Ameresco, Inc.

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Amoresco Incorporated Third Quarter 2019 earnings call. At this time, all participants are on a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mrs. Leila Dillon, Vice President, Marketing and Communications. Mrs. Dillon, you may begin.

Thank you, Chris, and good morning, everyone. We appreciate you joining us for today's call. Joining me here are George Sakalaris, Amoresco's Chairman, President, and Chief Executive Officer, Doran Hull, Senior Vice President and Chief Financial Officer, and Mark Chiplock, Vice President, Corporate Controller, and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. This call contains forward-looking information regarding future events and the future financial performance of the company. We caution you that such statements are predictions based on management's current expectations or beliefs. Actual results may differ materially as a result of risks and uncertainties that pertain to our business. We refer you to the company's press release issued this morning and to our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call. In addition, we will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A gap to non-gap reconciliation, as well as an explanation behind the use of non-gap financial measures, is available in our press release and in the appendix of the slides, which can be downloaded from our website. I will now turn the call over to George. George?

Thank you, Leila, and good morning, everyone. Third quarter results were marked by record. Smart Energy Solutions Awards resulting in record total project backlog. We also had significant growth in the Ameresco assets development pipeline, resulting in a record asset backlog. Some conversions of awards to contracts expected in Q3 were delayed, shifting approximately $30 million of revenue out of the quarter. I will point out that the number of these contracts have already been signed since September 30th. We expect the remainder to close in Q4. And most importantly, the overall trends in our business remain very strong. Our robust asset development pipeline will allow us to more than double our megawatts in operation in the coming years, significantly increasing our base of recurring revenues and earnings. At the same time, we have continued to build our technical expertise to address the increasing complexity of our customers' projects and company-owned assets. As we have indicated during the last year, we have made investments in order to develop significant domain knowledge in areas such as battery storage, microgrids, smart controls, and other advanced energy technologies across all of our regions. As you can see, the success of this strategy is resulting in our record awards. We are also leveraging our expanded platform to grow our Maresco asset business at much higher rates than in the past. We are at the point where all regions are capable to compete and have begun to contribute to these advanced markets. While the company's assets were traditionally developed out of the Northeast offices, we have now expanded our local capabilities into all regions. Our 70-plus offices in North America afford us a unique competitive advantage for traditional smart energy solutions work and asset ownership opportunities. At the end of Q3, Total assets in development, more than double year on year, reaching 287 megawatts by quarter cent. We expect our assets in development to continue to exceed the number of megawatts in operation. Our asset development opportunities are increasingly getting larger and more complex. In fact, we recently announced our largest energy asset project. a 25 megawatt solar plant in Depew, Illinois. Construction is expected to begin the summer of 2020. This installation highlights multiple benefits as it will help the state of Illinois meet its renewable energy goals while at the same time providing income to the local community and of course a good return for Maresco. During the quarter, our Canadian team held a ribbon-cutting ceremony for our first company-owned grid-tied battery energy storage system. The 16-megawatt-hour system has been used in Ontario to store power during periods of excess supply and deliver it back into the grid when demand is high. These types of systems are an integral part of the grid stability. And given the intermittent nature of renewable energy generation, we are confident that the success of such projects will lead to much wider adoption and greater opportunities for Amaresco. As you are aware, California's largest utility, PG&E, has been shutting off power to large portions of its territory to prevent potential wildfires. These blockouts have impacted millions of residential customers along with numerous municipal, institutional, and manufacturing facilities. It's estimated that to date, the blockouts have caused over $2.5 billion in economic losses to the state. We believe that these historic events are creating unprecedented demand for resilient distributed energy resources, which are relevant to our smart energy solutions and Maresco asset business. as well as our integrated solar distribution business. For many CORAs, we have been selling off-grid, stand-alone solar and energy storage systems into California for applications such as cellular towers, water pumps, and supporting local electric utility operations. Years of utility underinvestment and growing weather volatility increase the likelihood that such proactive blackouts will become more frequent and will spread to other geographic areas. PG itself believes that it will take up to 10 years to address these issues. California has always been a leader in renewables and energy technologies for their environmental benefits. We now believe that California will become a leader in advanced technologies for power resiliency. The state recently passed SB 1339 and the governor appointed an energy czar. We should bring much more certainty and urgency around deployment of technologies such as microgrids. This will lead to increased adoption not only in California but across the country as the use of these technologies become more accepted by customers and begin to make more economic sense. We believe and Maresco is exceptionally well positioned to benefit from this emerging market. As we have discussed in the past, our customers are requiring that resiliency be incorporated into more projects. Our core client base of the federal government, municipalities, universities, hospitals, and other institutional clients are leading the charge investing in resiliency programs such as microgrids, CHP, and battery storage. A great example of such a project is our recently completed Fort Leonard Wood project. This installation utilizes the latest in advanced energy technologies. It's powered by a 2.5 megawatt natural gas-fired engine with advanced emission controls and a heat recovery system. Utilizing microgrid controls, The system can operate as part of a functioning grid or in an island mode, thus providing continuous power for mission-critical systems. Our existing customers continue to provide us with additional work. For example, we signed our third United States Postal Service contract this year, one of which includes distributed energy generation with solar. The other two were focused in design, build, built-in modernization. These design-build wins are in part due to the expertise brought to Amoresco from a recently completed acquisition. We are optimistic for the potential of design-built work as an additional complementary revenue stream from our existing customer base. We will continue to pursue similar complementary acquisitions. In summary, market conditions are very strong. And we believe our positioning is excellent, supporting our confidence in a very strong finish to 2019 and solid growth for 2020 and beyond. I will now turn the call over to Doran to review the financials. Doran?

