Ameresco, Inc.

Good day, and thank you for standing by. Welcome to the first quarter 2023 Amoresco, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw the question, simply press star 11 again. And be advised that today's conference is being recorded. I would now like to hand the conference over to Lila Dillon, Senior Vice President of Marketing. The floor is yours.

Thank you, Carmen, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakolaris, Amoresco's Chairman, President, and Chief Executive Officer, Doran Hull, Executive Vice President and Chief Financial Officer, and Josh Barabo, Senior Vice President, Finance, in for Mark Chiplock, who is traveling today. 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 2, 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 one of our supplemental financial information. I will now turn the call over to George. George?

Thank you, Lila. And good afternoon, everyone. First quarter results represent a solid start for the year. We were pleased to make significant progress in key areas that support our 2023 guidance as well as our long-term financial targets. The MISCO team, once again, executed well, delivering first quarter revenues higher than our expectations and adjusted EBITDA at the higher end of our guidance range. We also continued to lay the foundation for our ongoing success. As such, we were particularly pleased by the addition of new project awards of $472 million in the first quarter, which increased our total project backlog by 13% sequentially. We are executing on our contracted backlog and expect to convert a good portion of our awarded backlog to contracts throughout the year, giving us excellent visibility into our expected project revenue ramp in the second half of this year. We are seeing very strong customer interest across all our business lines. In fact, in this year's first quarter, the total value in the proposal we submitted was 50% higher compared with the same period last year. This reflects greater demand as well as a higher level of project complexity and scope. This increased activity is a function of our great value proposition, which addresses customer requirements for resiliency, cost savings, and carbon reduction. We are excited by the recently enacted Inflation Reduction Act, which provides broad and meaningful financial incentives and benefits for the range of clean energy technologies. MRSQ's technology-neutral business model is perfectly suited to assist customers in finding the best solutions to fit their energy needs and optimize the IRA's benefits. Well, we have seen a slight uptick in awards directly attributable to IRA benefits in Q1. We expect to see a greater impact in the company chorus in the years to come. The energy asset team, again, made excellent progress in the quarter, bringing 34 megawatts online. The recurring revenue model of our energy asset and O&M businesses helps to mitigate some of the time and issues inherent in our project business. Included in the assets we brought online this quarter was the 27 megawatt solar facility in Depew, Illinois. Depew is our largest operating solar asset to date and is representative of the largest size solar, battery, and RNG assets that we are pursuing. This year, we expect to add a total of 80 to 100 megawatts of energy assets into operation. These asset additions, along with continued strong performance in our O&M and other businesses, supports our confidence in our full year 23 guidance. Doran will provide more detail on our visibility during the financial discussion. As we noted last quarter, and Maresco continues to expand into the European market, building on our successful operations in the United Kingdom and Ireland. We expect our expansion to take several forms, including organic growth, acquisitions, joint ventures, and partnerships. This quarter, we entered the Italian market with our acquisition of Milan-based Energos. With a strong management team and market position, Energus has been offering energy efficiency and renewable energy solutions to the commercial and industrial markets for more than 15 years. We also recently announced the expansion of our partnership with the Sunel Group in Athens based international developer and EPC contractor for renewable energy projects. and Maresco and Sunel have established the Maresco-Sunel Energy, which is currently proposing a project pipeline of 1.5 gigawatts with an estimated $500 million in potential contract value in the United Kingdom, Greece, Italy, Spain, and Romania. The joint venture has already been selected as a contractor for a 100-megawatt solar photovoltaic project in Greece, currently in construction, as well as various other smaller PV projects across commercial and industrial markets. Given the increasing importance of the European market to our future growth strategy and recognizing our large and growing European shareholder base, we are holding our investor day in London on May 11th. The event will primarily focus on our European strategy and the market and policy dynamics that we believe make this a very compelling opportunity for us. MRESCO's European Expression Plan will be selective and measured, maximizing potential shareholder value while minimizing execution risk. Given the importance of acquisitions and partners to this plan, We will hold a panel discussion with executives from both Anorgos and Sunil, as well as members of our finance team. We are also pleased to be hosting Bristol City Councilor Kai Dodd, whom we will be discussing our transformational Bristol City project from the customer's perspective. We believe our European expression will be an increasingly important contributor to our revenue and EBITDA growth in the coming years. Finally, we are always honored when our company and the solutions we provide are recognized in the industry. We recently were awarded the 2023 North American Energy Services Company of the Year. by the market research firm Frost & Sullivan. And our expertise in LED street lighting projects was also once again recognized as our Chicago Smart Light program was awarded the Inspiring Efficiency Impact Award by the Midwest Energy Efficiency Alliance. I will now turn the call over to Doran to comment on our financial performance and outlook. 