Ameresco, Inc.

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

Thank you, Nika, and good afternoon, 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 and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. This call contains forward-looking information regarding future events and the future financial performance of the company. We caution you that such statements are predictions based on management's current expectations or beliefs. Actual results may differ materially as a result of risks and uncertainties that pertain to our business. We refer you to the company's press release issued this afternoon and to our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call. In addition, we will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A 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, Lila, and good afternoon. I hope everyone is staying healthy and safe. First, I would like to thank our employees, customers, and partners who continue to effectively manage through the ongoing challenges facing all of us in this difficult COVID-19 environment. Our performance would not have been possible without them. And the performance this quarter was indeed excellent. A robust 33% revenue growth with tight expense controls helped us drive outstanding earnings and record levels of EBITDA. We see demand for our services accelerating, giving our customers increasing need for solutions that combine cost savings with advanced technologies. This remote energy resiliency infrastructure upgrades the transition to low-carbon energy sources and healthy and safe environments especially in light of the COVID-19 crisis. Our core businesses continue to execute well during the third quarter, led by exceptional results from our federal solutions group, which benefited from strong contract execution and improved access to work sites. They work hard to pull in and execute a contracted backlog given uncertainties around COVID-19 and future job sites access. Our renewable assets and operational maintenance businesses continued to provide MRSCO with highly predictable long-term recurring revenue, which is especially important during these economically uncertain times. These two businesses support our visibility with a combined $2 billion backlog of contracted revenue and incentives, which will be generated over the next 15 years on average. Our industry reputation, a strong financial profile, put us in excellent position to identify and pursue additional high return renewable asset opportunities. During the quarter, we added 15 megawatts of assets, including a new RNG plant, and a standalone battery storage system. Our renewable assets in development currently stand at a healthy 322 megawatts. While we remained focused on project execution in the third quarter, we were particularly pleased to see a sequential increase in our total project backlog for the second consecutive quarter. Our ability to backfill our strong revenue execution with new awards gives us excellent visibility as our total project backlog grew to $2.25 billion. We are now seeing an uptick in proposal activity as we leverage our broad geographic footprint and deep long-term customer relationships to drive additional project opportunities, and we look forward to sharing more of this with you in the future. Highlighting this effort is our recent project win with the city of Chicago Heights, involving the retrofit of over 2,000 streetlights with LEDs. The contract is not worthy as Maresco made the proposal to the city, which was accepted in less than 90 days. Interestingly, The installation will also include an intelligent lighting control system, showing how municipalities across the country are embracing smart city technologies. We anticipate global growth in similar contracts as cities upgrade their aging infrastructure with smart cost-saving solutions. We see numerous opportunities for repeat business with our satisfied customer base. Another example of a quick-turn opportunistic win is our recent contract with Hamilton County in Ohio. Hamilton County is a valued long-term customer that had received stimulus funds under the CARES Act, which needed to be used by year-end. And my ESCO team worked to identify quick-turn safety and efficiency projects that include touchless plumbing fixtures in the public restrooms of the county buildings that will help protect the staff and public as they reopen their facilities. Also, many areas around the world, including large regions of the United States, are facing water scarcity issues. Water can no longer be viewed as a commodity available at the turn of a faucet. We have been seeing increased interest from municipalities across the country to deploy or medic mirror infrastructure or AMI advanced technologies. AMI promotes a more efficient and effective water distribution system while enhancing transparency for customers into water consumption and costs. These systems not only save significant amounts of money versus manually reading mirrors, they also allow municipalities to capture lost water and sewer revenues. Our recent AMI projects in Texas with the city of Gatesville and Woodlands Water are two great examples of projects we are managing in this increasingly important area. Maresco's adjustable market is rapidly expanding, driven by customer demand for comprehensive solutions, including advanced technologies, such as cybersecurity, solar, battery storage, advanced lighting controls, and more. A good example of this type of project is our recent $36 million utility energy services contract at Fort Bragg in partnership with Duke Energy. We will be deploying a number of advanced technologies, including a 1.1 megawatt floating PV system and a 2 megawatt battery energy storage system. MRSCO will also implement a host of traditional energy conservation measures. Energy efficiency and renewable distribution generation continue to benefit from their resilient, and low carbon qualities. But it's their ever-improving economics that creates the large and rapidly growing long-term market opportunity. In the end, our solutions provide substantial cost savings and healthy returns for our customers, often with no upfront costs. COVID-19 and the ongoing economic pressures it has created has stressed the financial health of companies, institutions, and governments around the world. This impact will most certainly be felt for years to come. Again, against this backdrop, Maresco is seeing increased interest in providing our solutions under an innovative energy-as-a-service financial structure. In this structure, MRSCO will deliver energy-related infrastructure improvements, energy conservation measures, and related technologies directly to a customer under a long-term service agreement with no upfront capital. Our customers benefit by maximizing their financial resources while MRSCO gains another highly visible long-term recurring revenue stream. We look forward to announcing upcoming energy and service contracts in the near future. In summary, Emorescos continues to overcome challenges in this difficult COVID-19 environment. We are expanding our expertise and offerings to create comprehensive and flexible solutions for our valued customers. At the same time, We maintain our entrepreneurial spirit and approach, allowing us to creatively serve our customers and opportunistically seek out additional revenue opportunities. I will now turn the call over to Doran to provide some comments on our great financial performance. Doran.

