Ameresco - Q4 2023
February 28, 2024
Transcript
Operator (participant)
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Ameresco, Inc. Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Leila Dillon, Senior Vice President, Marketing and Communications. Ms. Dillon, you may begin.
Leila Dillon (SVP)
Thank you, Lisa, 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, 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 of our supplemental information, 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 information. I will now turn the call over to George. George?
George Sakellaris (Chairman, President, and CEO)
Thank you, Leila, and good afternoon, everyone. Fourth quarter results marked a strong finish to a challenging year for the renewable industry and for Ameresco. We not only achieved very positive revenue, Adjusted EBITDA, and net income growth, but also our business development execution remained very strong. We exited 2023 with a record backlog in asset development metrics. These metrics, together with our intense focus on execution, point to 2024 being a year of sustainable growth. Demand for energy efficiency and renewable solutions remains robust, and Ameresco's ability to effectively compete and win new businesses demonstrates how well aligned our capabilities and offerings are with our clients' priorities. At the same time, we are also growing our assets in development at a strong pace, which together with our project backlog gives us excellent multi-year visibility.
This supports our 2024 midpoint guidance for revenue and Adjusted EBITDA growth of 20% and 38%, respectively, and provides us with over $7 billion in multi-year visibility and profitable revenue. Ameresco's total project backlog was a record $3.9 billion at the end of 2023, up approximately 50% versus 2022, with new awards for the year of $2.2 billion, and proposal activity remains at record levels. During the year, we also placed 118 MW of assets into operation, bringing our operating energy assets to over 500 MW. We also added 198 MW of assets in development in 2023, ending the year with 669 MW of Ameresco-owned assets in development and construction. Now, I would like to make some comments on the industry environment and what Ameresco is doing to address current challenges. First and foremost, as I stated before, industry demand remains very healthy.
Elevated power prices, greater demand for electricity, and green resiliency, combined with attractive incentives, have created a very favorable demand backdrop for renewable energy and energy efficiency solutions. This robust industry demand, though, has also strained some parts of the system. The industry continues to experience lengthening award conversions, interconnection and permitting delays, supply chain disruptions, and shortages of critical equipment and skilled labor. With a focus on execution and cost efficiencies, Ameresco continues to take steps to adapt to this new environment. We are optimizing our operational structure to bring more uniformity and scalability across all of our geographies and business units, taking a more conservative approach to our construction schedules, promoting knowledge sharing, and increasing best practices across our teams, and focusing our business development efforts on larger opportunities in our core markets and areas of expertise.
We also remain very focused on our working capital levels and liquidity. As part of this, we are prioritizing the timely conversion and execution of our tremendous project backlog. These actions are already yielding results. Our 40% project revenue growth in the fourth quarter was helped by the conversion of awards to contracts that had been previously delayed. Our focus on conversion also helped drive a 32% year-over-year increase in our contracted backlog, which ended the year at $1.3 billion, giving us good visibility into our 2024 revenue. Demand for our services remains very strong, and Ameresco is well positioned for 2024 and beyond. As I mentioned before, there are a number of very favorable macro factors driving this strong demand. One of these is the IRA legislation. Looking at Ameresco's history, one can see that we have performed quite well regardless of the party in office.
The main reason for this is the diversity of our business model and the fact that our solutions are driven by economic returns and cost savings to our customers, many without additional government incentives, especially in our project business. We also see tremendous support for our resiliency solutions from utility, government, and military customers, again, regardless of the administration. Therefore, we continue to see strong demand and great opportunities ahead. 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 especially our supplemental information that was posted to our website after the market closed today, and which contains some new financial content that I will describe in more detail. We ended the year on a high note with total revenue for the quarter of $441 million, up 33% from the previous year. Each of our four business lines experienced double-digit revenue growth. Our projects business had a particularly strong quarter as the company executed on a number of large contract conversions, some that had slipped from the previous quarter, and benefited from increased overall activity. We also saw a benefit of approximately $40 million from faster implementation of active contracts. We continue to make great strides in growing our European footprint.
You will notice in our upcoming 10-K that our European revenue now accounts for over 10% of our total revenue and is therefore now separately disclosed going forward. We experienced strong revenue growth of over 150% this year with solid organic growth and a significant contribution from our very successful Enerqos acquisition. We believe the European market remains highly fragmented and very economically attractive to Ameresco. Energy asset revenue grew 12%, largely due to the greater number of operating assets compared to last year, as well as higher RIN prices experienced during the quarter. We continue to bring assets into operation, growing this important recurring revenue stream. Our O&M business and other lines of business grew 13% and 12%, respectively. Gross margin of 17% dipped during the quarter as project mix impacted this quarter's results.
Like in other quarters, our gross margins can be impacted by the mix of projects we are executing during the quarter, ranging from higher margin performance contracts to lower margin design-build revenue. While gross margin can vary from quarter to quarter and year to year, we are not seeing any fundamental changes in the margins of our projects. As always, we remain focused on driving incremental gross margin dollars and operating leverage over gross margin percentages. Adjusted EBITDA grew 33% to $54.9 million in the quarter, with non-GAAP EPS almost doubling last year's results, a key driver of tax benefits. We expect to continue to take advantage of a number of tax incentives, which we've accounted for in our 2024 guidance. Q4 was not only an excellent quarter for execution but also for business development, with over $500 million of new project awards in the quarter.