Doran Ramos- Thank you, George, and good morning, everyone. As I review the company's third quarter financial performance, I ask that you please refer to our press release and supplemental slides for more complete financial information. The record growth in project awards and another solid quarter of adding assets to our pipeline highlight the early successes of the investments in strategic resources and advanced technology we decided to make this year. We achieved record project awards in the third quarter of 343 million, up 72 percent year over year. and in large part reflecting the increasingly complex projects that George spoke about earlier. Our smart energy solutions project backlog at quarter end was 2.2 billion, comprised of 787 million in contracted backlog and 1.4 billion in awarded projects. Our Amoresco asset development pipeline reached a record 287 megawatts at the end of the third quarter. This represented 61% year-to-date growth and was more than twice the size of our pipeline at the end of last year's third quarter. We added 37 megawatts of assets to this pipeline, including another earlier stage RNG plant that we have been talking about for a few quarters. The rest of the awards were solar, including the large Depew, Illinois project that George mentioned. We placed eight megawatts into service in Q3, bringing our year-to-date total number to 29 megawatts. The rapid growth of our Amoresco asset business reflects our ability to leverage the company's geographic footprint, customer relationships, and technical knowledge to win additional asset opportunities. During the third quarter, we transferred 15 megawatts out of our assets in development metric into project awards. These solar projects are for a large national corporate account, where during development, the customer decided that owning these systems outright versus entering into a power purchase agreement with Amoresco made more sense given its tax strategy and cost of capital. While we do have the resources and balance sheet to build and own assets, we want to remind everyone that we are a customer-first organization, and we have the flexibility to pivot our energy savings offerings based on customer needs. We are pleased to be developing our CNI book of business with this new marquee national account, and we'll be talking about it more in the future. Third quarter revenue was $212 million, reflecting modest growth across all of our lines of business. While a positive year-on-year comparison, the push out of several project contract conversions impacted revenue results by approximately $30 million. As you know, These projects have already been awarded to Amoresco, but start dates are a function of client schedules and can slip from one quarter to another. Net income attributable to common shareholders was 8.9 million. Net income per diluted share was 19 cents. Non-GAAP net income was 8.5 million, and non-GAAP EPS came in at 18 cents. These metrics are below the comparable 2018 figures, representing the increased investment in people and technology that we had anticipated for 2019 and in support of what we expect to be a very strong 2020. Adjusted EBITDA was $23.9 million. Cash flows used in operating activities were $11.5 million, and adjusted cash generated from operations, a non-GAAP financial measure, was $21.3 million during the quarter. Our liquidity remains strong. The company is well positioned to execute on its asset build-out through a combination of cash on hand, cash generated, non-recourse debt, and the ability to monetize existing assets and recycle the proceeds into additional opportunities. Turning to our outlook, based on contracts signed after the end of the third quarter and those expected to be signed shortly, We are reaffirming our 2019 full-year guidance, namely for revenue to be in the range of $845 million to $885 million, adjusted EBITDA of $95 million to $103 million, and net income per diluted share of $0.77 to $0.85. We expect our tax rate to be between 12 and 15 percent for 2019, and we now expect to place approximately 40 megawatts of assets into operations this year. I would like to turn the call back over to George for closing comments. Thank you, Dora.