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. Total first quarter revenue was $271 million, about $40 million above our guidance, as we experienced faster execution on certain projects, as well as some early contract conversions. Energy asset revenue grew 6%, with the increased number of operating assets and greater production from existing solar assets more than offsetting the weak RIN prices in the first quarter. Our O&M business delivered another solid quarter with 10% growth as we continued to win O&M contracts on our completed projects. And our other line of business had another strong quarter of double-digit growth, up 13%. driven by increased demand for our utility, SAS, and consulting businesses. Gross margin increased to 18.3% as the lower margin SoCal Ed contract declined as a percentage of our total revenue. We generated adjusted EBITDA of $27 million in the quarter at the higher end of our guidance. This quarter, our working capital showed significant sequential improvements. We reduced our receivables and unbilled revenue during the quarter through payments from our SCE projects. The company generated cash flow from operations of $56.7 million and adjusted cash flow from operations of approximately $100 million, ending the quarter with approximately $176 million of unrestricted cash. We anticipate continued improvements in working capital during the coming quarters as the final SCE payments are invoiced and collected. Speaking of SCE, as disclosed in the press release, during Q1, we agreed on the reimbursement of additional costs incurred by Amoresco related to SCE's request to move the project completions into 2023. As part of this agreement, SCE made a $125 million advance payment to us on future milestones, which is reflected in the improved working capital I just mentioned. Total project backlog was a healthy $3.0 billion, a 13% sequential increase, as we added $472 million in new awards during the quarter, a Q1 record. Our energy asset visibility is approximately $2.3 billion. This metric includes both contracted energy asset revenue as well as uncontracted RNG revenues that we expect to generate over the life of these assets. And to reiterate from the last quarter, this is only from our operating assets. We have a line of sight to even more recurring revenue potential from our assets and development pipeline. In calculating the uncontracted part of this metric, we have used conservative assumptions for asset life and merchant market pricing for RENs, as noted in our release. Our energy asset visibility, together with our project and O&M backlog, gives Amoresco visibility on over $6.5 billion in future revenue. We are pleased to be reiterating our 2023 guidance, which anticipates adjusted EBITDA growth of 5% at the midpoint, which is noteworthy considering the difficult year-on-year comparisons associated with the wind down and completion of the large SCE projects. I'd now like to give some color around how we were looking at the 2023 Q1 to Q4 RAMP with a focus on the pattern of revenue recognition. On the project side, We ended Q1 with a 12-month contracted backlog of $639 million, much of which we expect to be recognized as revenue throughout this year. In addition, we typically convert between 10% to 15% of our awarded project backlog into revenue in any given year. Furthermore, approximately 5% to 10% of our total revenue in a typical year comes from aged proposals, which get awarded, contracted, and converted into revenue in that same year. Our operating assets have a stable base of recurring revenue subject to weather-related seasonality on the solar side. With the commissioning of 34 megawatts of the new Q1 assets contributing for almost the full year, plus 22 megawatts of RNG and another 24 to 44 megawatts of solar and storage contributing partially later this year, we expect very healthy growth from our energy assets lines of business. Our O&M and other lines of business tend to be more linear, so the Q1 2023 run rate is a good estimate for the remainder of the year. When you add those items to our already reported Q1 results, we have a clear path to our guidance levels. Recognizing that this is a high-level overview of our near-term visibility, we do plan to elaborate on this during our upcoming investor day. Turning to Q2 guidance, taking into account Q1 actual performance and considering the ramp described above, We expect second quarter revenue to be in the range of $280 million to $300 million, adjusted EBITDA of $30 million to $40 million, and non-GAAP EPS of $0.10 to $0.20. Now I'd like to turn the call back over to George for closing comments.

