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spk13: Good day, and thank you for standing by. Welcome to the Q4 2022 Amoresco Incorporated Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star 11 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Ms. Leila Dillon, Senior Vice President of Marketing. Ms. Dillon, please go ahead.
spk01: Thank you, Chris, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakolaris, MRSCO's Chairman, President, and Chief Executive Officer. Doran Hull, Executive Vice President and Chief Financial Officer, and Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the Safe Harbor language on slide two, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. I will now turn the call over to George.
spk16: George? Thank you, Lila, and good afternoon, everyone. I am pleased to report on MRSCO's great performance for 2022. We just completed our fifth consecutive year of record revenue and profits. We achieved revenue growth of 50% and adjusted EBITDA growth of 34%. This robust performance reflected how well our advanced technology portfolio and capabilities are aligned with market demand. The Maresco team delivered these impressive full-year results while navigating challenging global issues. The fourth quarter was impacted by pushouts related to scheduling changes in implementation, supply chain issues, and on planned maintenance at two of our RNG facilities. Some of these timing-related issues will likely continue into the first and second quarter of 2023, but we believe that they are short-term and that business will normalize in the second half of the year. Even in light of these push-outs and the very difficult comparisons we will face this year from the unusually large Southern California Arizona contracts, we are very pleased to be guiding to growth in our 2023 adjusted EBITDA. This expected year-over-year growth is a true validation of our diversified clean tax business model. Market activity. and demand conditions remain very healthy with heightened proposal activity. Our customers continue to evaluate the recently enacted Inflation Reduction Act, and they are working to prioritize the type and timing of their projects. The support for a very broad range of technologies provided by the IRA greatly favors comprehensive solution providers such as Maresco. We believe this is a more transformational legislation affecting our industry, providing a long-term runway for advanced clean technology deployments for years to come. 2022 marked a year of major accomplishments in Europe, including our decarbonization award with the City of Bristol in the UK. In addition to being selected for this transformational net zero municipal project, our Greek joint venture was also selected as a contractor for the 100 megawatt building project in northern Greece. Both of these projects not only represent very large contracts for MRSCO, but also some of the largest in their respective geographies, and thus significantly raising our regional profile. In the fourth quarter, we announced the acquisition of a five megawatt wind farm in Ireland. And today, we are excited to announce an agreement to acquire Energos, an Italian-based energy services company. This acquisition further strengthens the Moresco's European footprint by adding local resources, customers, and a new pipeline of work throughout Italy. This also supports our growth strategy for the CNI markets as Energos has a strong portfolio of commercial and industrial customers. They have a history of profitability, and we expect this acquisition to be immediately accretive. Our merger and acquisition strategy is generally to acquire highly regarded companies with great management teams and a strong plan. for organic growth in order to create long-term value for our shareholders while minimizing risk. Now, I would like to talk about renewable natural gas. With over 20 years of vertically integrated experience in self-developing biogas plants, we are one of the leading players in the RNG space. Federal incentives in the transportation market plus A push by large institutions, utilities, universities, and corporate customers should make this a very attractive market for many years to come. We believe we have significant competitive advantages in developing, constructing, and operating these plans and navigating the many authorities, permitting agencies, and equipment suppliers. With 20 biogas plants in our essence in development pipeline, we believe our RNG franchise will continue to be a significant driver in shareholder value. Now, I would like to provide a brief update for the Southern California Arizona project. As we noted, in the third quarter of 2022, Southern California Arizona instructed us to adjust the project schedules into 2023. We are also continuing discussions regarding COVID-19 and weather-related force majeure relief. We anticipate the projects to be in service prior to the summer of 2023. Our relationship with Southern California Arizona continues to be very cooperative. The knowledge and expertise we have gained from these and other large battery storage and microgrid projects help make us one of the go-to companies in the industry. We look forward to announcing additional wins in these areas in the future. Finally, our environmental, social, and governance programs and goals remain a top corporate focus. We were very pleased to be named a silver winner in the Best Place to Work category by the Best in Biz Awards. I am very proud of our company's culture of caring for the communities in which we serve, as well as our employees, customers, and stockholders. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?
