, you know, some of those larger projects carry with them a good amount of, cost and preparation for signing. You get a little bit of, revenue charge once the contracts get signed.
This is where, you know, having pushouts that go not just from one quarter to the next, but maybe, you know, one quarter to two quarters later, we're seeing a little bit of that here, and that kind of explains some of that ramp, and especially as you start to work on full execution in those projects in the latter half of the year. I don't think there's anything really meaningful to share as far as mix, though, for the balance of the year. We, you know, we've got our typical seasonality. We're, you know, we're gonna see, you know, the ramp up over the course of the year, just kind of progressively moving from the Q1 up to what we expect to be a more back end in Q3 and Q4.
George Sakellaris (Chairman, President, and CEO)
Yeah. Where I might add what compounded, some of the projects, as I said, they got delayed, which happens, let's say you lose three months on a particular project, especially the large ones, then it takes you a couple of months to mobilize. That's why when I made the statement, we go to two quarters, it takes time to, you know, for those projects, not only to get signed, but then to mobilize them and then see some revenues, real revenues coming through in a, in a construction site. That's why it is...
Joseph Osha (Managing Director and Senior Research Analyst)
Okay. Thank you.
George Sakellaris (Chairman, President, and CEO)
A bit later.
Joseph Osha (Managing Director and Senior Research Analyst)
As a, as a follow-up, you know, obviously you've got some additional storage projects in the backlog that we've been talking about. I'm wondering what you all feel like the lessons learned are from SCE and how that's changed your approach to, you know, how, you know, how you source cells for future projects, how you contract, you know, how are you gonna come at this next round of storage products, projects differently to hopefully, you know, maybe avoid replaying what's happened with SCE? Thank you.
Doran Hole (EVP and CFO)
I'll start with the. You know, we think that was actually a really well done contract. You know, the lessons that we learned has to do with, well, you know, how well are you prepared for a force majeure event? You know, how well are you prepared for you know, supply chains to be shut down in Shanghai or, you know, shipping channels, et cetera. I think that's, you know, that's what's been, you know, causing us the most of the delays. As we talked about, you know, the other delays associated with this is are related to SoCal's desire to have those projects go into, you know, grid sync in 2023. One of the.
Well, I'll call it a lesson learned, but it's actually an important thing that we've got to carry through to our future projects is there nothing more valuable than having a very solid, open, and honest relationship with your customer. I mean, that's a, that's a theme that this company follows with a lot of projects. Our relationship with SoCal Ed has been open and honest from the beginning. You know, we have continuous high-level executive meetings. You know, I think that that's of critical importance.
When we're approaching new proposals, new opportunities, that's one of the important pieces of the puzzle, is to ensure that, you know, some of us on the executive management team get involved early on, get to know the management teams at our counterparties and our suppliers to ensure that we can manage a smooth process for what sometimes can be, you know, large projects. You know, at the end of the day, we feel really great about the project that we built. You know, we feel like it's adding a lot to our resume.
I think we're, you know, we're spending a lot of time looking at the way that was executed and using the resources that are working on those projects and that worked on the contracting on all of the proposals that we're working on going forward to ensure that, you know, there's a mind share with respect to the way we approach the new projects.
George Sakellaris (Chairman, President, and CEO)
I'm sorry, may I add. That's why I said in my opening remarks that we have become a company to go to. We are working on several projects right now along those lines similar to the Southern California Edison contract. You might recall when we signed that contract in September in 2021, everybody thought we were coming out of the COVID-19 situation. We ended up going back into it. We had the supply chain issues that basically we executed that project in what I call unprecedented situation. I think we did pretty well.
Joseph Osha (Managing Director and Senior Research Analyst)
Okay. Thank you, guys.
George Sakellaris (Chairman, President, and CEO)
Thank you, Joe.
Operator (participant)
Thank you. One moment please for our next question. Our next question will come from Chip Moore of EF Hutton. Your line is open.
Chip Moore (Managing Director, Global Head of Sustainability Sector Research)
Thanks. Hey, hey, everybody. Wanted to ask a question on visibility as it relates to IRA. When do you think customers maybe get better clarity on potential funding opportunities? Then how do you sort of handicap risks for any pushouts there or potential for acceleration?