Thank you, Doron. As we have discussed in detail during this call, we have continued to grow our long-term line of sight, with now over $6.5 billion in revenue visibility and over 400 megawatts of assets in development and construction. We also maintain an excellent line of sight to both our 2023 guidance and 2024 target of 300 million in adjusted EBITDA. There is no better time. to be in our business given the tremendous opportunities both in the U.S. and internationally as governments and institutions around the world invest in solutions addressing carbon and cost reduction, grid reliability, and volatile energy prices. Again, we look forward to seeing investors in London and at upcoming conferences and events. And in closing, I would like to once again thank our employees, customers, and stockholders for their continued support. Operator, we would like to open the board to questions.

Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone and wait for your name to be announced. To withdraw the question, simply press star 11 again. In the interest of time and as a courtesy to other analysts, please keep your questions to one and one follow-up. Please stand by for our first question. And it comes from the line of Noah Kay with Oppenheimer and Company. Please proceed.

Noah Kay Good afternoon. Thanks for taking the questions. First of all, nice to see the milestone payment acceleration on SoCal Edison contract I want to ask about other EPCM bid activity. I know you had a press release out around some of that activity not so long ago. I don't know if that's included in your comment, George, about the 50% higher dollar value on bid proposal yield to date or if that was separate when you were talking about the traditional project business and maybe you can clarify that.

Yes, no, that was included in the other 50% increase in the activity level that we have seen so far. And what I might add, you know, the business is picking up, and we wanted to make sure we point that out.

Yeah, when you're talking about the press release for CINEL, though, that's not in that 50%. No. That's an upcoming bidding activity that we strategically worked with them to decide we're going after with an aggregate dollar and megawatt amount there for the market to see.

Okay, excellent. So the bid activity that you talked about is apart from that. Can you maybe characterize the $472 million bid? you received in awards and some of what you're bidding on. Just in terms of mix or key trends, I think investors are going to be interested to get a flavor of what post-IRA has maybe more pull or more focus. But I would just love any comments you might have around mix.

Yeah. On the 472, you know, it's across the board. Quite a few of the energy savings performance contracts. I think there is one battery storage project there, a couple of small microgrids. But then on the 50% increase, it's across the board. The activity level across the board is picked up. And I would say more on the battery storage and the microgrids, very good traction on the CNI and some of the federal as well.

Yep. You know, just in consideration of time, one more question, if I could. You know, maybe it doesn't have any bearing on your near-term RNG development, but I did see a report from Reuters today that EPA might split off the rulemaking for ERINs so that it could basically wrap up the RVO rulemaking timely for 2023. It's just any comment on how you're looking at that sort of the regulatory environment now? and how you are approaching, you know, project development on landfill gas electricity versus RNG.

Yeah, on the earrings, and I will comment on the door and can add a little bit more color to it, but they're not in our plan, either the 23 or the 24 for that matter. But on the other hand, we want to point out to everyone that we have over 75 megawatts landfill to electricity assets, which down the road, it could be an upside. But we have to negotiate the contracts, see how EPA defines earrings and so on, and the path to it. And on the other hand, you know, if they just, the EPA focuses on the RVO, it might help. Because we did provide them quite a bit of data showing to them that the analysis that they were using, it wasn't represented, it wasn't current. And we are cautiously optimistic that they might increase that number that they come up with.

Yep. Thanks very much for the call.

Thank you.

One moment for our next in queue.

And it comes from the line of Stephen Gamgaro with Stifel. Please proceed.

Thanks. Good afternoon, everybody. Excuse any background noise. I'm traveling. Two things for me. I would start with this first. When you're talking to customers and you're looking at various projects, how has inflation impacted the discussions? It feels like from your order flow and your commentary, things look very strong. I'm just curious what you're seeing on that front these days. Have you seen it slowing down a bit as far as the inflationary impact?

Inflation works both ways, you know, but what has helped the value proposition is that the energy prices have gone up as well at a faster pace than materials and so on and so forth. So the value proposition is still very good, and the activity level, they want to reduce their costs. So they are more conscientious about the energy costs and the infrastructure upgrades and so on.

Yeah, I think it's the same theme we've talked about before, Steve, and I don't think we've seen it change in conversations with customers.

Great. Thank you. And the second one for me is when we think about sort of the roadmap to 2024, and I'm sure you're going to talk a little bit more about this in London, which I'm looking forward to, but Can you just give us some sense how much of that target would have to be driven by incremental acquisitions from where you're sitting today and how much is, you know, sort of based on existing operations?

No, it's most of it is incremental acquisitions. We never counted too much, even though at the original plan, we had a couple of small acquisitions that we had in the plan. It's, I would say, not very material at all. Yeah, not a material amount, Tim.

Okay, great. Thanks. I'll get back in line.

Thank you. One moment for our next question, please.

And it comes from the line of Tim Mulroney with William Blair. Please proceed.

Yeah, hi, Doran, George. Thanks for taking my question. On the 23 guide, your guidance, I think, assumes $60 to $65 million in EBITDA in the first half of the year, implying that you'll need to generate about $150 million in the back half of the year. That's a significant ramp over a short period of time. Can you just help bridge that a little bit for investors by segment? You were helpful in your prepared remarks, but how much of that EBITDA ramp do you expect to come from the project segment versus the energy asset side of the business for the second half of the year.

Tim, I think logically moving the question from my discussion about revenue ramp into the EBITDA ramp, and I think we're going to save that for the investor day where we're planning to give some more color about the ramp.