I will summarize with three points. First, we expect to have an outstanding fourth quarter. Second, we are already seeing tangible results from the investments that we have made in people and platforms. And third, We expect to have a strong 2020 thanks to our fast-growing asset development pipeline and substantial contracted project backlog. We look forward to seeing many of you at our upcoming investor conferences. And now, Chris, we would like to open the call to questions.

And as a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from the line of Chris Van Horn with B Reilly FBR. Your line is now open.

Good morning, everyone. Thanks for taking my call. Good morning, Chris. So, you know, you mentioned, you know, right off the bat that, you know, 2019 was going to be an investment year, and it's obviously translated into some really robust award activity. I'm curious where you are in terms of those investments. Do you see more coming, and do they go into 2020, and what's kind of your thinking around that?

Yes. Basically, I will say that we're pretty much essentially done with the investment that we made for 2019, because that was a plan, what I would call one shot, basically right-sizing all units of the company for the particular markets that we want to address, otherwise the advanced market opportunities. As we go forward, I think you will see us be more opportunistic in trying to add additional talent, but it will be matching to what we forecast in the past that we want to grow the bottom line at a faster rate than what we did at the top line. operating expenditures, we will be more carefully monitored going forward. And we're pretty much done with the investments that we wanted to make, what I would call one-shot deal for 2019, the better part. And that's why we started seeing the results, you know, the impact. Basically, the talent that we brought aboard had some early successes, and not only in the Northeast, but it's in the federal group, it's in the Southwest, as well as in the Central, as well in Canada. So we're still very good where we are.

Okay, got it. And then, you know, you mentioned in your outlook accelerated growth entering 2020. Would you be able to elaborate a little bit on that, and are you talking in terms of top-line growth or adjusted EBITDA expansion? Any more detail there would be great.

Yeah, we will give guidance on the next call and maybe even a little bit before that after the fourth year announcement. But I think it's important to note that basically where we are today, we think that by the end of the year, we will have record contracted backlog. Otherwise, the project contracts will be at the record level based on where we are as of today. So that way I feel very strong that next year is going to be a very strong year. In addition to that, we have a great pipeline of the assets in development that we have. So a good chunk of those will come into play next year. So that will contribute a lot to the operation and maintenance. It looks very good. So even though we are not giving actual guidance, the historical trend, otherwise growing the Top line at the high single digits, I think it's very, very doable. And the EBITDA line going to close to 20%, which is our historical trend for the last five years, again, it's very doable. So I hope that gives you a little bit more color. But the fact that we will end the year with a record project contracted backlog, it's going to be in good shape.

Got it. Got it. And last one for me, if you don't mind. Can you maybe talk about the competitive landscape? Obviously, you're seeing a lot of award activity, and I'm just curious what you're seeing from a competitive standpoint. Are competitors rising and you're seeing more small players kind of starting to emerge, or are you guys just benefiting from just taking all this share because of the lack of players in the space maybe? Yeah.

I will say we are taking a little bit of a share from the largest comparators, like the Joshua Controls, the Honeywells, the Siemens of the world, because we have more of the focus and broader strategy than they do across all these advanced technologies. The flexibility, we own the system, we let the customer own the system, and so on, approach our solution from the customer perspective. And the fact that we've made the investments over these last years to be broad and deep Technical expertise is helping us a lot, and we take market share from the big guys. But on the performance contracts on the smaller scale, the contracts, I would say, 2 million and below, where you have some mechanical contractors or local engineering firms, you will see that they're picking some of the small contracts. And some of our units, they're focusing on the smaller contracts and the less complex contracts, they have some challenges where the units that they focus on the broader technologies and more comprehensive projects, they have some great wins. Okay, great. The overall market is evolving on these larger projects and the fact that I think we pivot the company over the last three years to take advantage of the emerging markets, we are very, very well positioned. The other thing I want to, it may be a Dora, am I going to comment a little bit on this? On the competitive landscape, when we go into the asset ownership, especially on the solar. What's helping us a lot in the solar business is the fact now that all units across the country, otherwise you have 140 plus developers, they can develop these projects. And in addition to that, in the market we address, the 30 megawatts and below, which is the local municipality clients and so on, we have the relationships. So again, it helps us.