Our project backlog represents a very well-balanced mix of performance contracts and design-build work, with particular strength from the federal government sector. During the quarter, we also placed 63 MW of energy assets into operation and added 198 MW to assets in development and construction, with a diversified mix of solar, battery, RNG, and biofuel assets, supported by our recent awards in Hawaii. Turning to our balance sheet and liquidity, I'll draw your attention to some additional metrics we are providing in our press release and supplemental information, both available on our website. First, let me spend a few minutes on our debt. As many of you are already aware, Ameresco carries two distinct types of debt: corporate debt and energy asset debt. The vast majority of our debt is energy asset debt, supported by our large and growing portfolio of profitable energy assets.
As most of our assets are backed by multi-year offtake agreements, banks are willing to lend a high portion of the cost of these assets at competitive rates, given the long-term nature of contracted cash flows they are expected to generate. As of year-end, our energy asset debt represents only 72% of the book value of the related energy assets, a fairly conservative level. It is also important to note that the majority of our energy asset debt for our operating assets is fully amortizing over the 15-20-year term of the offtake contracts, matching our debt with our contracted revenue flows for these assets. For a significant portion of our assets in construction and development, we have already lined up long-term debt financing through our existing sale-leaseback, RNG, and other portfolio financing facilities.
In addition, given the strength of our asset development efforts, we're continuing to pursue a develop-and-sell business model for a portion of our assets in development. This allows us to convert assets that would otherwise require cash equity into EPC and O&M contracts, which instead generate project revenue and more immediate positive operating cash flow. Even with these develop-and-sell transactions, we will continue to target long-term operating energy asset portfolio growth of 20%+. Lenders and investors have continued to fund these attractive assets at competitive rates, allowing us to minimize the use of the company's own equity. Our corporate debt, which includes our term loans and revolving line of credit, is the minority of our total debt. At year-end, our corporate debt was $280 million, with a leverage ratio of 3.3x, below our bank covenant level of 3.75x.
It is important to note that our corporate debt covenants do not include energy asset debt as part of the leverage ratio calculation. In the end, the vast majority of our debt is covered by our strong and profitable energy asset business backed by multi-year contracted revenue streams. Our corporate debt should decline as we bill and collect on the SoCalEd projects. Another consistent topic of discussion with investors and analysts is our cash flow generation. Our quarterly cash flows can be quite volatile given the variations in the timing of collections and outlays on our contracts. Because of this, we are providing a quarterly moving average of adjusted cash flow from operations over an eight-quarter period, which is broadly representative of our implementation cycle.
In our supplemental information, we have provided a longer-term chart of this metric over the past several years, which clearly shows the temporary impact of the working capital we needed for the SoCalEd contract. We expect this metric to improve back towards its historical positive trend as we bill and collect from SoCalEd. Now turning to 2024, we are guiding to revenue and Adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively. Included in our Non-GAAP EPS guidance is the anticipation of a likely net tax benefit. Our ranges are slightly wider than prior years given the operating environment. We believe the primary variables that can impact our results this year will include the timing of converting project awards, the execution of develop-and-sell transactions, as well as the pace of implementation of our contracted project backlog.
Other important variables include the timing of bringing our new energy assets into operation, realized RIN pricing, and tax benefits. We anticipate placing approximately 200 MW of energy assets in service during 2024, including our large Kapolei asset and United Power battery assets. Our 2024 asset guidance also includes placing three RNG plants in operation, one of which went COD already in January. Our expected CapEx for 2024 is $350 million-$400 million, the majority of which we expect to fund with energy asset debt and tax equity. As we look to the first quarter, we estimate revenue and Adjusted EBITDA to be in the range of $225 million-$275 million and $20 million-$30 million, respectively, with negative non-GAAP EPS. As we noted, we saw approximately $40 million of project revenues from faster implementation of active contracts in the fourth quarter, impacting our Q1 guidance.
We expect the remainder of the year to follow a more normal quarterly seasonal cadence. Now I'd like to turn the call back over to George for closing comments.
George Sakellaris (Chairman, President, and CEO)
Thank you, Doran. We ended the year on a high note, even in light of a difficult industry environment. That part of the momentum has continued into the new year. Ameresco's outlook for 2024 reflects the strong visibility from our backlog, recurring energy asset, and O&M revenue streams. Our top focus for 2024 is the execution of our tremendous project backlog and assets in development and the generation of cash flow. In closing, I would like to once again thank our employees, customers, and stockholders for their continued support. Operator, we would like to open the call to questions now.
Operator (participant)
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. Wait for your name to be announced before proceeding with your question. We as well ask that you limit yourself to one question and one follow-up. Please wait while we compile the Q&A roster. One moment. Our first question today will be coming from Noah Kaye of Oppenheimer & Co. Your line is open.