Okay. All right. Well, we'll leave it for the investors.

I mean, I think, yeah, when you look at the breakdown on the revenue side, I think we've talked about, generally speaking, what our margins look like in those segments. So, I think that you can probably do a little math to get some clarity on it. But I think we'll hold that for now. Yeah.

The only thing on my head on the ramp that they anticipated that you see the ramp there, even though it looks a little bit ambitious, we have done it before.

Yeah. Okay. Thanks, George. And then just on, you know, sticking on that energy side, you know, the three RNG plants you expect to be completed this year. Can you just help us out with our models by outlining the expected timetables for the mechanical completion of these three plants?

Yeah, well, one of them, it's actually was already mechanically completed, and we are in the commission stage right now. We just started in the commission stage, so it should be fully operational in the next couple months. The second one, we anticipate to go and be mechanically complete early third quarter, and on that particular one, we saw a little bit of a delay, slight delay to some delivery of some equipment, So it's about a month or two. And so you will be in commission mechanical early and commissioned during the third quarter. And the other plans will be in mechanical completion early the fourth quarter and then fully commissioned before the end of the year. And on that particular plan, that's the California plan, that was impacted by the unprecedented weather down there, the floods and so on. So we had about three months delay on that particular project. But the point we want to point out here is that MRS has a very diversified business model. So if we lose, let's say, three quarters of production on a particular plant, it's not as impactful as it would be. We have other levels we can pull in the company and the project construction and so on, or the solar plants that they want to be put in service. A couple of them, they were ahead of schedule. So it gives us a little bit more flexibility rather than relying on any one or two individual plants.

Got it. Thanks. And if I could just sneak one more in real quick on the RNG. After the three this year and the four to five you have slated for next year, you know, how many RNG plants do you have in the backlog aside from those?

We still have 20 total. Yeah. Yeah. Yeah, including those. Yeah. Okay. Thank you.

Thank you.

One moment for our next question, please.

And he comes from the line of Julian DeMolin Smith with Bank of America. Please go ahead.

Hey, good afternoon, team. Thanks for the time. I appreciate it. In fact, if I can, just... Hey, afternoon, guys. Listen, if I can, just to follow up on the last question quickly. Look, you know, obviously you've announced some incremental, larger-scale renewable opportunities in Europe. You're scaling up Europe nicely. RNG, you know, is what it is on timeline with ERINs, but... How much latitude are you effectively creating here against your 24 guidance? I mean, folks have tried to prod you in a couple different ways on this, but just curious if you could talk about how much incremental latitude this is versus solving for the 24 plan with the incremental European announcements principally.

Julian, this is Josh.

Maybe I want to make sure I'm understanding your question. Were you talking about when you say incremental European announcement, did you mean the Sunel announcement? Yeah, sorry, indeed. And the suggestion that there was more to come. Yeah, so when we gave the 23 target, it was a reflection of the earnings power of our business for 2024. And we are constantly proposing activities, some of which we knew about at the time, some of which we had a feeling would come, and some haven't come yet. But at the end of the day, it's not like that number you started from March of 2022 and started adding every press release we add on top of that. A lot of that was either built into the target because we knew we'd be coming out with them, or we had a feeling for where the business development would be focused over those next two, two and a half years. So I think in short, A, it's a proposal. They haven't been awarded yet. We think we have a great shot at a lot of them, but the timing is a little uncertain. And B, not fully incremental. A lot of that was kind of built into the plan. Got it.

And then maybe if I can talk about extending the plan and perhaps as part of the rankings, how do you think about the timeline here, whether ERINs or just frankly executing it for the 20-odd projects you have in flight? you know, giving a longer-dated target. Obviously, 24 is around the corner here. What kind of duration can we look to? Can the updated plan include kind of the plurality of projects already in flight here when you think about getting some degree of certainty on your RNG program more holistically?

I think for this quarter, certainly we're focusing on the 23 ramp, the 24 guide that we've given before. You know, to the extent we get to a point where We're ready to talk about what things look like beyond that. Apart from what we put in our kind of traditional slides about our overall revenue and EBITDA growth over time, then we'll do so. But we're not talking about it today.

Got it. An analyst may know, right?

I didn't get the question.

We'll let you know. All right.

Fair enough. Duly noted. We'll stay tuned. Thank you, guys. Thank you.

Thank you. And ladies and gentlemen, as a reminder, we ask that you please keep your questions to one and one follow-up. One moment for our next question. Any comments from the line of Eric Stein with Craig Hallam? Please go ahead.

Everyone, thanks for taking the questions.

Bye, everyone.