I think the competitive landscape in solar is obviously different than the traditional energy efficiency business. And so I think, as George mentioned before, that flexibility to allow clients to own the assets or to allow us to own the assets is really a competitive advantage. And then furthermore, just simply the local presence, as we talked about in the In the call earlier, you know, 70-plus offices around the country. We've got the penetration, and then in addition to that, the technical capabilities in the regions to actually develop the projects just gives us the competitive advantage. It's a very local business, so it's necessary to have that.

Okay, got it. Thank you so much for all that, caller, and thanks for the time.

Thank you. And our next question comes from the line of Noah Kay with Oppenheimer. Your line is now open.

Good morning. Thanks for taking my questions. Good morning. Housekeeping to start with. Just from a segment perspective, can you help us understand where that $30 million of revenue pushout happened for segments?

Yeah. Basically, no. I know it's a good chunk of money. But basically, on all these projects, the contracts, they are very, very mature in the close to $25 to $30 million is in development expense that we have already invested on those particular projects. So when the projects get signed, all that hits the top line, the income statement. And that's why it had a major impact on the Quora, and it gets shifted, you might say, by your Quora, that particular revenue going out.

I'm sorry, my question was on which segments, federal, regions, Canada, where did it happen?

Yeah, it's mostly federal now. Most of that is related to federal awards.

Okay. With the federal, I know there's been some timing issues potentially related to a large DOE project, a DOE authorization that's expiring Can you maybe kind of connect the dots here for us on some of this in-quarter timing, softness, and the large awards that you mentioned? Can you help us kind of connect the dots there a little bit?

Some of those contracts, and you can add something to, we already have signed, and we have very, very good visibility and feel very confident that they will be signed prior to December 16th, which is the IDIQ, this particular one, or expire.

Yeah, and I think as we said in the past, Noah, you know, I think, you know, certainly there's the timing aspect, but these are really pretty mature in the overall sales and development cycle, you know, on both ends. So, although it's, you know, we didn't get the one sign that we had possibly expected in Q3, you know, we're pretty confident that those will come in before the expiration of the IDIQ. And as George mentioned, you know, we've already signed some and and expect to sign the rest in the coming weeks.

And I'll just add that the quarter-on-quarter... Sorry, go ahead. Yeah, I was just going to add that the quarter-on-quarter slip in the federal business, you also had an impact just from a practical perspective of their September 30th fiscal year end. Where, frankly, people on the other side of these contracts have a lot on their plate to get done before fiscal year end. And... And so as a result, you know, these things slip.

Yep. So I guess that all feeds into, can you talk about your conviction level for the fourth quarter? I think at this point, to hit the midpoint of your revenue guidance, you'd have to do, what is it, $305 million in fourth quarter sales. And that would be, I think, 40% higher than your previous high-water mark for a quarter. And at the low end of your guidance, you're still doing $285 million in sales. Again, that would be well above your previous high watermark. So, you know, just talk about, if you can, what's driving these expectations for a record quarter. I guess part of it may be, you know, recognizing there's 30 million from 3Q to 4Q, but just how much visibility you have to it coming through. And maybe, you know, you've affirmed your guidance, but where is your bias at this point within the range? We're pretty close to the end of the year at this point.

Yeah, this is Mark. I think why we feel so confident is that 85% of the revenue we're expecting in Q4 comes from contracted sources. So either our contracted backlog or from our other revenue streams, the recurring revenue streams or integrated PV. And so, again, 85% of that revenue we feel pretty confident about just given the visibility from contracted sources. And then the rest is coming from the awards. And as we mentioned earlier, you know, we feel highly confident that the awards that we did not sign in Q3, as well as the ones that we had always expected in Q4, will sign. So, you know, we feel like there's very strong visibility to our Q4 revenue.