Noah Kaye (Managing Director and Senior Research Analyst)
Good afternoon. Thanks for taking the questions. When we talk about the energy asset portfolio planning for 2024, you indicated expectations for 200 MW placed in service. So, Doran, picking up on the comments in your prepared remarks around developing portfolio growth but also doing develop-and-sell, how much of the 200 MW do you kind of envision retaining? And then the $350 million-$400 million CapEx, I mean, how much of that do we sort of see an immediate kind of turnaround on in terms of monetization and sales of assets?
Doran Hole (EVP and CFO)
Yeah. So, Noah, the short answer to that is the entire 200 is what we're retaining on balance sheet. The CapEx figures are what we're retaining on balance sheet. So the develop-and-sell is we fold that develop-and-sell into our financial plan under the project business because it becomes EPC, but we do not include it in those asset metrics.
Noah Kaye (Managing Director and Senior Research Analyst)
All right. All right. Very helpful. Yeah, it's a very substantial growth versus what's in operations today. So I guess talk to us a little bit about your guidepost for develop-and-sell versus retaining on balance sheet, how much of it is sort of unique to the assets and the nature of the offtakes versus kind of an overall sort of philosophy of managing diversification of resources in the portfolio.
Doran Hole (EVP and CFO)
Yeah. I think the primary feature is based on returns, right? Obviously, customer relationships will feed into that sometimes when we're making those decisions, but that's essentially it. And we've just got a tremendous backlog of development going on. We want to grow the portfolio 20%+. That gives us a lot of room to convert those into projects.
Noah Kaye (Managing Director and Senior Research Analyst)
Great. If I could sneak one more in, just on the project side of the business, really strong awards and backlog to close out the year here. Give us a sense of what's happening with the conversion cycle in and around awarded to firm, contracted, and how that's sort of flowing in? Have you noticed a material improvement, I guess I would ask, in terms of the pace of conversion? If so, what's driving that?
George Sakellaris (Chairman, President, and CEO)
Going from the awarded contracts to executed, the conversion has not changed. What we used before, the 12-18 months, it's still. And sometimes, for example, right now, they're talking about the government shutdown. Then you have delays, and all of a sudden, from 18 months, you've got 24 months. But the ones that the timing has changed a little bit is the design-build, the EPC work that we are doing, and that's helping. Another thing I wanted to give a little bit of perspective on the column, on the backlog, that the bread and butter, what I call the performance contracts, we have seen a very healthy increase.
Noah Kaye (Managing Director and Senior Research Analyst)
All right. Excellent. I'll turn it over. Thank you.
Doran Hole (EVP and CFO)
Thanks, Noah.
Operator (participant)
Thank you. One moment for our next question. Our next question will be coming from George Gianarikas of Canaccord. Your line is open.
George Gianarikas (Senior Analyst)
Hi. Good afternoon, everyone. Thank you for taking my questions.
Doran Hole (EVP and CFO)
Hi, George.
George Gianarikas (Senior Analyst)
I'd like to ask about 2024 EBITDA guidance, which I know you just gave an initial look last quarter that was a little bit higher than what you're talking about now. Can you just maybe discuss anything impacting your profitability for 2024? Thank you.
Doran Hole (EVP and CFO)
Yeah. I'll just start with the fact that we're building a little more conservatism into the forecast, to what we're guiding. And in addition, as I talked about in my comments, my prepared remarks, that we had some revenue, $40 million worth of revenue pull into Q4. So I think the combination of those two things really put us where we are. And despite the wider ranges, this is a set of figures that we feel very good about.
George Gianarikas (Senior Analyst)
Great. Maybe just to clear any confusion, can you just remind us what the "normal" quarterly cadence of your business is throughout the year for modeling purposes? Thank you.
Mark Chiplock (SVP and Chief Accounting Officer)
Sure. This is Mark. Yeah. I think what we consider the normal quarterly cadence that we've talked about, Q1 is seasonally our lowest quarter, and then it tends to be a steady ramp, generally with Q3 and Q4 being our heavier quarters. So the shape will definitely have a heavier back half, and Q1 is always our unless something unusual comes into the mix. It's generally our lowest seasonal quarter.
George Gianarikas (Senior Analyst)
Thank you.
George Sakellaris (Chairman, President, and CEO)
Well, the other note that we might add on that comment, thanks, Mark, that it's not as heavily weighted as it was 2023 to the last quarter.
George Gianarikas (Senior Analyst)
Thank you, George.
Operator (participant)
Thank you. One moment for our next question. Our next question will be coming from Eric Stine of Craig-Hallum. Your line is open.
Eric Stine (Senior Research Analyst)
Hi, everyone. Thanks for taking the questions. Maybe we could just start on Europe. I mean, obviously, a pretty great story there, the growth that you have seen. Seems like it's a pretty wide-open opportunity. Maybe just talk about how you see it playing out going forward. I mean, do you see that acquisitions, organic combination of both partnering with people? Just maybe your thoughts on that part of the business going forward.