spk03: Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today. The MRSCO team delivered another year of record financial results as all four of our business lines experienced solid growth and profitability. Full-year revenue growth of 50% was led by our projects business as we continued to execute on the SoCalEd projects. This growth was complemented by the strong performance of our other three business lines, Energy Assets, O&M, and Other, leading to adjusted EBITDA growth of 34% to a record $204.5 million. We started to face difficult year-over-year comparisons in our projects business during the fourth quarter of 2022, given that our work on the large SCE projects commenced during Q4 of 2021. We expect this to continue through the third quarter of 2023. These difficult quarterly comparisons, together with the challenges that George mentioned previously, resulted in year-over-year declines in project revenue. Energy asset revenue was down year-on-year by 6% due to unplanned maintenance issues at two of our RNG facilities in Q4, but these plants are now operating at their expected output. On the other hand, our O&M business line delivered another solid quarter of 5% growth as we continued to attach O&M contracts to our projects, especially those with the federal government. And our other revenue line had another quarter of double-digit growth, up 16%. As we expected, our gross margin increased to 18.6%. 150 basis points ahead of the prior year as the lower margin SoCal-led contract declined as a percent of our total revenue mix. We generated adjusted EBITDA of $41.3 million in the quarter. It is important to note that the quarter was impacted by higher than expected interest expense as the extension of the SCE projects required us to carry substantial working capital. Our contract allows for cost relief And we have included this additional interest expense in the proposed cost recovery that we have been discussing with SoCal Ed. Total project backlog was a healthy $2.6 billion at the end of the quarter, even in light of the substantial conversion of SCE projects backlog to revenue. Of note, our awarded backlog grew 6% compared to last year, continuing to build momentum for future project revenue. Amoresco expanded its portfolio of operating energy assets to 389 megawatts, and our owned assets in development was 470 megawatts at the end of the year. As a reminder, we are disclosing in our supplemental slides both the total assets in development as well as the pro forma net megawatt total after adjusting for our partners' equity interests. Our nationwide greenfield solar and storage development group continues to build up its pipeline of early-stage, front-of-the-meter opportunities. We expect the volume of these opportunities to grow, driven by the numerous IRA incentives related to these assets. Our ability to finance these energy assets remains strong. As we secured $137 million in additional project financing during the quarter, bringing our total financing for the year up to $468 million. We believe Amoresco's unique business model affords us substantial forward visibility given the combination of project backlog, O&M backlog, and the estimated contracted and market pricing revenue from our energy assets. Together, these lines of business provide a path to over $6 billion in future revenues. In previous quarters, we have only reported estimated contracted revenue and incentives for our operating energy assets. As George noted earlier, we believe that our RNG franchise is a significant driver of value to our stockholders. To help show a more complete picture of our RNG asset value proposition, we have started providing an estimate for the uncontracted RNG revenues that we expect to generate over the life of these assets. Using conservative assumptions for asset life and merchant market pricing for RINs, we estimate these revenues, again just from our operating RNG assets, to be an additional $1.2 billion on top of the over $1 billion of contracted revenues from all of our operating assets. This projected RNG revenue is based on RIN prices of $1.50 per gallon Brown gas at $3.50 per MMBTU, and LCFS revenue, where applicable, at $3 per MMBTU. We've assumed an average asset life of 20 years. Of course, we still have the option to enter into longer-term off-take contracts if we feel we are creating additional value by doing so. I'll reiterate that the $2.3 billion in revenue visibility only relates to our assets that are currently operating and does not include any expected revenue from our 470 megawatts of energy assets in development and construction. As those assets begin operating, we in turn expect to add significantly more revenue visibility to our profile. Turning to guidance. 2023 guidance anticipates adjusted EBITDA growth of 5% at the midpoint. We're very pleased to be guiding to this growth, even as we face difficult comparisons due to the large SCE projects. We anticipate placing between 80 and 100 megawatts of energy assets in service during 2023. The three RNG plants we had expected to be mechanically complete by the end of 2022 continue to progress as their schedules were impacted by permitting delays and longer lead times on certain types of equipment. Looking forward, we expect these three plants to be operational this year, and we also have several additional RNG assets in late stages of development. We expect that four or five of those will come online during 2024. Our expected asset capex for 2023 is $325 million to $375 million, the majority of which we expect to fund with non-recourse debt. As we look to the first quarter, we estimate revenue to be in the range of $220 to $240 million and adjusted EBITDA of $20 million to $30 million. We expect non-GAAP EPS to be slightly positive. As George noted, we expect Q1 to be impacted by pushouts on a couple of large projects on top of our normal energy asset and project seasonality. Furthermore, net income will be impacted by the continued carrying costs of SCE-related working capital. We expect the remainder of 2023 to follow our normal cadence with progressive improvement throughout the year. Now I'd like to turn the call back over to George for closing comments.
spk16: Thank you, Doron. We maintain an excellent line of sight to our 2024 target of $300 million in adjusted EBITDA. As governments and institutions around the world invest in solutions addressing climate, geopolitical, and budgetary challenges. And Maresco continues to enhance our expertise to provide the solutions positioning us for robust, profitable, long-term growth. Finally, we look forward to welcoming analysts and institutional investors to our European Investor Day being held in London on May 11th. This event will feature presentations and panels by key executives from our leadership team with discussions focused on our expanding growth opportunities, including our plans for continued expansion in Europe. Operator, we would like to open the call to questions now.