Okay, so, you know, if I was just to take that midpoint, $305 million implied for the fourth quarter, $260 million of that essentially is in the back. and then the rest is just what comes through. Is that correct numerically?

Yeah, the revenue from contracted sources we feel pretty good about. So yeah, your math is correct. I think we just feel confident because once it's in our contracted backlog, we can move to recognize that. And as long as we're executing, we feel very good about that. The rest just comes from awards. Excellent. Okay.

Can you give us any color on the RNG project that you added to the asset development pipeline this quarter?

Yeah. It's in another plant in California, and it's a very good size, close to the woodland plant. And it's an existing site that we have conversion from landfill gas to electricity. It is a large plant, but we have excess gas, so we are not converting, otherwise taking down the electric plant we have right now. It will be an additional plant. It will be a green plant. And the fact that it's an existing client, on the other side I was the landfill owner, and us, we feel very, very good about it. We've been working for it for some time. And the other thing I wanted to add up, because we have been talking about the other five, six plants that they are in the early stages of development, but we have not put them in our pipeline. They have not gone away. We're still working on them. And I wouldn't be surprised that we probably add a couple of them into our backlog by the end of the year. And in addition to that, the plans that we have in construction that we said one will go into operation late next year and the other two, the second half of 2021, again, it's on schedule. no any delays. We are on schedule. And now we're trying to get for 2022 to have the new one that we just signed and probably a couple more. By the end of the year, we have a little bit better visibility as to the 2022.

So you're continuing to backfill and actually augment that RNG pipeline, which is terrific to see. Can you really talk a little bit about the demand environment for RNG broadly? We've seen some indications that this is starting to broaden from the transportation sector into the utility gas market. Are we seeing that impacting your opportunity set? Do you think we might have to see down the pike some projects for the utility sector?

No question about it, Noah. It's a great point. This is what is making us feel better about this particular market segment, the fact that now we're beginning to see the emergence where I will call potential long-term contracts with great credit-worthy customers. And it's the utilities, the gas utilities there is, because many state regulators right now, they say you've got to reduce your carbon footprint. And the only way they can reduce it at this time is with this green gas. And actually, we are talking to several utilities, and I wouldn't be surprised that down the road we will have some long-term contracts with them. In addition to that, many colleges, universities, and other institutional accounts, they might have a cogeneration plant or whatever the case might be, and they want to become 100% carbon neutral. The only way that they will be able to accomplish that is by buying green gas. And we are talking to a couple of colleges whereby that we will sign long-term contracts. We will buy some of this output. And, Doran, you want to add something? I know you've been looking at it for a bit, so.

Yeah, no, I would only say that, look, the nature of these contracts, they're long-term. They're typically looking like fixed-price contracts. That clearly allows for better revenue visibility, and also it improves our financing terms. So clearly that's an improvement for us in terms of what we believe the economic feasibility and economic stability of these projects looks like.

Okay. I'll follow up with that offline, but thank you very much for the comments.

Thank you. Thank you. Thank you. And our next question comes from the line of Chip Moore with Canaccord. Your line is now open.

Morning. Hey, thanks. Morning to you. Wondering if we could go back to the $30 million of push-out. If you could just give us a ballpark on what still needs to get signed there and then on Q4 just to follow up. Any puts and takes as we think about just typical seasonality and your thinking there.

Yeah, I would say answering and then Mark might want to add something. Primarily those contracts, it's about There are several contracts, about a couple hundred million dollars worth of contracts. And primarily, the issues or the delays is administrative. And Doran pointed out the fact that it was because of the fiscal September 30 deadline of the federal government. In addition to that, not only us, but many other companies, they have other contracts that the people on the other side, they are working on it. But we feel very good. We have signed a couple of things at that time, since September 30th, and we have great visibility, actually, as to the timing of the balance of them. The government gave us a schedule, and we feel very good about that particular schedule. And why is the $30 million, which sits, you know, in the development expense, is the fact that these projects are very complicated. We have spent a substantial amount of money on our side in order to develop these projects to bring them to this point. In addition to that, you've got to think on the other side, the government. They have spent a lot of time and they desperately – they are motivated. They do want to get these projects moving. So all the delays – that's why we feel very confident. The incentive or the catalyst on the other side is there. These projects are great projects for the government, and it's not just – something that will just save them energy is something that will give them the infrastructure, upgrades and the resiliency that they need. And Mark, I don't know if you want to add something to that.