Thank you, George, and good afternoon, everyone. I'm pleased to review the company's third quarter financial performance. Please refer to our press release and supplemental slides posted on our website for additional financial information. In the third quarter, we achieved strong double-digit revenue growth and increased operating leverage, leading to record EBITDA levels and accelerating earnings growth. Revenue grew 33% year-on-year, with growth across our core businesses, led by the exceptional performance of our Federal Solutions Group. as we executed on a number of new projects and pulled forward some existing contracts, thanks to improved site access in many locations. Gross margin of 18.2% remained consistent with our year-to-date performance, as revenue and mix of projects remained similar. We anticipate our gross margins to remain at these levels for the rest of the year. Emoresco continued to benefit from our past investments and the highly scalable nature of our business model. revenue growth, higher utilization, and reduced spending levels, including travel-related expenses, were key drivers of our strong net income and EBITDA performance. And while SG&A expenses will increase in a post-pandemic environment, we believe a portion of the savings are permanent and will benefit our operating leverage in the future. Net income attributable to common shareholders was $20 million. Non-GAAP net income was $18.5 million, an increase of 117%. Adjusted EBITDA, also a non-GAAP financial measure, was the highest we have achieved in the company's history and earnings per share more than doubled year on year. Even with our strong project revenue, we continued to replenish and grow our contracted backlog. We ended the quarter at over $1 billion in contracted backlog, representing 1% sequential and 31 percent year-over-year growth. Our total project backlog now stands at $2.25 billion at quarter end, despite the pandemic-related slowdown in new business development activity. Our high-margin recurring revenue businesses, which accounted for 70 percent of our year-to-date EBITDA, have approximately $2 billion in long-term contracted revenue and incentives between O&M and renewable assets. These businesses will provide us with annuity quality revenue streams for years to come. MRSCO's cash flows and liquidity remain strong with ample cash and available credit to execute on our asset development pipeline. We ended the quarter with cash on hand of $45 million after paying down $10 million on our line of credit. Despite the pandemic challenges, our continued focus on cash collections during the quarter further reduced our DSO to 88 days from 97 at the end of Q2. In addition to strong working capital, we have broad access to project financing and tax equity, and we also have the ability to monetize development assets. As noted in our release, we received a request for information from the SEC concerning the timing of revenue recognition in our SAS businesses. While these businesses contribute a relatively small amount of revenue to our business as a whole, for the sake of transparency to our stakeholders, we want to emphasize that we are taking this matter very seriously. In the short time since we received this SEC request, we have spent considerable time and effort investigating and assessing these matters using outside counsel and an external forensic accountant, all under the supervision of our audit committee. To date, we have found no material revenue recognition errors. Now, turning to our outlook, we're very pleased to be increasing our 2020 full-year guidance as detailed in our press release. We now estimate revenues in the range of $960 million to $1 billion, adjusted EBITDA of $107 million to $115 million, and non-GAAP EPS of 94 cents to $1. The midpoint of our revised guidance now represents very robust 13 percent growth in revenue, 22 percent growth in adjusted EBITDA, and 17 percent growth in non-GAAP EPS. This assumes we will have the same level of access to our worksites and does not account for discrete items. We will be providing a more detailed 2021 outlook during our Q4 earnings report. When evaluating our year-over-year comparisons in Q4, keep in mind that our results are variable from quarter to quarter. And last year, our fourth quarter results were exceptionally strong due to contract timing. Now I would like to turn the call back over to George for closing comments.