spk13: Thank you. As a reminder, to ask a question, please press star 11 on your phone and wait for your name to be announced. We ask all participants to limit themselves to one question and one follow-up. To withdraw your question, please press star one, one again. Stand by as we compile the Q&A roster. One moment, please, for our first question. Our first question will come from Noah Kay of Oppenheimer and Company. Your line is open.
spk07: Good afternoon. Thanks for taking the questions. I wondered if we could start by... Hey, thank you. I wonder if you could start by giving us just a bit more color on some of the timing and scheduling challenges around the RNG development. Obviously, you mentioned permitting supply chain. I don't know the degree to which you can get granular, but just your line of sight to those challenges being resolved here in the first half of the year, anything that we should consider top of mind in terms of key milestones that you have to hit to bring those projects online?
spk16: uh i guess uh we started out with some difficult permitting issues and even though in some cases we got the environmental permit we got stuck in the built-in permits and uh things that would take in normally a few weeks they took uh several months and in one case as much as six months it was The other thing that's helping a lot, for example, a couple of signs, we're expecting the measured equipment delivery last July and August. And as it turned out, we got the delivery in late December and early February for the other one, this year, for example. So, what we did going forward, we scrubbed the schedule very, very, very carefully. And that's why we said we will have these three plants completed this year. And actually, they are all mechanically completed by the middle of the year. And then the other four to five plants, a good part of them, they are in the construction or permitting or advanced developing stages right now. so we we built it by the bottom the bottoms up and uh we never anticipated the supply chain issues would be the way the the things are well another example the rainstorms in california one of the sites we have built the whole we've done all kinds of exhibitions and so on and so forth everything got wiped out we had to start basically fresh so um I don't know if Don or anyone else will call us to it, but we have scrubbed the numbers very carefully in the schedule, and we have factored in our guidance, not only for this year and for the next year as well.
spk07: That's very helpful. Sticking with the theme of RNG development, you talked about having, I think you said, 20 biogas projects in development. You said biogas rather than RNG. I'm just wondering with all of the policy developments that are supportive of biogas assets, some perhaps more for RNG, some perhaps more beneficial to landfill gas to electricity, just how are you thinking now about planning and optionality for your biogas assets? I think it's pretty clear what you're expecting to bring online this year for RNG.
spk16: Actually, you know, last year we had said that five to six plants. We think one of two sites, actually one site that was electric, we're going to convert it to renewable natural gas. We stopped that because we think the optionality now to the earrings, subject to what comes through EPA, we didn't. There was another plant that we're going to expand it. and add go to renewable natural gas now we are in the permanent stage it most likely will go electric so economics will the ones that we have right now that we have already equipment before that we talked four to five you know there will be uh uh renewable natural gas as we go down the road i think some other ones they might turn out to be eerie uh uh landfill to electricity
spk07: Okay, great. Many more, but I'll turn it over. Thank you. Thank you.
spk13: Thank you. One moment, please, for our next question.
spk18: Our next question will come from Stephen Gigaro of Stiefel.
spk13: Your line is open.
spk10: Thanks. Good afternoon, everybody. I guess, too, for me, what I'd start with, George, you mentioned some confidence on your $300 million EBITDA target. And that's a pretty steep ramp, right? I think it's 40% growth in 24 versus 23. Can you talk a little bit about sort of the path to get there?
spk16: uh yes i mean uh we looked at it very very carefully and we look at the contracted backlog of what is backlog and the contributions that we will get not only from the rng assets but the other assets that we place it into whether it's uh solar or battery storage and so on and we feel very comfortable the way i look at it though It's a 40% jump from 2023 to 2024. But if you were to look at it from 2022 to 2024, it's not that much out of line. Between the two years, it's 45% growth, which is 32% growth for each year. And if you go in the past, you know, we are in a little bit lumpy business, but that's Building up to the 24 number, we feel very comfortable because it's basically going to have contracted backlog, awarded backlog, and assets that we have very good handle in putting in operation.
spk10: Great. Thank you, George. And then the other thing I wanted to just ask about was just on the contracting side in general. It feels like things have progressed pretty well sequentially as far as your backlog is concerned. Just when you're talking to customers and, you know, given the inflationary environment and interest rates, what are the conversations like? And have there been any impediments to getting these deals across the finish line?