I think you hit on that. I think, again, we feel it comes back to our confidence level based on the visibility. We feel like we'll get those awards converted, but that still needs to happen. And then, you know, certainly with the visibility to the contracted piece, we feel very good about that, but we need to execute. We feel like, you know, we're... We're in a position to control that, and we'll hit those numbers.

Understood. Thanks. We're very early days here post-public power shutoffs out west, but can you talk broader about how you're thinking about positioning there? What are the biggest opportunities and any investments you may need to make?

Look, we are talking to various commercial and industrial customers as well as colleges and universities. They are concerned, and municipalities, and they are concerned about what's going on. And basically, you will see combined heat and power, battery storage, solar, and then microgrid controls have the ability to have an island mode. I've been talking for a long time that the old days of the central large power plants, the long transmission lines, they are successful. acceptable to measure averages. And now what has happened, the economics of the distributed generation are to the point that they compete with the central power plants and transmission lines. So they give the customer not only resiliency, but economics. I mean, we talk in some of the, whether it's Apple, whether it's Google, they say the 100% carbon footprint, but The first thing that they invest is solar. Why? Because it competes with local electricity prices. So it's a great investment. Not just makes great environmental sense, it's a great investment. Now take some of the data centers that they have. In order to bridge the gap, because the solar is not all the time up, they need some kind of a battery storage. They need some kind of microgrid. So we see a huge opportunity for us down the road. And we already have started talking to the utilities, all of them in California. And some of the people that we hired in the battery storage at the microgrids, they are located in California. But look, it started with the federal government. The first one we did up at Portsmouth, New Hampshire, a microgrid, because they have a base that they cannot afford the interruption during the ice storms that we get in New England. And we've been very successful. And then we have done four or five of them now in the federal government. Naval shipyard in Philadelphia and so on. And now some of the Kaiser Permanente, which is one of our clients that we have and we do solar installation, now they're coming back and they say, okay, now we have to look at this resiliency issue. So it's beginning to get traction in the marketplace. So that's why I brought it up. I think it's we made the investment in the past with the existing customers, but what's going on in the marketplace right now, it's broadened what I would call that market segment.

Yeah, let me just touch on a couple of things. So George mentioned, so some of the expertise on the microgrids and the battery storage stuff, those were investments that we made this year already. So we don't necessarily need to expand that further. Certainly from a processing and sales coverage perspective, there's potentially some opportunities if the demand goes on, but I would categorize this opportunity into two things. One of them is the, you know, a little bit longer term, all of these customers that we have now plus the utilities thinking about microgrid applicability, they're going to be thinking about the economic value proposition differently because the economy effectively shut down when those shutoffs happened. And the money that they lost by not being able to actually work and even individuals not being able to work, not being able to communicate is going to be something they're going to have to take into account when deciding whether it's worthwhile to spend the money to put a microgrid together. The second piece is our integrated solar distribution business, which has already been happening, and that's more immediate. These are off-site kits that can be shipped, and you've got cell phone service towers that can use those. There's irrigation on the farming community. There's a variety of applications there. And so I think that's a little bit more near-term. Great. That's helpful. Thanks a lot.

Thank you. And our last question comes from the line of Craig Irwin with Roth Capital Partners. Your line is now open.

Great. Thank you. So, George, I guess I'm going to be the only one not to bug you about the quarter, maintaining the year. I guess obviously this is construction and these things happen. My questions are about the landfill gas business in particular and the green gas business in California. So many of my clients have been looking at this business as potentially a long-term driver of increased EBITDA at Amoresco over the next few years. But when we look at RIN prices the last two years, they've come off quite a bit off the peak, right? We're now roughly 70 cents for D3 RINs. you know, down around 75 percent from the peak. Can you maybe discuss for us your approach to locking in your RIN sharing agreements? How much do you typically lock away? What would we be comfortable sort of looking at as far as minimum RIN prices for projects? and how much exposure to this kind of volatility do you see translate through into your P&L?