Doran Hole (EVP and CFO)
I mean, I think in the near term, you're going to see a lot more organic. The thing about this acquisition, it's a relatively small company that we bought. They've overperformed based on our own expectations. And we expect to use that platform, that local content, to actually help them grow organically and actually help us grow organically throughout the continent. So I think that's one thing. The other thing is that a lot of the new technologies, battery, EV charging systems, you name it, those things are starting to really come into play in the U.K. And so I think we're expecting some really good organic growth there from some of the new technologies. So it's kind of it is across the major jurisdictions, Greece, Italy, and the U.K., where we're focusing the most.
But there's other opportunities in other markets where we haven't been yet that we see coming as well. So it's actually really exciting.
Eric Stine (Senior Research Analyst)
Thanks for that. And then maybe just to follow up, the Bristol opportunity, can you just talk about where things stand with that? I mean, I would assume that that is some of the growth, but that also is just starting. So maybe how that plays into it, and do you see other projects out there, opportunities out there like that?
George Sakellaris (Chairman, President, and CEO)
It's a great, great question, actually, about the beginning of the year. I spent a couple of weeks in Europe, and Bristol, Greece, I spent some time, and we had the board meeting. It's beginning to have traction right now. Otherwise, we are in the implementation phase, and we're getting to do more projects than we did last year. So in addition to that, we are working with the mayor of Bristol, and we're going to have a conference very soon that we invite quite a few other Greeks that are thinking of going down this particular route. So it's a great opportunity for us, and it's right up to our toolbox because the reason they picked us is because we provide comprehensive services across the full spectrum of the green tech technology. So it's a great project, and I think we'll see more coming down the pike.
The other thing I wanted to say, organic growth, we're growing a lot in Europe, but the European market is fragmented. Don't be surprised that you will see some small but good tuck-in acquisitions in the near future, but we are not counting right now in our forecast for them. We will be aggressively looking for them.
Eric Stine (Senior Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you. One moment for the next question. Our next question will be coming from William Grippin of UBS. Your line is open.
William Grippin (Director of Equity Research)
Great. Thanks very much. Just wanted to ask first about the debt raise pursuant to your creditor requirements. What is the plan and timing there? Then, following completion of the SCE project in accordance with their requirements, what would the inflows and outflows of cash look like there?
Doran Hole (EVP and CFO)
So we outlined a bit of this in the press release. There's not much more we can say beyond what we put in the press release. The process is underway. We've got strong interest. We'll obviously be talking about that deal as it comes to fruition. But I think we kind of have to stick with the info that we put in the press release, that the timing of that deal, the overall parameters, not really directly linked to when we expect to collect cash from SoCal, to be honest.
William Grippin (Director of Equity Research)
Fair enough. Then on tax credits, maybe a bit of a technical question here, but what is the main process you intend to use for realizing the benefit of the tax incentives? Are you doing ITC transfers here, and how much are you embedding in the guide?
Doran Hole (EVP and CFO)
So I don't have a figure to give you how much we're embedding in the guide, but we've got a combination of strategies. So we've got ITCs that we take directly that benefit our tax line. We have 179D deductions that we take directly that impact our tax line. We have and we will employ the sale of tax credits in tax credit transfer transactions. Those, in fact, don't go on the tax line. Maybe subject of a future Professor Doran commentary. But we actually reduce the book basis of the assets when we sell those credits. And then we will continue to do traditional tax equity financing as well for the solar and battery assets. We have not included anything related to investment tax credits on the RNG plants in our guidance.
So to the extent that that changes based on the recent hearings and some of the recent guidance changes, that would be outside for us.
William Grippin (Director of Equity Research)
Okay. So just to put a final point on that, what I'm hearing is you don't need IRA sorry, IRS clarity on any points of the IRA to sort of hit the guide with respect to whatever's embedded for tax incentives.
Doran Hole (EVP and CFO)
That's correct. Yeah, that's correct. I mean, the stuff that's still outstanding impacts what might be upside to our figures.
William Grippin (Director of Equity Research)
Understood. Thank you very much for the time.
George Sakellaris (Chairman, President, and CEO)
We've been working hard to make sure we get the clarification in order to be able to use it down a little.
William Grippin (Director of Equity Research)
Great. Thank you.
Operator (participant)
Thank you. One moment for the next question. Our next question is coming from Christopher Souther of B. Riley. Your line is open.
Christopher Souther (Equity Research Analyst)
Hey, guys. Thanks for taking my questions here. Just any clarity you can provide on the expected timing around those first two SoCalEd-led projects, and then any color you can provide on expectations around how long after completion you'd expect the cash flow in from that, I think, would be helpful.
Doran Hole (EVP and CFO)
So look, I mean, I don't think we're going to put specific timeframes out there. We're continuously, constantly, daily, hourly working on getting these substantial completion checklists completed with SoCalEd. And obviously, there will be announcements when the time comes. The terms of the contract remain 60-day payment terms after we have substantial completion kind of fully declared and agreed by SoCalEd as it relates to the timing of the cash flows.