Hey, just sort of revisiting the joint venture with Sunil, you know, just curious on the 1.5 gigawatts of bids that you're participating in, how that breaks down, you know, small, medium, large. And I guess I'm trying to get at, I would assume that the, you know, the large ones may move slower and be chunky and the others might be a little quicker. Just any thoughts on how we might see that play out?

So I'll just speak to this for a second. For example, the one that we're executing on in Greece currently with them, probably around a 12-month implementation for a 100-megawatt project. So I think a lot of what we're seeing and what we're going to propose with them is in a similar size range, some bigger, some a little bit smaller, and so they're a little bit more granular. You know, clearly we focus a lot on execution risk there, and I think also we're pleased to see those spread out amongst the jurisdictions mentioned in the press release. George, I don't know if you want to add in.

Well, it's across the board, and most of them, it's with customers that we know. They are on the other side. Otherwise, those projects will deal with people that we have relationships with. But they still have to go through the competitive process. That's right. And may the best person win.

And maybe just on the follow-up, and I'll keep it to two, but what is the competitive environment like? It sounds like you're being selective as to the bids that you're participating in. Just curious if there are any differences in the European market versus what you've seen in the U.S., I guess, still early days.

Well, you know, there are some differences, obviously, jurisdictionally speaking. However, Sunil's got a good track record of executing in there. And then in addition to that, these are customers that Amoresco is a known quantity. So that's what gives us the confidence. And I think we're really focusing in on the ones that we feel really good about winning, right? I mean, we're not going to just – go out there and just do a shotgun blast to as many as we can see in a bunch of jurisdictions where we haven't operated before. You know, we're really focusing on these areas where we feel high likelihood of success is at hand. So, the, you know, the customers over there, though, do tend to be some of the larger asset owner developers there, right? So it's not traditional kind of government customers like we see here in the US, but it's not like there's no competition. So we still have to come in with some strength. Okay, thanks.

Thank you.

One moment for our next question. Any cons from the line of George Gianaricas with Canaccord Genuity? Please go ahead.

Hey, good afternoon, everyone. Thanks for taking my questions.

Good afternoon, George.

So can you just talk about any impacts you've seen from the financial system stresses that we saw over the last 90 days on your business and any projects? Yep.

Yeah, sure. So, on any projects, none. You know, we've seen no kind of direct impact, no direct exposure across any of the banks that have been talked about by name in the, you know, with the FDIC taking control. So, that's kind of step one, right? You know, lenders are starting to get a little bit more careful, but we have disclosed that we've actually increased one of the covenants in our credit facility. We closed a very large construction loan. We've closed multiple sale leasebacks. And I think it's, you know, kind of the strength of our history and our profile is continuing to carry us forward. The last thing I would say is that our lenders on the non-recourse side for our projects or the assets that are actually going under our balance sheet are not just banks. We've got a diversified funding pool. We've got insurance companies in there. We do have banks. We've got non-bank lenders involved. And so that dilutes the impact of what is facing kind of just the banking industry specifically.

Thanks.

And you alluded to this a little earlier, but are you seeing any supply chain impacts, any equipment delays, any permitting issues that you'd referenced over the last six months? Are they continuing or has there been any improvement in the availability of transformers, is there any electrical equipment that you've seen in short supply?

I would say some elements we've seen a little bit of improvement. Other elements are remaining relatively stable as manufacturing capacity keeps trying to keep up with demand. Not going to go into specific types of equipment necessarily, but broadly speaking, I think there's been, you know, mild improvement with some others just remaining kind of exactly where they were before. We're watching it very closely, as you can imagine, and we manage those timeframes very closely.

Thank you.

Thank you. One moment, please, for our next question.

Any cons from the line of Kashi Harrison with Piper Sandler, please proceed.

Good evening. Good evening, everyone, and thanks for taking the question. So, you know, last quarter, you highlighted that it was taking a little bit longer for projects to convert from awarded to contract just due to interest rate volatility. But in the press release, you indicated that you expect to convert a substantial dollar amount of awarded to contracted during 2Q. Can you speak to the drivers of that confidence? Are these, have these projects already converted or, you know, what's driving the confidence that we're going to see a big change in Q2?

Yeah, these weren't projects that converted in Q1. I think the ones we talked about at the end of Q4, we had mentioned that it was likely end of Q1, beginning of Q2, sort of early Q2. So we're expecting to see those come through as well as, you know, kind of just the ordinary pace of award to contract conversions.

and our confidence comes because you know we see talking to the customers which state stage of the process are we how many more approval do we need and so on and uh a good number of this is a good size contract they will what i will call advanced stage of execution that's helpful thank you uh and then just maybe a quick follow-up just a housekeeping item uh

It looked like your net assets in development declined to 432 megawatts from 470 last quarter. Did you sell some projects or did you cancel some projects? What was the driver of the sequential decline in net assets and development megawatts?