Yeah, I will try to handle the question, and then Doran and Mark might want to add some more color to it. The better part, first let's talk about going forward. We look at All the projects, especially let's say the three in California that we have right now and that they are in development and the other one in Texas that's in construction, each and every one of them, even at the numbers that you see today on the ring prices, they make good economic sense, better than the other assets that we will own. as I pointed out, we look at not just the marine market by itself, and then if you talk to the LCFS, that has gone up substantially. So the California plants will benefit from that considerably. And as we're going forward on some of the new plants, I wouldn't be surprised that you will see us execute some of those long contracts that we've been talking about. So we're sufficiently has. As far as the existing ones, if you look at our overall asset portfolio, only 5% of the total output is merchant. And then if you take it one step down on the green prices, on the green gas, even that we have hedged the better portion of that on a long-term contract. So the exposure for us, for this particular year, it's minimal. And on the new ones, we're coming up with what I would say is strategy, where not only this plan will be economic on the low market price on the rings, but also outside the transportation. And I think in the long term, that offers a larger possibility for us and more predictability on the revenues. You might take a little bit lower return than the high returns when the ring prices were way, way up there. But on the other hand, we have more stability on the return as well as – and the financing, like Doran pointed out earlier, it would be even better. The other thing I want to say, though, Doran – I mean, Craig, on the ring prices, where they are right now, as you probably know, everybody is waiting to see what the new RVO will be set at. And if that's set over 600, then you will see the ring prices go up considerably, which people are working on that for some time. So any transactions right now, they are very, very, very small, if any. So they do not reflect what the market is doing. Most people, they are holding back some of the sales. You want to add something, Donald?

I think you summarized it well. I mean, I think that the point is here that at least in our current situation, this rent pricing, we don't expect it to have a material impact on the guidance that we gave for the year. I mean, that's the bottom line.

Yeah, and going forward, each and every one of those projects, they pencil out very well.

And just a point of clarification here. How long do you usually lock your ring-sharing agreements in for? Are they annual agreements that you have to resign and reset every year, or some of these multi-year agreements?

No, the ones that we have right now, they're multi-year contracts. And I don't recall the exact date when they expire, but I know they go at least through next year.

Okay, excellent. Then you mentioned LCFS and your three plants in California. So obviously LCFS is doing great with, I guess, carbon prices close to 200 bucks a ton. You know, that translates well into supporting the economics of clean fuels and green gas. Can you maybe just confirm for us the relative importance of LCFS versus RIN prices? You know, do you see RINs as a de minimis contribution on these plants? It's really LCFS driven. and is there an opportunity to maybe focus more on California and other LCFS states in the pipeline for development?

Yeah, no, I would say this much. Based on where they are right now, it's pretty, I would say, even contribution between the ring prices and the LCFS, and it might be a little bit more weighted to the LCFS. And the other thing I want to point out, Greg, The San Antonio plant, we ship that green gas to California, too, so we take advantage of the LCFS as well.

Excellent, excellent. And then last question, if I may. Sure. Can you update us on the total fleet of green gas plants in development when we expect those to potentially break ground and come online?

Yeah, I gave a little bit color. We have the three right now that are permitted in construction, and we have given the schedule of those three. One will be coming on, the one actually we're breaking ground this month. We get all the permits, and that's the McCarty project in Houston, Texas, outside Houston. So that will be coming on the fourth quarter of next year. Then we have two more. come in 2021, the second half of 2021. And then right now we have the plan that we just announced when you do the development in California, that will be coming on 2022. And I would say probably the mid of 2022. And out of the six, five to six that we have talked to remain in, a couple of them might show up in the development by the end of this year. And I would like to see at least three plans. Right now, it's a goal. But by the end of the year, we'll be able to give you more color that will be up sometimes in 2022. So one next year, two the year after, and three the year after. That's the plan that we'll be trying to work on.

Congratulations on the progress there.

Thank you. Thanks, Craig.

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.