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

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Your first question comes from the line of Noah K. from Oppenheimer. Your line is now open.

Good afternoon, everyone. You mentioned the 4Q year-over-year comps to be aware of, but certainly I think it's good to be going into 4Q. with the strong results that you've had already in hand and not dependent so much on contract revenue timing. So with that, the first question is on capital structure. I think here on an adjusted basis, you've produced really strong free cash flow year to date. You've been able to finance most of the energy project CapEx with operating cash flow. But as you look at the energy projects, in development and what that will mean for your recurring EBITDA and cash flow profile over time. How should we be thinking about your view of an optimal capital structure, target leverage, and how you want to be financing the growth going forward?

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

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

Okay, that's very helpful. Thinking about the development, particularly on the R&G side, certainly Lynn's coming back here nicely over the course of 2020. I'm sure it helps with your view of future project economics. Just how are you taking advantage of the current, you know, increase in RIN prices? And in general, can you talk about the bankability of RNG projects at this time?

Yeah, as you probably are aware, the RNG prices, they've been relatively constant around the $150 to $165. And as you might recall, we have hedged 70% of our output for the year, and for the balance of the year, we are about 60% hedge. The other thing that we have done for the new plan, the Makai Road that's going to be in operation early next year, the first quarter of next year, we have long-term contracts. for about 50% of the output of that plan, and I would say 50% of the output of our woodland plan, and a little bit more of the San Antonio plan. So we are hedged for 2020, I would say close to 50% of our output. And as far as going beyond that, we look, we are working with various good credit-worthy off-takers to execute long-term contracts. So for the two plans that will probably come into service, and we have indicated so next year, we are looking to execute some kind of a long-term contract, and hopefully longer than the ones that we have right now with the two plans and the contract. And then for 2022 and beyond, where we plan to bring three plans into operation, Again, the market is evolving into long-term contracts, I think. We might have to sacrifice a little bit on the return in order to execute those long-term contracts, but the bottom line is that these projects, even under those conditions, they are very profitable, much better return on equity and a level return than anybody else.

And so far... Sorry, go ahead, Joe. Go ahead.

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

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

No, we are looking that we will bunch them up and we will be able to get some pretty good terms in financing as long as, and I feel very comfortable with that, we will be able to execute longer-term contracts. Because so far, even colleges and universities that are approaching us, because Many of them, as you know, they have combined heat and power plants, right? And they want to be 100% carbon neutral. The only way they can do it is by replacing the natural gas with this grid gas. And we are talking to some of them, but quite a few of them, they have not stepped up to the prices that we would like them to do. And some of the gas utilities. You know, it's coming down the pike that the next evolution, originally we started with the electric utilities. Now it's going to be with the gas utilities to... reduce their government footprint. And again, we are talking to some of them, but we are not in a position that we can announce any specific contracts yet.

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

Thank you. Thank you very much.

Your next question comes from the line of Eric Stein from Craig Helen. Your line is now open.

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

No, that's a very good question. And right now, I think if you total all the plants that we have in development, RNG plants, it's 12 of them. And they represent a very good chunk of our development pipeline in megawatts. But you hit the nail on the head. We are looking at, besides landfill, other sites. but at least a couple of them, but I do not talk about, we don't have the agreements in place yet in order to be able to discuss them, but I agree with you, we have higher value. And the other thing, don't be surprised that down the road, some of these plants, even the landfill plants that we have developed right now, we might go into hydrogen and have a higher value.

Got it, okay. I guess we'll stay tuned on that. Maybe just thinking about fourth quarter, and I know you took up the guide, and it was a very good third quarter, but with COVID and concerns about another wave and conditions worsening in some areas, are you seeing any change to working conditions now? I know your guidance is predicated on that it roughly stays the same, but just curious what you're seeing early in the quarter.