Doran Hole (EVP and CFO)
I don't, I don't know that I would necessarily frame it in the context of pushouts or accelerations. I think as the Treasury guidance comes out, you know, seems like our customers and their advisors are kind of waiting with bated breath. As soon as the guidance comes out, they jump on it, and they're immediately in contact, in contact with us about, "Okay, what do we do next?" They, they do seem eager. It is out of all of our control collectively, the pace with which the government will actually issue guidance. I mean, anecdotally, you know, the same day the Treasury came out with the guidance on low-income communities, the clients were emailing us-
Chip Moore (Managing Director, Global Head of Sustainability Sector Research)
Right.
Doran Hole (EVP and CFO)
You know, like, "Okay, ready to go. Here we go. This is the project, and this is where we think it's gonna apply," and so on and so forth. We're. I think that's gonna be an interesting dynamic as the, as the guidance comes out, 'cause there's likely to be some scrambling. I think as George has talked about a number of times and, you know, we also need to be realistic about execution timetables with our customers and ensure that once we have certainty on structure supported by the IRA, that we have time to, you know, pursue execution, procure equipment, et cetera.
Chip Moore (Managing Director, Global Head of Sustainability Sector Research)
Got it. That's all, Doran.
Operator (participant)
Thank you. Due to time, we're gonna ask that everyone limit themselves to just one question so we can get as many people in as possible. Our next question will be coming up shortly. Our next question will come from Pavel Molchanov of Raymond James. Again, we ask for just one question, please.
Pavel Molchanov (Investment Strategy Analyst)
Thanks for taking the question. You've been asked several times about higher interest rates. I'd like you to also talk about higher utility rates and how that's affecting both the efficiency side of the business and your solar power plant development. Thanks.
Doran Hole (EVP and CFO)
Sure. Go ahead, George.
George Sakellaris (Chairman, President, and CEO)
Yeah.
The higher interest rates, that's why it's on any project that we underwrite, let's say, solar or whatever the case assets we might own ourselves, we take into account the new interest rates. Of course, you know, on the performance contracts, and that's why that goes on what I said earlier on that contract, we had to go to back and renegotiate the baseline energy prices. We use the current prices rather than the old one. That's what made that project pencil out, even though it's a higher interest rates. But they do impact us. No question about it. On the other hand, though, because of the energy prices have gone up, it gets neutralized with the performance contract. On the assets we own, we take that into account.
We go out, we shop, and we see what the long-term rates will be. The long-term rates haven't gone up as much as the short-term rates. The short-term rates impact us on the working capital that we use on the line.
Doran Hole (EVP and CFO)
I think the higher energy rates elsewhere in the country, you know, for purposes of, you know, offtake contracts, et cetera, you know, I do believe there's a little bit of a lag there with respect.
George Sakellaris (Chairman, President, and CEO)
Yeah.
Doran Hole (EVP and CFO)
to those, kind of catching up with where the energy prices are going, just given the long development cycle of some of the assets. Our expectation is the same, the same thing will happen there.
Operator (participant)
Thank you. One moment please for our next question. Our next question will come from Ben Kallo of Baird. Your line is open.
Ben Kallo (Senior Research Analyst)
Hey, guys. Doran, when you gave the guidance for EBITDA next year, there was no IRA. Could you just talk about, you know, maybe what's beneficial from IRA for next year versus what's not good for next year EBITDA?
George Sakellaris (Chairman, President, and CEO)
Yeah.
Ben Kallo (Senior Research Analyst)
Sorry to interrupt. Big question is, you know, the ramp, the, you know, from this year in EBITDA to next year and what are the drivers of that? You know, if you could just name the biggest driver and the second-biggest driver. Thank you.
George Sakellaris (Chairman, President, and CEO)
You're welcome. We have not taken any potential impacts from the IRA. It's based again on the projects. A good chunk of that will come from the project execution, but a substantial number will come from the assets we place in operation. For example, I know the number of assets we put in operation last year wasn't the number we contemplated, but 40 MWs of assets will go in this first quarter. That will help a lot. Then, of course, the RNG assets that they will go into operation by the end of the year, and couple of them, they come on earlier, early in 2024. They will contribute as well. Then we have couple of early projects that we are working on.
The other business, they have become a good contributor now. The other lines of business, they will help as well. I don't know if you wanna add any more color, Doran or Mark.
Doran Hole (EVP and CFO)
No, I think that pretty much says it.
Ben Kallo (Senior Research Analyst)
Thanks, George.
Doran Hole (EVP and CFO)
Yeah.
Operator (participant)
Thank you.
George Sakellaris (Chairman, President, and CEO)
Mm-hmm.
Operator (participant)
That'll be all the time we have for the Q&A session. This will also conclude today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.