spk16: Yeah, because of the interest rate, you know, jump, it has impacted the business. And a couple of the push-outs that we had in the very large projects, I'm talking in the hundreds between both of them, over $150 million project. And one of them, so the federal facility, the way it's a good opportunity. example to remind everybody of the process, but we did a detailed energy audit, then we negotiate the scope with the client, and then the price, and then we go out to get the financing. And then what happened in this instance, the financing now, we had almost a couple points jump in the interest rate, and then the savings within finance the overall project. So we go back to the drawing board, renegotiate the scope of the project, and so on. and so that was one of the projects and the other one it was a municipality but because of the higher interest rate they had to go out and refinance you know solution the new bid so uh it's a concern but lately though what's happening a little bit and that's why on my comments i said the customers they tried to prioritize the projects and their timing because some of them now they're getting money from the ira And they're waiting to see how much they're going to get from the IRA and how it will impact them. And we have a couple projects that we think that they will be getting a good chunk of money from the IRA. And actually, the projects will grow. But the reason I would say is a little bit wait and see. until everything comes out. But the activity though, the request, the activity, the pipeline is growing a lot. That's why we feel very comfortable for the business going forward.
spk10: Very good. Thank you for the color.
spk16: Thank you.
spk13: Thank you. And one moment please for our next question. Our next question will come from Greg Wasikowski of Weber Research and Advisory, LLC. Your line is open.
spk17: Hey, guys. Good afternoon. Thanks for taking our questions. I wanted to ask about Anarchos. Could you just talk about the origination of that relationship? You know, was Italy a market that you were actively targeting before this? Does it make it easier to expand into additional territories thinking Like France, Spain, Portugal, those areas. And does the business help with any other existing operations that you have in Europe? Kind of thinking probably more like Greece, but just trying to understand any synergies there. Thanks.
spk16: That's a very good question. You know, you might recall that we have targeted Italy as one of the countries that we wanted to expand. So what we had is basically an internal intensive effort marketing that we did in identifying potential companies that we might want to acquire. And we approached this particular company, and then people made arrangements that I would make a Zoom call and meet the management of the team and so on. And then we had a good meeting. Then I went over there. We met with them, and then the whole team went over. And they are very, very, very similar to what we are doing. Basically, it's an energy services company. And they are more focused, actually, almost exclusively on the CNI customers. And I asked him, I said, why are you focusing only on the CNI? He says, because the government agencies in Europe, finally, they're beginning to get their act together, trying to do something. But the CNI customers, because of the higher cost, of course, what happened in Europe, They are very conscientious about it, and we have a good program that's going to help them. So it's a very good little company, and we are very excited about it. And we have been doing some other work in Italy with some other partners that we had in that area, and we have some very good traction through those companies. So this one gives us a solid, solid foundation. And what we like the most about this company, tremendous world-class management team. And even though it's a small company, it operates like a large company. And it could probably serve as a very good platform for us in Europe. And it's not a great secret. We are looking for other companies, and we don't have anything to talk about right now. But don't be surprised that we might have something else to announce in the near future.
spk17: Okay. Thank you, George. And I know you guys can't say too much about numbers, but worth asking if you think or if you expect this to be accretive on an EBITDA or earnings perspective in 2023 and if it's baked into the guidance.
spk16: For 2023, by the time we close the deal and so on, it will be slightly accretive, but it's not going to have – it's included in our guidance now.
spk18: Okay. Got it. All right. Thank you a lot, guys. Thanks. Thank you.
spk13: And one moment for our next question. Our next question will come from George Gianarichis of Canaccord Genuity. Your line is open.
spk02: Hey, good afternoon, everyone. Thank you for taking my question. So last quarter, Doran, you spent some time discussing interest rate exposure, you know, first with regards to how it impacts your capital stack and then how it impacts projects and asset deployment. Can you just kind of go over that again and just remind us exactly how rates are impacting your business and your balance sheet? Thank you.
spk03: Yeah, sure, George. Thanks for the question. I mean, I think what I'll start with is, you know, broadly speaking, we, you know, we'll talk about the SE piece in a second, but The financing we do on our energy assets is long term. So we're talking about looking at the longer end of the curve for purposes of interest rate exposure. And as I think you guys have seen, despite maybe some recent volatility, the overall shifts there haven't been near as impactful as what you've seen on the short end of the curve. So that's kind of point one. we did talk a little bit about the high in interest expense on the SoCal ed pushouts. I think it's important for folks to kind of recognize that that's, you know, an element that we, uh, we have the ability to include in the overall settlement of, of costs related to their change. So, you know, we'll continue to monitor that and we're, as you might expect, doing all of the calculations and ensuring that that information is front and center, uh, from, uh, from the perspective of those discussions. You know, I guess the last piece is just kind of looking at, you know, the overall short-term debt. And I think that, you know, beyond the working capital required for SCE, you know, we're expecting all of that to normalize so that our interest rate exposure on anything related to SOFR or short-term unedged rates should be much more muted as we get through the rest of the year, in particular because despite the fact that we do invest some of our capital in construction and development of assets, our ability to hit non-recourse financing like the large R&G refinancing transaction that we did in Q4 is still there. That lender market hasn't loosened up. We're still able to get you know, great tax equity financing using sale-leasebacks, and we don't expect the overall impacts to be long-term.