Christopher Souther (Equity Research Analyst)
Okay. Great. And then just on the develop and sell, what would be the timing in the development cycle where you'd be looking to sell? I'm just kind of curious how much working capital or project debt we'd be expecting to kind of flow through to that, or is it kind of earlier before you'd start substantial kind of spending on a project that you'd be looking to sell? And just how much, I guess, of that is baked into your EBITDA guidance for next year if there's kind of a more concerted effort towards that space?
Doran Hole (EVP and CFO)
Yeah. I mean, we're not breaking out how much of the EBITDA guidance comes from the develop and sell business model. But the strategy, of course, is to get those assets identified and transacted before we start construction. I wouldn't say that that happens 100% of the time. There are certainly circumstances where we may transact after we've started construction. Or maybe you ordered some long lead time equipment. As you guys know, we've talked about switchgear and transformers. And since this is pretty much just battery and solar assets, those types of CapEx are particularly relevant here. But beyond that, that's really it. And as we've disclosed in the past, we've got a solid construction and development financing facility that we use for those assets as we go through the process of executing those develop and sell transactions.
Christopher Souther (Equity Research Analyst)
Got it. Okay. So it'd probably be maybe a little bit of CapEx related to that, but then it'd kind of flow mostly just through backlog on your project side is how we could kind of watch that space.
Doran Hole (EVP and CFO)
Yep.
Christopher Souther (Equity Research Analyst)
Got it. Thanks, guys.
Operator (participant)
Thank you. One moment for the next question, please. The next question is coming from Kashy Harrison of Piper Sandler. Your line is open.
Kashy Harrison (Senior Research Analyst)
Hey, good afternoon, and thanks for taking my questions. So the first one, I guess, just around the guidance, if we look at Q1 revenues, it's about 15% of the full year. And if we think back to 2023, the original Q1 guidance was also 15% before you guys were forced to walk that back due to project delays. And so I guess my question is, what's the difference between 2024 and 2023? What gives you the confidence that you can actually meet expectations this time, just given the similarity and the really low Q1 as a percentage of the full year? And I have a follow-up.
Mark Chiplock (SVP and Chief Accounting Officer)
Yeah. Hey, Cash. This is Mark. I'll just take that. Again, I think the simple answer there is just visibility. I think what we see in terms of Q1 and what's available, what's coming out of our, which is pretty much all contracted backlog, it's just really our confidence in our ability to execute on that contracted backlog during Q1. So we're not expecting much of anything from conversion of awards that we would then need to execute on the implementation. So we feel pretty good about although it's lower than normal, the visibility gives us the confidence in Q1.
George Sakellaris (Chairman, President, and CEO)
Yeah. What I might add there too is that last year, at this particular time, we were counting more projects to move from the awarded to the contracted category. And this year, over 75% of our total revenue is already contracted. That's why it's important to execute on the contracted backlog that we have. And the other one, don't forget that we did take off $40 million from this quarter to last year for the acceleration. Once we started focusing on accelerating the construction of some projects, things began to happen. And that helped last quarter, and I think it's going to help as we go through this year. But the most important thing is we don't count for as many contracts to go from the awarded category to contracted in order to make our plan this year.
Kashy Harrison (Senior Research Analyst)
Got it. Got it. Appreciate the caller there. And then my follow-up question is surrounding the SCE project. I imagine you guys are frustrated that it's taken so long, but it is now, I think, 18 months now delayed just based on the potential summer COD versus, I want to say, the original late 2022 COD. And so similar question of what gives you the confidence that it is a summer date, in fact, and we won't see additional delays?
Doran Hole (EVP and CFO)
I would only jump in because I'm kind of personally involved in all of the calls that are taking place. So we've got a lot of heavy attention being paid to the day-in, day-out commissioning efforts going on on the site that not only is it the team on the ground from Ameresco and our major subcontractors, but also at the executive level of each of those subcontractors, as well as the executive level of SoCalEd, there's a tremendous amount of momentum on getting those two projects through the testing, through the open items on the checklist for substantial completion. The visibility is definitely there. I mean, I think we do feel comfortable that those are really close to being completed and being completed safely.
Kashy Harrison (Senior Research Analyst)
Appreciate it.
Operator (participant)
Thank you. One moment for the next question. Our next question is coming from Julien Dumoulin-Smith of Bank of America. Your line is open.
Julien Dumoulin-Smith (Senior Research Analyst)
Hey, good afternoon, team. Thank you guys very much for the time. I appreciate it. Hopefully, you guys can hear me.
Doran Hole (EVP and CFO)
You're very welcome.
Julien Dumoulin-Smith (Senior Research Analyst)
Look.
Yeah. Hey. Thank you, George. Thank you, Doran. Look, just talk about the debt, right? You mentioned in the prepared remarks talking about being roughly at three times below the covenant of 375. You also talked about effectively deleveraging through the course of receiving some of these SoCal payments here. How do you think about the cadence of that leverage through the course of the year? How do you think about where you want to end the year? And then related, how do you think about the force majeure related to SCE, the extent that you can offer up? Any comments about that $90 million dynamic? I mean, again, I appreciate that this might be a little tricky, but really focusing on that deleveraging commentary.