Yeah, and I will provide some colors, and Dora might want to add something to it. Look, we are in a very good position as to where we are as far as the total backlog, and we are executing the teams very, very well. And unless they shut us down on a good number of sites for prolonged periods of time, then I would say there would be some disruption. but I do not anticipate it based on what we have seen in the past. You know, even going back in March, if you remember when they did shut down and we did have some shutdowns on some of our sites, but it was a week or maybe a few more days than that. We cleaned up the site, then we started up again. So I, I don't envision any problems in that dorm. I want to add something to that because that's a, that's a great question and we think a lot about it. And, um, and try to be prepared as much as possible. And that's why we say the sites have been available for this last third quarter, so we push to accelerate as much revenue as we possibly had. That's why we put some revenue from the fourth quarter to this quarter because we have access to the various sites, especially in the military bases and actually some schools as well. So we took advantage of the opportunity and we will continue to do that. I might as well say we are one month into the fourth quarter, and I haven't seen any interruptions.

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

Yep. Okay. Thanks for that. And then last one for me, just, George, you mentioned the military opportunity, and clearly a number of awards here announced over the last couple months, and that was a big driver of third quarter. I mean, how do you think about that opportunity? I mean, is there any way to size that opportunity? You know, I mean, it would seem like what you're seeing right now is a very sustainable trend for you.

No question about it. That's why I made the remark, our market is expanding. The opportunities are expanding because each and every base that we go into now, we are more concerned about not only infrastructure upgrade, but resiliency. And then, not only about resiliency, about some kind of renewables, reduction of their carbon footprint. So that's why we think it's very sustainable. And That's why, you see, we didn't talk about a couple of projects that we have announced, and they combine solar, microgrids, distributed generation, and so on. And the other thing that's happening, too, regardless of what administration we have in place, the economics are driving more and more of this business because the distributed generation, solar and so on, and microgrids, They pencil out. Otherwise, they make good economic sense for the client. And to me, that's the best driver that you can have in this business. And I've been in it for 40 years or so, and my biggest amazement is the cost reduction and the technological improvements that we have seen.

Yep. Okay. Thanks a lot. You're welcome. Thank you.

Your next question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your line is now open.

Hi, thanks. Congratulations on the quarter and the strength.

Thank you.

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

Very good question. Actually, we didn't call it out. I wanted to get approval from a couple. Actually, one, two, three large C&I customers I wanted to talk about, but they did not get the approval in a timely fashion. But that's what makes me feel very, very good about this business. That market finally is beginning to move, and it's beginning to move because I think it's economic driven. In addition to that, The carbon sustainability reduction, and many of them, as you probably know, they have ESG programs. And finally, they're beginning to talk to us, and we see some very good projects, good implementation. You know, I've been in it for a long time, and I said, You know, the next major catalyst that can happen to this business is get the CNIs to move. On the other hand, though, you know that many of them, they want us to develop the project, design the project, and then we build them for them. So they squeeze us so much, but they have a quick turnaround, and they move much faster than the federal or the state or the market that we've been so successful. And it's encouraging. That's all I can say right now. And the other thing, that's why you see us develop the energy as a service agreement, because many of them, they will have some financial constraints. And they have approached us for some kind of a different type of financing of the performance contract. And we said, sure. And that's why you see us talking. And in the near future, we'll be able to announce some of those deals.

Got it. Well, you hit the second question that I was going to ask you in terms of the energy as a service. Should we be thinking of that as a separate line item breakout? I recognize it's relatively small at this stage, but I'm just thinking of that as kind of a separate business, and it seems like that may start and kind of focus on the C&I side of your business. Is that the right way to think about that?

I'll jump in here. So I'm not sure that it's exclusive to the CNI for sure. Certainly the desire for energy as a service financial structure is coming from all of our customer bases. I would also probably think about it a little bit more like another category of the energy assets in development. We're going to be exploring those situations with our customers. Those will become assets that are on our balance sheet that will generate the long-term recurring revenue streams.

Got it.

So I think that's probably the best way to think about those.

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

Well, right now, I would say that we are well-balanced. But as the business accelerates, especially on the distributed generation side and the green gas plants and whether it's hydrogen down the road and things like that, you know, we are looking for additional help there. But the rest of the business, whether it's from the administrative side, legal side, accounting, financing, and so on, and then generally engineering on the energy services side, I think we are very good. And actually, we have a little bit extra room, I would say. Actually, just a little bit more business than we've been doing in the past, and that's why we're getting a little bit of leverage from the operations. But, you know, I said this before, we were lucky, and the fact that we are technology independent and non-affiliated with a large utility or a large manufacturer, and we approach the solution from a diagnostic, technology diagnostic, and what makes good sense for the customer. We have people that have the passion for this business, and we've been able to attract the talent. And the fact that we're independent, it has helped us a lot.