spk18: Thank you.
spk02: And then just as a follow-up, you talked a lot about scrubbing permits and other potential delays in your 23 and 2040 BIDA guidance. Can you also help us understand, you know, much ink is dedicated to discussing and trying to analyze movement and RIN pricing? And I'm wondering if you can help us kind of understand how much exposure you have there and how much we should be monitoring that and potentially handicapping your 23 and 2040 BITDAG guidance based on volatility in that index. Thank you.
spk16: Well, you know that 50% of the rings that we plan to generate for the year, they are hedged. So, the other 50%, we are on the market and we sell them as, when we sell it, the market is right. We have incorporated prices that we think we would be able to get in our guidance right now.
spk03: I mean, I think, you know, as you, As you might expect, we're heavily engaged in following what's happening with the EPA and what adjustments will be made. And we have, just like you, our eyes on the summer as to what will happen when they finalize the RBO. But we do feel confident in where we've kind of established our estimates for the year based on the unhedged portion, at least.
spk18: Thank you.
spk13: Thank you. One moment for our next question. Our next question will come from Eric Stein of Craig Hallam. Your line is open.
spk05: Hi, everyone. Hey, Eric. Hey, maybe we can just go back to 2024 EBIT outlook, and great that you reiterated that. Just want to just be clear. So if you're thinking about backlog awards not yet signed, plus the operating assets that you've not yet contracted, when you take that all together, is this something where you feel like you've got, or what is your percentage visibility into that number from all of those buckets? I mean, are you, is it a high level of confidence? Is there stuff that you still need to fill in? Or how should we think about that when looking at 24?
spk16: I would say it's a very high level of confidence because when Mark does his numbers, unless we are at the 70, 80%, Whatever he says in the pipeline, he takes it out pretty much. No, we felt pretty good. You know, can something happen that's certainly out of our control? It's possible, but we feel pretty good that we'll be able to deliver that number. Because, you know, when we established that number way back, I think we were a little bit conservative. And we had a little bit, you might say, in the bag. And so that's why, even though we had some things happen to us, that number still stands and we feel good about it.
spk05: Got it. That is great color. And then I guess last one for me, just on the SoCal Edison project, I don't know if you're willing to discuss how much of that project is left, but I guess more interested in, you mentioned that as a result of that, you've got a growing number of projects in your pipeline. So maybe some color around those projects, you know, maybe not as big as SoCal Edison, but big nonetheless.
spk03: I mean, I'll start by just saying that on the proposal front, they're definitely coming in large and small. You know, as you know, it's a competitive market. We feel like we're very, very well placed to win a good number of those projects. There is a mix of some of these projects that are going to be assets on our balance sheet, as well as straight construction contracts like we did for SoCal Ed for other utilities or other types of asset owners. And from a sizing perspective, you know, maybe don't see any single one that's quite the size of SoCal Ed, but When you add them all up together, you know, there's certainly an excess of what SoCal is when you look at the proposal activities. So I think there's more to come there. We'll talk about them as they get into the awarded backlog. But I think we're, you know, we're definitely seeing a move toward, you know, being pulled into discussions about some of those design-build projects that we're really, really excited about. For SCE itself, you know, we probably, you know, 90-plus percent, 95% complete by the end of 2022. So, you know, we're, from a practical perspective, focusing on, you know, grid integration and getting to substantial completion, as we said, before the summer. Okay, thank you.
spk18: Thank you.
spk13: Again, one moment for our next question. Our next question will come from Christopher Suter of B. Riley. Your line is open.
spk14: Hey, guys. Thanks for taking my question here. Maybe just follow up on the Energos. Do they have projects on the balance sheet that you're acquiring, or is this more of a project business? I'm curious. Curious if that, you know, kind of evolves over time where you'd be owning assets over there as well. And then, you know, can you talk through just from a market by market perspective, what other markets are ones where, you know, acquisition to kind of gain foothold is most helpful?
spk16: Thanks. Yeah. They do not have any assets on their balance sheet right now. But basically, let's say a solar plant and some of the marquee customers that they have, they built them. And then they have a conduit that buys those projects out. So they look on their balance sheet as a design-built project. And they do very little O&M. That's why we think that there's tremendous potential for us to expand the O&M business. And at the end of the day, we might take some of the assets in our balance sheet as well. And I think with us bringing some more additional financing and management and marketing capabilities, I think we can accelerate the growth of this particular business. And some of the other companies that we are looking in Europe, they're similar. Similar companies, because in Europe, what has happened with the energy prices being what they are, you know, especially some of this distributed generation for the commercial industrial customers, and now it's beginning the institutional accounts of the governments and cities and towns. The market is picking up. And I think for us, we developed a good management team in this particular company. I think we can grow it.