Doran Hole (EVP and CFO)
Yeah, sure. I mean, I think the deleveraging so we've all kind of circled around the amount of unbuild that's sort of still sitting there.
We've got to get these projects to substantial completion, collect the amounts after 60 days, and see those go to pay down that corporate leverage, especially our revolver. The third project finishing later in the year, obviously, you'll see that substantial completion payment, the final acceptance payments coming in. I don't think I'm putting a particular time period on it. I'm not going to say it's going to happen in Q2 or Q3 or Q4. I think it's going to kind of spread itself across the rest of the year as we delever over the course of the year. That's the way that I would answer that. And then, frankly, on the liquidated damages and the force majeure claims, there's not really any new information. We're continuing to exchange information with SoCalEd, and that's what we've been doing, and we're continuing to do it.
The hard yards on that will probably come after we finish the projects. Yeah.
Julien Dumoulin-Smith (Senior Research Analyst)
Got it. All right. So right. So really, don't expect any updates until after the summer or something like that on the force majeure liquidity or payments here. And then on the specifics of where you're targeting leverage to be, just to the extent to which there are a bunch of puts and takes here, by the end of the year, any specific metric that you would offer up relative to 3x today that you would kind of aspire to be?
Doran Hole (EVP and CFO)
So the short answer, Julien, is no. I probably won't put that metric out there. The primary reason is because George talked about being opportunistic in Europe. If something pops up and we want to go make a small acquisition in Europe or something else happens, then we want to be able to use the corporate resources to actually go after transactions and ideas that will help us grow the business. So I don't think it's appropriate for us to kind of put a target out there. The numbers are pretty clear as far as the way that the SoCal will reduce that leverage. If there's anything that we do that will increase the leverage, it's going to be something we'd be talking about, right? Whether it's asset opportunities or M&A opportunities or something along those lines. But no particular target, Julien.
Operator (participant)
Thank you. One moment for the next question. Our next question is coming from Craig Irwin of ROTH MKM. Please go ahead.
Craig Irwin (Managing Director and Senior Research Analyst)
Thanks for taking my question. So, George, looking back to the times of COVID where you very successfully pulled forward execution, it was a large part of the significant appreciation of your stock, right? Looking back to that time, a lot of the success was your ability to move your resources away from prioritizing pipeline, backlog, contracted backlog towards execution in a quarter. Can you maybe explain for us whether or not this was a factor in your fourth-quarter upside? And how are your employees positioned in the current quarter compared to historical? Are you leaning in a little bit, maybe so we could see some upside over the course of this year, given that the pipeline and backlog and everything is so incredibly healthy there? Or is this sort of more of an even distribution like we've seen over the last 10 years?
George Sakellaris (Chairman, President, and CEO)
Great question, Craig. But this year, to the management team and to the board, I told them, "Look, guys. We're developing business in a pretty good slip. We have to execute and execute. And when we reorganize the company a little bit in order to take advantage of the people that we have around the company, we reduce it by a couple of units so we have more interaction between the management teams right now. And taking advantage of some of the expertise we have around the company by having less units, we can transfer that knowledge from one group to another, have more purchasing being done through the headquarters. So we're saving money in the purchasing of equipment. And the other thing, sometimes a lot of people, they focus on smaller projects, and maybe they are not in our wheelhouse, within our wheelhouse."
I'd say we got to focus in larger projects and to the ones that we have a competitive advantage. Those are the ones that are around our expertise. That's why I particularly mentioned the federal government. We have over a $1 billion backlog just on that one alone. The institutional accounts, again, the backlog is very good. The breadth and broad business with the contracted backlog, which is the energy efficiency, which is our core business, we have the organization refocus a lot on that. Because what happens once you pivot in some of these new strategies, new technologies, everybody's rushing to that. We want to take them back and say, "Hey, guys, this is what brought us here, and I want you to start focusing on this particular project." It has an impact already.
We started that process, I would say, late last summer, and we're seeing some good results coming out of it.
Doran Hole (EVP and CFO)
Yeah. I would only add, Craig, I think that the comparison to COVID is an interesting one. It's probably not quite as drastic in terms of the reallocation of resources of what we saw in COVID because of the fact that the business development world hasn't kind of come to a halt like it did early in COVID. And for that reason, what we're focusing on is making the business development process much more efficient and then the operational efficiency of getting proposals into awards, high-hit rate projects, and then converting awards to contracts. Certainly, you'll see some more resources going into execution because we've got the management team focused on execution and reducing OpEx and so on and so forth. But it's a good comparison. It's not quite as extreme.
Craig Irwin (Managing Director and Senior Research Analyst)
Thank you. So my second question is about margin and backlog, particularly contracted backlog. So your growth in contracted backlog is really impressive, but the EBITDA guidance is lagging versus this growth. So can you maybe help us understand if we are seeing compression from the increased size of large projects, increased contribution from large projects, and maybe lower margins on energy storage projects compressing the profitability of that backlog and pipeline? Or is this something that's really just a short-term item that will pass?