Great. I'll jump back in queue. Thank you. Thanks, Jeff.

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

Good evening. Congratulations on the really strong performance this quarter. Really knocking it out of the park. We're trying. And succeeding. George, can you remind us the timing of your next couple cellulosic plants, when you expect those to come online? How firm are those approximate start dates? You know, do we maybe have some ribbon cuttings coming up?

Yeah, that's a good question. McCorry, the one down in Texas, we have that to start. getting basically commissioning the plan this quarter. And because of the various storms down there, and a little bit of COVID-19, but not as much on some delivery of equipment, but primarily from the storms, that will be delayed by a couple months. So that plan will start the first quarter of next year. Then in addition to that, we have two plans that are supposed to start by the end of next year. One of them definitely will start by the end the end of next year. The other one might flip to the first quarter of 2022. And then that particular year, we have three more. But, Greg, so you understand, the primary bottleneck in developing these plans, especially in California, they are more valuable there, of course, but permitting them. And especially with what's going on, getting the right of ways for the gas pipelines and getting the utilities attention because of what's going on with the fires and everything else. And then COVID-19, it has borrowed up the permitting process.

Understood.

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

So then as we look at the project EBITDA in the third quarter, it was up almost 80% sequentially, increased by 5.6 million on an EBITDA basis. You know, that's well above any peak prior performance for your project business. Can you talk about any specific items in there? You know, is this really the debugging of some of your plans and maybe some of the rings in there? You know, what were the contributing items to the strength that we saw both sequentially and year over year there?

Yeah.

Yeah, I mean, Craig, I'll start. Mark might jump in to that. But I think, you know, as we talked about, the performance of the federal group was quite strong in the quarter. And, you know, when we look at operating leverage, I think that's a business that actually operates extraordinarily efficiently, so the EBITDA contribution is a bit stronger even versus some of our other businesses. So I don't know that I could actually, you know, isolate any particular items there.

Mark, I mean... Yeah, I don't think there's much more to add. There were no real unusual... It really just comes down to the mix of those federal projects and the overall... project revenue across the company. So it was just a stronger mix and continued execution that led to the contributions.

That's excellent. That's excellent. So the other business that was particularly strong in the quarter was O&M, you know, 5.8 Navidad of 4 million sequentially. That's, again, a big, chunky number. Were there any maybe project closeouts in the quarter or any other items that lifted that and gave that strength? Or is this really just a steady state number based on the number of projects that Amoresco has built into its book that runs off over many, many years?

That's why we love that business. That's why when we say we want to improve or increase our recurring revenue base, and the O&M is one that basically doesn't require any capital, but it comes after the large energy savings performance contracts that we implement. And then it's lumpy, but once we get going on them, they add quite a bit. It's a great, great little business line, and that's the one that we focus a lot, that maybe we will find some niche player that will fit in our gearbox, and maybe we'll acquire a small company and grow that business more. It's a great opportunity for us. And it's sticky. I mean, many of the federal contracts that we have, they're 18 to 22-year contracts for NM agreements.

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

Yeah. Look, we are looking at all kinds of opportunities. If they make sense to us, otherwise the price is right, and we will do it. But on the other hand, we're very, very cautious. And I know the expectations out there on the street, they are very, very high. And I think you know me a little bit better than that, Greg. I like deals. That I can make money.

And I like you cautious, as do most of your investors. So congratulations on another really good investment.

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

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

That's a little bit beyond our reach. I will look at it. But like I said, I will be extremely careful because some people, they want some crazy prices out there. And I'm not, look, we're a developer. You know, we develop our own assets. We know our own assets. And you know, last time you brought it up that we operate in a little bit better than some of our competitors. We built these plans to last. And it has helped us. That strategy so far, we will continue it. On the other hand, I did say somewhere, opportunistically, we'll be opportunistic. We will continue. And look, we have 12 plants that we want to develop, execute them, and then we have a couple that will be different in the landfill gas. So there is no shortage.

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

Thank you very much, Greg. Thanks, Greg.