spk03: And I think if you look at the landscape over there, you know, having gone outwards and, you know, found this company, you know, kind of no banker process here, you know, this is kind of outreach that we're doing as we're looking to expand our own business across the region. There aren't any particular geographies that are, you know, where we're where we're focusing 100% of our time. You know, we're being opportunistic. We're finding, you know, we're finding the opportunities where, you know, businesses like Intercoast can be, you know, kind of tucked in. You know, I think the, you've seen the expansion of our activities in Greece. We certainly like Italy. We're not going to go into markets where we're not going to be able to compete. I think it's, you know, again, it's opportunistic, and we think there's certainly some opportunities going to be some more opportunity out there for us.
spk14: Got it. No, that's very helpful. And then maybe just on the SCE progress, I think you had called out $35 million last quarter that you expected to be 2023 revenue. But I wanted to kind of focus on, it looks like the cost and estimated earnings in excess of billions came down again. I wanted to get a sense of timing around payments, if we have a sense of when that starts to, you know, look like a more normal number again, if you have any visibility on that.
spk03: I mean, from an unbilled perspective, you know, you're talking about more or less, you know, the bulk of it is when substantial completion. That's right. Yeah. So, you know, we, as we said, the timing wise, we're looking to complete these projects by the summer. You know, I think that's kind of when you'd see the invoices start going.
spk14: Okay, great. And then maybe just last one, of the 80 to 100 megawatt equivalent additions for this year, can you give a mix between solar batteries and RNG, and then any sense of the cadence would be helpful there, and then I'll hop in.
spk18: I think we're looking at, so, sorry, give me a second to get the numbers.
spk03: Yeah. So we think out of that, the RNG, we're talking about 22 megawatts out of that 80 to 100.
spk18: And the rest of it is a mix between solar and battery. All right. Okay. Thanks, guys. Thank you.
spk13: One moment, please, for our next question. Next question will come from Tim Mulroney, William Blair. Your line is open.
spk09: Good afternoon, everybody. So apologies for the overly simplistic question, but I had in my notes that you expected to complete one RNG plant in 2021, three in 2022, and five to six in 2023. But today, I think you said three in 23, and five to six in 2024. Did the whole RNG completion timeline essentially get pushed out by a year, or were my notes incorrect?
spk16: The one in 21, that was 21, 22, that came in. It was mechanically completed 21. And then once in 22, there were three, you go correct. And then there were five to six going beyond that. The delay, the actual delay is between four to eight months. on uh between the the three and the five to six but the five to six became four to five because actually two plants that originally were contemplating to go to uh renewable natural gas because there were conversions now we're gonna we we stopped doing any work on them because we will most likely keep them go to the earrings so i would say six to four to eight months delay
spk09: Got it. Thanks, George. And you talked about, for my second question, you talked about that 20%, essentially 20% EBITDA figure between 2022 and 2024. And I understand, given the timing of projects and such, that the two-year timeframe is probably a better way to look at things. But stepping back and thinking about that two-year timeframe, how should we think about how much of that growth is coming from projects versus, you know, EBITDA coming in from your energy operating assets?
spk16: Yeah, I think the project business that's going to grow in the 10 to 12 to 13, if you were to take it from 21 going forward, rather than taking it from last year to go. And the rest of it comes from the assets and the O&M. The O&M business is going very well and the other business. They are contributing quite a bit as well.
spk09: Got it. Okay. Thank you very much.
spk13: Thank you. Once again, one moment for our next question. Our next question will come from Kashi Harrison of Piper Sandler. Your line is open.
spk15: Good afternoon, everybody, and thank you for taking the question. So I guess I just wanted to – just a quick question on the 1Q guide. $230 million of revenues implies a pretty big ramp into 2Q, 3Q, and 4Q to get to the full-year guide of $1.5 billion. I think you indicated there's some push-ups behind the soft Q1, but can you maybe share some more details on You know, what exactly gives you the confidence in that, you know, big recovery as we think about 2Q, 3Q, 4Q? And then maybe just share some color on how much of the revenue guide is already secured by the 12-month projects and O&M backlog.
spk04: Yeah, this is Mark. Again, as we've talked about before, our confidence in anything that we guide comes from the visibility that we have from the backlog. On the project side, so we have better than 80% of the project revenues coming from our either contracted or awarded. And then from a total revenue perspective, more than 70% is coming from what we'd consider contracted sources. So I think we have really good visibility in terms of how we're able to achieve that ramp throughout the end of the year. You know, there's always some amount that's going to come from pipeline. But, again, I think we have a decent line of sight to what those opportunities are going to be. So we're going to be able to fill that in between Q1 and the end of the year. Helpful.