Doran Hole (EVP and CFO)
I'll answer that, Craig. So I think that if you look at the awarded backlog and the contracted backlog conversions during the entirety of the year of 2023, no fundamental changes in the margins. I think Q4 certainly had some larger awards in there where the margins on some of the solar EPC, especially in Europe, are a little tighter than what we normally would go after. Again, very, very good operating leverage for that because it doesn't require a huge amount of resources from us because we have a JV partner that manages the execution. But that, to me, actually feels like the latter part of your question is sort of maybe a temporary jump in that because we did sign a couple of a few pretty sizable projects in Europe in the fourth quarter that probably would have had that impact.
But I don't see that necessarily impacting long-term. In fact, post-signing those contracts, George and I have been back to that team on the origination and preaching the same thing we're preaching in the U.S. You need to go with the higher margin, higher hit rate projects. We've got a lot of great stuff in the backlog, but let's focus on the really high-quality stuff going forward.
Craig Irwin (Managing Director and Senior Research Analyst)
Great. Well, if I can say congratulations for that success in Europe. George, the 15+ years I've known you, you've been trying to figure out how to get a business there and grow it. It's nice to see Ameresco figure out that formula and seeing real success driving revenue and profits over there. So congrats.
Doran Hole (EVP and CFO)
Thanks, Craig.
George Sakellaris (Chairman, President, and CEO)
Thank you, Craig. We are a good place, I would say.
Craig Irwin (Managing Director and Senior Research Analyst)
Thank you.
Operator (participant)
Thank you. One moment for the next question. Our next question is coming from Tim Mulrooney of William Blair. Your line is open.
Tim Mulrooney (Partner and Group Head of the Global Services Sector)
Yeah. Thank you. I just have a couple of industry-related questions as it relates to energy storage. We recently read an article about Duke Energy decommissioning CATL battery systems at Camp Lejeune military base. We know you do work for military bases. Do you think we'll see more of this type of action across the government space? And how do you think that might impact your business, if at all?
Doran Hole (EVP and CFO)
So I'd say that there probably will be more action similar to that as the national security concerns start to raise, no different than the 5G network stuff that was going on, right, a couple of years ago. That being said, the primary concern doesn't really have to do with the CATL battery containers or the quality of their systems. They're still one of the largest manufacturers of those in the world. And in fact, most battery manufacturers use their cells. It's really about the software in the battery management system, the BMS systems. And I think that CATL is going to need to respond and figure out a way to ensure that they can get the federal government comfortable with what the BMS systems are. And so I think there's more to come on that space. Importantly, from our perspective, we are agnostic to suppliers.
CATL is not the only game in town. We're deploying batteries from numerous other manufacturers in our projects and things that are in our backlog. We're bidding other manufacturers into these projects. And those simply don't carry the same concerns.
George Sakellaris (Chairman, President, and CEO)
Yeah. Great. And what I might add, once this came to reality, I went back and I checked with Nicole that runs the federal group whether we have any CATL batteries with the military bases. We have none.
Tim Mulrooney (Partner and Group Head of the Global Services Sector)
That's interesting. I appreciate all that clarification. That's really helpful. Sticking on batteries, we've heard lithium iron phosphate batteries come down quite a bit, even since the prices, that is, even since your last earnings call. I guess my question is, are you seeing that as well? And can you talk about what kind of impact a greater availability of batteries for energy storage or lower costs for these batteries might have on the project economics for you and your customers?
Doran Hole (EVP and CFO)
Yeah. Yeah. Certainly positive moves in the economic benefits, whether it ends up—I mean, ultimately, all this ends up benefiting the ratepayers in the utility districts where these utilities are putting the batteries, right? The utilities are rate-basing either a long-term capacity contract that they have with us when we own the batteries, or it's just the EPC price and the cost of the batteries. If it's coming down, those rates come down, and it really helps them pass those savings on to their ratepayers.
Tim Mulrooney (Partner and Group Head of the Global Services Sector)
Okay. So input prices here doesn't really impact project economics for you. It's more about the end customer.
Doran Hole (EVP and CFO)
I guess you could I mean, it certainly gives a little bit more room. It allows us to sharpen our pencils on contingencies that we have to include, right? That's most certainly the case.
Tim Mulrooney (Partner and Group Head of the Global Services Sector)
Okay. Okay. Thanks so much.
Operator (participant)
Thank you. One moment for the next question. Our next question is coming from Pavel Molchanov of Raymond James. Your line is open.
Pavel Molchanov (Equity Research Analyst)
Thanks for taking the question. You have a lot of interesting businesses in Europe. Except one, I don't believe you've ever operated an RNG plant in Europe. Would you be interested in either developing or acquiring RNG assets in Europe?