Well, Cassie, the biggest change, of course, was we placed 34 megawatts into service. I want to make sure that you're comparing apples to apples because we kind of have a gross number and a net number, net being taking out our partner, joint venture partner share. And so the quarter end last or at the end of Q4, I think we were at 460, and we ended this quarter with 431. So we had you take 460 minus 34, and we added a couple. That's how that map works. Got it. Thank you.

Thank you. One moment, please, for our next question. And it comes from the line of Joseph Osha with Guggenheim.

Please proceed.

Hello, everybody. Thank you for taking my question. I have two. First, you all had indicated to me recently that you felt like particularly your asset portfolio, the solar plus storage portion of the mix was going way up. I'm wondering if you're continuing to see that. And also, just on the sold projects, are you seeing the storage attach rate go up there as well? And does it kind of compare it to the rate for your asset portfolio? Thanks. And I have a follow-up.

Okay, Joe. I might just check on this statistic on the attachment rate of storage to projects that are solar plus storage. But as far as the rest of it, if I'm looking forward through the remainder of the year, I do actually expect to continue to see that mix. solar and storage increase versus the overall mix for certain. George and I both have been directly involved in a number of things that are out there and, you know, that we look forward to talking about, but I think that we'll see that mix continue to increase. Yeah, that's, you know, as you know, we have very narrow standards for what we'll put on the balance sheet in terms of return hurdles, in terms of risk, risk-adjusted returns, but we're still seeing some really attractive stuff.

Okay, and then, sorry, go ahead.

Yeah, I was just going to give you a quick statistic on the storage. So, we have about 68 megawatts of batteries attached to solar systems, and then about 57 megawatts of just standalone storage.

Well, and that gets to my second question, right? Obviously, as people are continuing to sort of digest this, you know, the storage-only ITC and whatever adders might come out of it and all this kind of stuff, how do you think about your solar attached versus storage-only mix?

You know, I don't know that I could put the kind of predictive analytics out there, Joe, because again we're looking at the opportunities on uh you know i don't you know investment by investment basis so the development is continuing across the board without question yeah you know plenty of solar and development standalone solar uh as well as solar plus storage and the storage standalone you know i mean it's coming from across the board really comes down to what are we going to uh devote our resources to

Yeah, and the only thing I might add is that the storage portion is growing in relation to the soil. And our, you know, doing that large project in Southern California and getting our reputation out there, it has helped us get good traction and even just better storage along projects.

All right. Hey, can I sneak one more in here? I'm sorry. Obviously, you flip to positive cash flow from ops from negative and obviously kind of SE's been swinging it both ways. But I'm curious, given this outcome, I mean, do we feel like we have line of sight towards sustainable positive cash flow from operations, say, you know, towards the end of this year coming into next year?

Look, I mean, the short answer is yes, because the adjusted cash flow from operations in general, you take that before allocating how much we're going to invest in new assets, which, as you know, we do invest our excess cash flows in those new assets. You know, we have a small maintenance capex piece. As the SCE projects go on through to their full completion, then what we've been seeing for the last several quarters is going to reverse itself. and we feel quite comfortable about that.

Okay, thank you very much.

Thank you, Jill.

Thank you. One moment, please.

All right, in our next question comes from Pavel Molchanov with Raymond James. Please go ahead.

Thanks for taking the question. Back to the partnership with Sunel in Europe, When you talk about one and a half gigawatts, is there a timetable for that? In other words, is it going to be, you know, 50 megs a year or 100 megs a year? What kind of run rate are you anticipating?

I would say about a couple of years and maybe three years at most. A couple of them, I know they will be shorter period time horizon within the next 18 months or so. But generally, these large institutions, even though they are in the same business, we are in the same business. They take time, and then go into production, which takes a year to two years anyway. So I would say two to three year horizon. But some of the smaller ones, that's why I wanted to do my commentary. Some of the smaller ones, projects for some industrial and commercial customers, we're doing with that particular partnership, which feels very good. They will be completed within the next year or so.

Yeah, those potentially could be faster, the smaller ones. I mean, you've got a little bit of time for proposal, converting to award, you know, and signing contracts. But since you're dealing with more like private and commercial customers and not government customers, that cycle is shorter. And we move into construction. And then it's all about timelines to construct, which I think takes us to that two- to three-year period.

Okay. About a month ago, you announced that you will be buying batteries from Redflow in Australia, and I think that's the first time you've purchased non-lithium ion batteries. Are you confident that commercial institutional end users will be comfortable with what is, after all, kind of a novel battery chemistry?