spk15: Thank you. And then as my follow-up, just a quick question on cash flows. So, you know, 2022 adjusted cash flow from ops was $100 million use of cash. I'd imagine that was driven by the Edison project. With the billings looking to go out in the summer of the year, I was wondering if you could just maybe give us some color on how you're thinking about adjusted cash flow from ops in 23 based on the midpoint of your guidance.
spk04: I mean, we haven't generally gotten to that, but as Doran was saying, you know, we expect to wrap these projects up by the summer, and a lot of that is tied up right now in the unbilled revenue. Everything to date that we, you know, that we have been able to build contractually, we have been paid for, you know, so we would expect those cash flows to come in soon after the projects are completed, you know, which I think should, you know, directionally, you know, should point us to, you know, a much improved adjusted cash from ops number.
spk03: Yeah, I mean, there's, you know, as we talked about substantial completion being the next important building point. So, depending on when we, well, if we can get the weather to continue to cooperate in California, we wrap these projects up. I think with the payment terms, you might see some of the cash flow actually coming in at the beginning of Q3. depending on when the bills go out. So, you know, can't say that it would be, you know, a specific quarter here, but that's the timeframe we're talking about. You'll see that kind of turn around.
spk18: Got it. Thank you.
spk13: Thank you. One moment, please, for our next question. Our next question will come from Joseph Osha of Guggenheim Partners. Your line is open.
spk08: Thank you. It is a mouthful. Following on what Kashi was asking, I'm wondering, you know, as we think about that EBITDA run rate, which obviously comes out of 2023 at a considerably higher rate than it goes in, is this just, you know, straightforward analysis? cost absorption? Are there some, you know, mixed shifts on a quarter by quarter basis in terms of the revenue mix that we should think about? I just, I want to understand what the walk from Q1 to Q4 EBITDA looks like.
spk03: I don't know that we have any, you know, anything really granular to share with you there, Joe. Push out to George talked about where we, you know, we're kind of going back and recalculating some things and we're expecting contract signing, you know, some of those larger projects carry with them a good amount of, um. Cost in preparation for signing, so get a little bit of, um, revenue charge once the, uh, once the contracts get signed and and this is where. you know, having push-outs that go not just from one quarter to the next, but maybe, you know, one quarter to two quarters later. We're seeing a little bit of that here, and that kind of explains some of that ramp, and especially as you start to work on full execution in those projects in the latter half of the year. I don't think there's anything really meaningful to share as far as mix, though, for the balance of the year. Again, we've got our typical seasonality You know, we're going to see, you know, the ramp up over the course of the year just kind of progressively moving from the Q1 up to what we expect to be a more back-ended Q3 and Q4.
spk16: Yeah, and what I might add, what compounded some of the projects that I said that got delayed. which happens, let's say, you lose three months on a particular project, especially the large ones. Then it takes you a couple of months to mobilize. And that's why when I made the statement, we go to two cores. It takes time to, for those projects, not only to get signed, but then to mobilize and then see some revenues, real revenues coming through in the construction site. That's why it is.
spk08: Okay, thank you. And then it's.
spk16: To the later.
spk08: Okay. As a follow-up. You know, obviously you've got some additional storage projects in the backlog that we've been talking about. I'm wondering what you all feel like the lessons learned are from SCE and how that's changed your approach to, you know, how you source cells for future projects, how you contract. You know, how are you going to come at this next round of storage projects differently to hopefully, you know, maybe avoid replaying what's happening with SCE? Thank you.
spk03: Well, I'll start with the, you know, we think that was actually a really well-done contract. You know, the lessons that we learned have to do with, well, you know, how well are you prepared for a force majeure event? You know, how well are you prepared for, you know, supply chains to be shut down in Shanghai or, you know, shipping channels, et cetera? So I think that's, you know, that's what's been – uh you know causing us the uh most of the delays as we talked about you know the other the other delays associated with this is uh are related to socal's desire to have those projects go into you know grid sync in 2023 so one of the well i'll call it a lesson learned but it's actually important thing that we've got to carry through to our future projects is There is no – there's nothing more valuable than having a very solid, open, and honest relationship with your customer. I mean, that's a theme that this company follows with a lot of projects. But our relationship with SoCal Ed has been open and honest from the beginning. You know, we have continuous high-level executive meetings. You know, I think that that's of critical importance. So when we're approaching new proposals, new opportunities, That's one of the important pieces of the puzzle is to ensure that, you know, some of us on the executive management team get involved early on, get to know the management teams and our counterparties and our suppliers to ensure that we can manage a smooth process for what sometimes can be, you know, large projects. So, you know, at the end of the day, we feel really great about the project that we've built. You know, we feel like it's adding a lot to our resume and, I think we're, you know, we're spending a lot of time looking at the way that was executed and using the resources that are working on those projects and that worked on the contracting on all of the proposals that we're working on going forward to ensure that, you know, there's a mind share with respect to the way we approach the new projects.