George Sakellaris (Chairman, President, and CEO)
Yeah. Actually, we are looking at some. You're right, though. We haven't done one of them over there yet. But we have hired a business developer to go after RNG facilities in Europe. And don't be surprised that we might have some partners. But rather than we're not a bank to operate to just buy or operate in assets unless we believe we can add some value to it and get a good return. But we are looking, no question about it. Actually, two days ago, I approved a particular proposal that we are making in Europe along those businesses.
Pavel Molchanov (Equity Research Analyst)
Okay. Kind of a big picture question about the economics of energy efficiency. We've talked about, through the past two years, constant escalation in power prices and the incentive for building owners to invest in energy efficiency. Is that economic rationale the best it's ever been right now?
George Sakellaris (Chairman, President, and CEO)
I would say so because energy prices are going up. Even though inflation is going up, there's still the value proposition. That's why in my commentary, my script, I said energy efficiency doesn't need any government incentives whatsoever. But with 179, it helps. It helps. That's why I've been preaching to the world that 30% of the energy can be saved economically, and it pencils out. The other thing that's happening, the technological advancements that we have, they're bringing the cost down. So it's great, and it's getting greater, I would say.
Pavel Molchanov (Equity Research Analyst)
Okay. Thanks very much.
Operator (participant)
Thank you. One moment for the next question. Our next question will be coming from Craig Shere of Tuohy Brothers. Your line is open.
Craig Shere (Director of Research)
Good afternoon. Thanks for fitting me in. A couple of quick ones. First, last quarter, y'all mentioned similar supply chain and project execution issues, but noted that Europe had been largely exempt from that. Is that still the case?
Doran Hole (EVP and CFO)
It is. Yeah. Europe has still been really good availability solar modules. Of course, we were all kind of spooked by the Red Sea, but it ended up kind of not being much at all. We have a supply management consulting business in the U.K. as well. And I talk to the head of that business quite often about what's going on with natural gas and power supply markets and what happened with the Red Sea on supply chain. And yeah, not a whole lot impacting our business. It's been good.
Craig Shere (Director of Research)
Right. Staying on Europe a little, George, as you talked about more internal communication, centralized purchasing, increasing project sizing, how do you see those kind of internal initiatives playing into your European strategy?
George Sakellaris (Chairman, President, and CEO)
Go ahead, Doran.
Doran Hole (EVP and CFO)
Yeah. I mean, the short answer to that is me because George has me kind of directly involving myself in the execution of the operational aspects of a lot of what's going on in Europe. And many of those centralized functions are things that I've been developing over the last couple of years on the procurement side, enterprise risk management, etc., risk review committees. So we have mechanisms in place to ensure that these large projects go through risk reviews that involve the folks in the U.S. who have been involved in the large projects, and also that we can kind of capitalize on these efficiency measures, these operational efficiency measures that we're implementing here. We're still a very flat organization.
We've got a lot of direct involvement directly with the gentleman who runs our Italian business, Enerqos, directly with the JV partner, directly with the guy who runs our U.K. business. We're in constant conversation.
Operator (participant)
Thank you. One moment for the next question. Our next question is coming from Benjamin Kallo of Baird. Your line is open.
Benjamin Kallo (Managing Director)
Hi. Thank you. Good evening. If possible, could you just kind of give us any kind of back of the envelope or any kind of color on the assets you add to the balance sheet this year? What kind of EBITDA you project to layer on for next year when they're all completed?
Doran Hole (EVP and CFO)
So I don't think I've got a really good guide. We can probably reiterate some of the guidance we've provided in the past as far as EBITDA per megawatt with respect to solar and battery, right? We're talking about $200,000 per megawatt, mostly solar. I think the range for the renewable natural gas still kind of remains valid there on the EBITDA side, $750,000-$1.5 million if RNG prices are doing great. But based on those particular cadences, I think that should give you some idea of the breakdown. And you probably have the megawatt numbers that we're looking at. The three RNG plants, I think we have a total of is it about 20 MW of the new megawatts going in this year is RNG.
The rest of it is kind of solar and battery with that 200,000 number being a good back of the envelope, like you said, Ben.
Benjamin Kallo (Managing Director)
Thank you. Have you guys changed any way that you contract or think about doing energy storage or battery development, either on balance sheet or for customers, because of SoCal Edison? Thank you.
Doran Hole (EVP and CFO)
Actually, no. I think the contracting framework, as it relates to that, the things that we think about, if it's an EPC project, obviously, we're being very, very tight with working capital now. We've got a lot of guidelines out to the business units to minimize the amount of working capital that is associated with any project where we're doing EPC. And then secondly, from an execution perspective, clearly, a lot of heavier focus upfront about the commissioning process. And that feeds into supplier selection. But as far as markets where we're developing, types of assets that we're developing, we're still kind of pulling things in from multiple jurisdictions. And economics and risk will determine whether we end up putting those in kind of a develop and sell category or put them on the balance sheet. So that's probably the best description I can give you, Ben.
Benjamin Kallo (Managing Director)
Great. Thank you, guys.
Operator (participant)
Thank you. This does conclude today's conference call. You may all disconnect.