Your next question comes from the line of Basil Mulchana from Raymond James. Your line is now open.

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

Yeah, Pavel, thanks for the question. You know, I think it's more the latter, really. You know, you'll see, as we talked about, energy as a service asset opportunities start appearing and, you know, developing those in the proposal stage. It's all going to be down to risk-reward and what makes sense economically and what the returns look like. You know, solar in the last – 12 to 18 months for the company, I think, grew pretty substantially because the opportunities were available and we were finding good deals. At the same time, you know, that doesn't necessarily mean that that's what's going to continue to happen.

One more on that. Yeah, please. What am I at there? One of the advantages of the solar is the fact that Across the country, all of our offices now, they can develop the solar plants. And, of course, many of them, they are behind some customer accounts, like schools, colleges, universities, and so on. So you will see us developing what I would say the smallest scale sites for solar. They're 5 kilowatts to 5 megawatts, happening a lot. Where the green gas plants, there's much more specialized items And we have one group, basically, that does that for across the country, all the plants. So we have a little bit of limitations as to how many green gas plants we can do. That's why we're building the capabilities up on that side, whether the solar plants, they are easier to develop, and hopefully everybody around the company will be able to do that, and that will help us. But accelerate that as much as possible.

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

In that context, since we're a day away from the election, let's suppose that the ITC for solar expires or drops to the statutory 10% at the end of 21. Is it fair to assume that for your development efforts, if that's the scenario, you're going to pull in as many projects as possible for solar into next year and then perhaps take your kind of foot off the accelerator in 22 and beyond?

Foot off the accelerator is a little bit of an extreme reaction. I think that like any other developer, we will be reasonable in terms of our desire to safe harbor equipment in order to preserve 26 and 22. Costs, you know, as we all know, costs should come down. They'll continue to come down. We have to continue to strive to increase efficiencies and bring down balances systems. And then, you know, keep in mind that a lot of the work that we do in solar and battery storage is in our project business. So, you know, I don't think we're necessarily going to slow down as a contractor in the sector.

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

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

Thank you, guys.

Thanks. Thank you.

Your last question comes from the line of Christopher Zother from V. Riley. Your line is now open.

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

Right now, the percentage that has storage on the bases, the military bases, the ones that we have done recently, I want to say just about every one of them has some kind of form of storage. But as far as the other applications, the sites, I would say very small percentage.

Mm-hmm.

maybe 10%, if that. But the storage is evolving right now. I would say in the first inning, if at that. And as far as the cost is concerned, and as far as the acceptability of various customers out there. But like the state of Massachusetts, many schools right now, that we did solar installations a couple of years back, they want us to go back and put some battery storage, and we have couple examples of that. So we have the early stages of storage, so it doesn't represent a large portion of our portfolio. And then Dora might have it.

No, I think as those projects start going into the asset and development metric, we'll talk more about it and talk about how the volumes are looking versus the rest of the categories of assets. And the standalone storage is actually a small you know, utility contractor. I don't think we're in a position to disclose anything further about that.

Okay. Understood. Appreciate the call. And then just on this past quarter, they discussed having improved access to work sites, which probably allowed some pull forward. And then new projects popping up during the quarter, which seemed to be kind of the delta with the four-year guidance. I just wanted to get a sense of, you know, how many of these projects are, you know, COVID-related upgrades, like the UV disinfectant HVAC upgrades. You mentioned being a strength last quarter. What kinds of projects were the incremental types of projects you were seeing?

It wasn't that many projects, but I would say we had about five projects that I know the catalyst was the fact that they had to do something because of COVID-19. But the other thing that's happening though, we incorporate COVID-19 measures so we get the customers to talk to us and get moving. So it's, but I know four projects at least that the catalyst was COVID that the customer ended up moving ahead. And one of them that I mentioned that Columbus, they had gotten some money out of the CARES Act and they needed to do something.

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

No, actually, no. Recently, we haven't seen any slowdown in the hospital business at all. And we are moving full speed ahead, I might say. And we are doing a couple of large hospitals and institutions. And we did experience some delays early on, but not lately. The other thing that just happened, you know, the COVID-19 cases in the hospitals has dropped substantially, even with the uptick. And we haven't seen any slowdowns.

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

Thank you. Thank you.

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

Thank you.