spk16: I'm sorry, my ad, and that's why I said in my opening remarks, that we have become a company to go to, and we are working on several projects right now along those lines, similar to the Southern California Harrison contract. And you might recall, when we signed that contract in September in 2021, everybody thought we were coming out of the COVID-19 situation, but then we ended up going back into it, and we had the supply chain issues that Basically, we executed that project in what I call unprecedented situation. And I think we did pretty well.
spk08: Okay. Thank you, guys.
spk16: Thank you, Joe.
spk13: Thank you. One moment, please, for our next question. Our next question will come from Chip Moore of EF Hunting Group. Your line is open.
spk06: Thanks. Hey, everybody. Wanted to ask a question on visibility as it relates to IRA. When do you think customers maybe get better clarity on potential funding opportunities, and then how do you sort of end cap risks for any push outs there or potential for acceleration?
spk03: I don't know that I would necessarily frame it in the context of pushouts or accelerations. I think as the Treasury guidance comes out, you know, it seems like our customers and their advisors are kind of waiting with bated breath. As soon as the guidance comes out, they jump on it, and they're immediately in contact with us about, okay, what do we do next? They do seem eager, but it is out of all of our control collectively. the pace with which the government will actually issue guidance. And we had a totally, you know, the same day the treasury came out with the guidance on low-income communities, the clients were emailing us, you know, like, okay, ready to go. Here we go. This is the project and this is where we think it's going to apply and so on and so forth. But we're, so I think that's, that's going to be an interesting dynamic as the, as the guidance comes out. There's, likely to be some scrambling. But I think as George has talked about a number of times, and we also need to be realistic about execution timetables with our customers and ensure that once we have certainty on structure supported by the IRA, that we have time to pursue execution, procure equipment, et cetera.
spk18: Thank you.
spk13: Thank you. Due to time, we're going to ask that everyone limit themselves to just one question so we can get as many people in as possible. Our next question will be coming up shortly. Our next question will come from Pavel Makhanov of Raymond James. Again, we ask for just one question, please.
spk11: Thanks for taking the question. You've been asked several times about higher interest rates. I'd like you to also talk about higher utility rates and how that's affecting both the efficiency side of the business and your solar power plant development. Thanks. Sure.
spk16: The higher interest rates, that's why it's On any project that we underwrite, let's say, solar or whatever the case, assets we might own ourselves, we take into account the new interest rates. And, of course, you know, on the performance contracts, and that's why that goes on what I said earlier on that contract, we have to go back. to back and renegotiate the baseline energy prices, we use the current prices rather than the old ones. And that's what made that project pencil out, even though it's a higher interest rate. But they do impact us, no question about it. But on the other hand, though, because of the energy prices have gone up, it gets neutralized with the performance contract. On the assets we own, we take that into account. We go out, we shop, and we see what the long-term rates will be. And the long-term rates haven't gone up as much as the short-term rates. But the short-term rates impact us on the working capital that we use on the line.
spk03: And I think the higher energy rates elsewhere in the country, you know, for purposes of, you know, off-date contracts, et cetera, you know, I do believe there's a little bit of a lag there with respect to those kind of catching up with where the energy prices are going, just given the long development cycle of some of the assets. But our expectation is the same thing will happen there.
spk18: Thank you.
spk13: One moment, please, for our next question. Our next question will come from Ben Callow of Beard. Your line is open.
spk12: Hey, guys. Jordan, when you gave the guidance for EBITDA next year, there was no IRA. So could you just talk about, you know, maybe what's beneficial from IRA for next year versus what's not good for next year EBITDA?
spk16: No.
spk12: That's a big question. Sorry to interrupt. Big question is the ramp from this year to next year and what are the drivers of that? If you could just name the biggest driver, the second biggest driver. Thank you.
spk16: You're welcome. We have not taken any potential impacts from the IRA. It's based, again, on the project. A good chunk of that will come from the project execution, but a substantial number will come from the assets we place in operation. For example, I know the number of assets we put in operation last year wasn't the number we contemplated, but 40 megawatts of assets will go in this first quarter. And that will help a lot. And then, of course, the RNG assets that will go into operation by the end of the year. And a couple of them, they come on earlier, early in 2024. So they will contribute as well. And then we have a couple of variety of projects that we are working on. And then the other business, they have become a good contributor now. The other lines of business, and they will help as well. I don't know if you want to add any more, Colin, or Mark.
spk18: No, I think that pretty much says it. Thanks, George. Yeah. Thank you.
spk13: And that'll be all the time we have for the Q&A session. This will also conclude today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.
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