So the short answer is with Redflow specifically, actually, we had a customer who had analyzed the technology and requested that we do it because they wanted to use it. Interestingly, I will correct one thing that you said. This was not the first non-lithium battery that we purchased. This was the second. manufacturer. So we've got experience with it before. We do look very, very closely, as you can imagine, at the data, at the ability for these batteries to be deployed commercially before agreeing to do so. And I think as I've kind of commented on uh i think in an article recently what we like to do is get ourselves into a position where if we feel good about the product then our expanded demand for the product will actually kind of trace the expanded manufacturing capacity of a lot of these battery suppliers because they you know they tend to be a little bit smaller right and so they're they're gaining traction as we're gaining traction uh but we do feel We do feel comfortable. I was recently on an internal expert call with some of our folks talking about those technologies. And, yeah, we've done a lot of learning, and we're quite aware of what these batteries are good for, what they're not good for, what the right case study, you know, what the right use cases are. And, you know, it's all about deploying them in the right place, right, at the right cost. for the right customer situation. And this particular customer had done so much research on them.

And that's what they wanted. And like Walter said, customer, we will do what the customer wants us, but on the other hand, we're going to make sure that what we're doing, it stands, it performs well.

Understood. Thank you again.

Thanks a lot.

Thank you. One moment for our next question. Any comments from Christopher Sother with B. Riley? Please go ahead. Hey, guys.

Thanks for taking my questions here. It's nice to see an accelerated payment from SCE. Can you give us a sense as to what has been paid to date or what is remaining from SoCal Ed? And it sounds like they're agreeing, you know, for some of the cost stuff. stuff you've talked about previously potentially being an option and any sense of the overall margin profile for those projects and where we think we should be penciling that in at this point would be helpful.

Yes. I mean, you know, the expectation is we'll end up with completion kind of this summer, right? You kind of follow the cash from there. I would expect our unbilled to come back down to a normalized level sometime in Q3, therefore. That's probably the best pattern I can give to you. Not stating specific dollar amounts, of course, but you would have seen you know, the increase in unbilled as we got close to the end of 2022, when we have stated in our Q that we, in our K, that we've recognized the majority of the revenue from that contract in 2022. And so, therefore, you know, that should give you a fairly solid unbilled number to compare against.

Got it. Okay. No, that's really helpful. And then on Europe, I imagine a lot of this could be covered next week, but could you just frame what the revenue contribution is expected to be for 2023 there. It sounds like there's still a lot of moving pieces that could impact 2024, but I wanted to get a sense of how you think the European investments are going to shake out for this year. You called out Europe as one of the drivers of increased topbacks. I'm curious what the magnitude is there and how much we're spending in Europe.

Our numbers got either. So Europe is currently about 5% of our sales, and I think the growth there, at least in the near term, will largely be driven by the Bristol City LEAP project. So that may go to something like 10% in the next year or two. The acquisition of Enercos is a nice acquisition, very excited about it, but isn't quite as material as Bristol, for instance.

Okay. Thanks, guys.

Thank you. One moment, please, for our next question. And it comes from the line of Chip Moore with EF Hutton.

Please go ahead.

Hey, everybody. I wanted to ask one about that. Hey, I wanted to ask about that increase in dollar value for proposal activity you're seeing. Great to see that up nicely. But around this trend and growing project complexity, I guess more so around your confidence in the ramp for the back half of the year, and then perhaps that 300 million EBITDA target next year.

I mean, the proposal activity is helping us a lot, but as you probably know, it takes six months to 18 months to get from the proposal to actual executed. First, you got to win the contract, go to the awarded, and then six months to a year later, we get the actual contract where we can build it out. It's a good indicator that our team, and that's why we had a little bit pickup on the development expense going out there and developing these projects and winning a good share of the projects. So basically, it gives us even more confidence for that particular number, for the 300 million EBITDA number.

I think a good part of the proposal activity came out of federal as well, where it had been a little bit slower for a period of time following COVID. So you're starting to see that bounce back pretty strong.

Got it. Yeah. And you think you have a pretty good line of sight in the back half of the year for those projects that you typically award and convert in a year, or that's well embedded in your outlook? Thanks.

As far as aside from going from the awarded to the contracted, we have very good visibility. That's why we feel very good about the number 2023 and where we think we're going to end up for the end of the year on contracted backlog. That's going to help us a lot for the next year.

Yeah, I mean, that's a very granular exercise for us when looking at what the conversion rate is going to look like contracted for the remainder of this year. That is not a general feeling. That is really based on some hard data for our awarded backlog, which projects, where do they stand, how far along are they, how close are we to converting to contracts. We look very closely at that. And that's what gives us the confidence in that kind of cadence of conversions that I talked about in the RAN. Perfect. Yeah, understood. Thanks very much.

Okay. Thank you. One moment for our next question, please. And it comes from Craig Shear with Two Wee Brothers.

Please proceed.

Good afternoon. Thanks for taking the question. I just really want to do a bit of a follow-up to Chip and Tim's earlier questions. And it's three-part but really quick, so I'll just blurt it out. So first, can you opine on the level of confidence in that updated 2023 RNG rollout? Second, are there any assumptions around improving RINs into the second half built into guidance? And third, If you meet the guidance-implied second half of this year, given that's a run rate already meeting your 24 guide, doesn't ongoing growth suggest you'll beat your 24 guide?

Where do you want to start? I wouldn't say that. Yeah. We start with confidence in the construction schedule. I think confidence is very high in the construction schedule. With respect to RINs, so we don't really talk about specifics on the RIN numbers. I would say that what we're using is following what we believe is our expectation for what we see the outcome for 2023 RINs. to look like. Everyone knows we're kind of circling mid-June for the final rules, but that's kind of where we are with that. And I think that with respect to the 2024 Look, we feel very good about that 2024 number. If we felt like there was some sort of material adjustment that needed to be made, we would make it. Based on what's going on, we feel like there's a lot of contributors there that we feel like we're going to be bringing to bear to deliver that number. I don't know that I'm going to jump into any adjustments to that at this time.

No, no, no. Actually, one of the positive things that we've been seeing in the marketplace is it reinforces that number.

Right. I guess my point is you're implying a second half 23 that is basically a 2024 full-year run rate, and you're saying that business continues to grow.

No, because the third and the fourth quarter is the strongest quarters that we have because many large construction schools, colleges, universities, and so on and so forth. And then the first couple quarters of next year, they will be considerably slower than the third and the fourth quarter of this year. So you do not have that run rate, you know.

If you look back over the years, this has always been the cycle. Slower Q1, Q2 versus Q3, Q4. Correct.

But you cannot extrapolate the Q3 and Q4 into the following year.

No, that's right. They can't. Understood.

Thank you. One moment for our next question, please. And he comes from the line of Ben Calo with Baird.

Please proceed.

Hey, guys. Maybe could you talk about the move internationally and what's driving it? Because it seems like in the U.S. with the IRA, we have some of the biggest tailwinds here. And so what's the emphasis to move internationally here? Is it returns? Is it less competitors or what? And just going back to the previous question where we talked about seasonality of the business, one of the things that you all have emphasized is as your asset ownership increases, we should have better visibility every year because the EBITDA comes from those assets. So why wouldn't it? go from a run rate the second half to next year? I mean, if we get 75% of the dollar or something like that coming from the assets. Thank you.

Yep. Okay. So I'll start with Europe. So Europe is really exciting. There's a lot of areas of Europe where we actually do believe we can compete very, very well. It is and has been primarily on the project side, right? I think the asset side will come. but the project side of the business, there's a significant amount of incentives and funding pushed around by the EU. They've got extraordinarily aggressive targets, corporates, industrials, and governments alike looking to go to net zero, just like the Bristol's situation has led to multiple conversations with other municipalities around the region. So we do see it as an opportunity for a volume game without, again, significantly increasing operating base. We're not Talking about going out and hiring hundreds of people that will just put on the ground to go chase stuff in Europe, right? We're using our high operating leverage, organic business growth model, the exception, the acquisition of intercos, which, of course, was opportunistic, but we feel great about. That's the approach we're taking to expanding in Europe. I agree that the U.S. has a tremendous amount of incentives that it's going to increase business volume in the United States as well. Right? And, again, that, too, is a volume gain. More funding for our customers so they would like to do more work. And, however, we're not Taking away from right us to expand in Europe. That's not a zero-sum game It's all a little bit of a magnifier on the expansion capabilities that we have as a company given the way that we operate So then moving on to your second question. I which I've already forgotten.

Yeah, I think I can answer it. So I think you're asking kind of why wouldn't that be the run rate given the energy assets. So I think you have to break our business up into our four lines of business. The energy assets would be the run rate, but the project business, as George was talking about with the previous caller, has some pretty significant seasonality to it. So the energy assets, that would be the run rate. So when you see that, that's a reasonable run rate. There's a little bit of solar seasonality around the winter months, And then, you know, add the project business seasonality to Q1 and Q2 of 2024.

And thank you, ladies and gentlemen. With that, we conclude our Q&A session and program for today. Thank you for participating, and you may now disconnect.