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spk36: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Amoresco Incorporated fourth quarter 2023 earnings 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 your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Ms. A'Lelia Dillon, Senior Vice President, Marketing and Communications. Ms. Dillon, you may begin.
spk34: Thank you, Lisa. 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 Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on slide two of our supplemental information, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental information.
spk23: I will now turn the call over to George.
spk07: George? Thank you, Lila, and good afternoon, everyone. Fourth quarter results marked a strong finish to a challenging year for the renewable industry and for MRSCO. We not only achieved very positive revenue, adjusted EBITDA, and net income growth, but also our business development execution remained very strong. We exceeded 2023 with record backlog and asset development metrics. These metrics, together with our intense focus on execution, point to 2024 being a year of
spk15: sustainable growth.
spk07: Demand for energy efficiency and renewable solutions remains robust, and MRSCO's ability to effectively compete and win new business demonstrates how well aligned our capabilities and offerings are with our clients' priorities. At the same time, we are also growing our assets in development at a strong pace. which together with our project backlog give us excellent multi-year visibility. This supports our 2024 midpoint guidance for revenue and adjusted EBITDA growth of 20% and 38% respectively, and provides us with over $7 billion in multi-year visibility and profitable revenue. Amoresco's total project backlog was record $3.9 million at the end of 2023, up approximately 50% versus 2022, with new awards for the year of $2.2 billion. And proposal activity remains at record levels. During the year, we also placed 118 megawatts of assets into operation, bringing our operating energy assets to over 500 megawatts. We also added 198 megawatts of assets in development in 2023, ending the year with 669 megawatts of Maresco-owned assets in development and construction. Now, I would like to make some comments on the industry environment and what Maresco is doing to address current challenges. First and foremost, As I stated before, industry demand remains very healthy. Elevated power prices, greater demand for electricity and green resiliency, combined with attractive incentives, have created a very favorable demand backdrop for renewable energy and energy efficiency solutions. This robust industry demand, though, has also strained some parts of the system. The industry continues to experience lengthening award conversions, interconnection and permitting delays, supply chain disruptions and shortages of critical equipment and skilled labor. With a focus on execution and cost efficiencies, Maresco continues to take steps to adapt to this new environment. We are optimizing our operational structure to bring more uniformity and scalability across all of our geographies and business units. Taking a more conservative approach to our construction schedules. Promoting knowledge sharing and increasing best practices across our teams. and focusing our business development efforts on larger opportunities in our core markets and areas of expertise we also remain very focused on our working capital levels and liquidity as part of this we are prioritizing the timely conversion and execution of our tremendous project backlog these actions are already yielding results our 40 percent project revenue growth in the fourth quarter was halved by the conversion of the words to contracts that had been previously delayed. Our focus on conversion also helped drive a 32% year-over-year increase in our contracted backlog, which ended the year at $1.3 billion, giving us good visibility into our 2024 revenue. Demand for our services remains very strong. And Maresco is well positioned for 2024 and beyond. As I mentioned before, there are a number of very favorable macro factors driving this strong demand. One of these is the IRA legislation. Looking at Maresco's history, one can see that we have performed quite well regardless of the party in office. The main reason for this is the diversity of our business model and the fact that our solutions are driven by economic returns and cost savings to our customers, many without additional government incentives, especially in our project business. We also see tremendous support for our resiliency solutions from utility, government, and military customers, again, regardless of the administration. Therefore, we continue to see strong demand and great opportunities ahead. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran? Thank you, George, and good afternoon, everyone.
spk14: For additional financial information, please refer to the press release and especially our supplemental information that was posted to our website after the market closed today. and which contains some new financial content that I will describe in more detail. We ended the year on a high note, with total revenue for the quarter of $441 million up 33% from the previous year. Each of our four business lines experienced double-digit revenue growth. Our projects business had a particularly strong quarter, as the company executed on a number of large contract conversions, some that had slipped from the previous quarter, and benefited from increased overall activity. We also saw a benefit of approximately $40 million from faster implementation of active contracts. We continue to make great strides in growing our European footprint. You will notice in our upcoming 10K that our European revenue now accounts for over 10% of our total revenue and is therefore now separately disclosed going forward. We experienced strong revenue growth of over 150% this year with solid organic growth and a significant contribution from our very successful intercoast acquisition. We believe the European market remains highly fragmented and very economically attractive to Amoresco. Energy asset revenue grew 12%, largely due to the greater number of operating assets compared to last year, as well as higher RIN prices experienced during the quarter. we continue to bring assets into operation, growing this important recurring revenue stream. Our O&M business and other lines of business grew 13% and 12% respectively. Gross margin of 17% dipped during the quarter as project mix impacted this quarter's results. Like in other quarters, our gross margins can be impacted by the mix of projects we are executing during the quarter, ranging from higher margin performance contracts, to lower margin design build revenue. While gross margin can vary from quarter to quarter and year to year, we are not seeing any fundamental changes in the margins of our projects. As always, we remain focused on driving incremental gross margin dollars and operating leverage over gross margin percentages. Adjusted EBITDA grew 33% to $54.9 million in the quarter, with non-GAAP EPS almost doubling last year's results, a key driver of tax benefits. We expect to continue to take advantage of a number of tax incentives, which we've accounted for in our 2024 guidance. Q4 was not only an excellent quarter for execution, but also for business development, with over $500 million of new project awards in the quarter. Our project backlog represents a very well-balanced mix of performance contracts and design-build work with particular strength from the federal government sector. During the quarter, we also placed 63 megawatts of energy assets into operation and added 198 megawatts to assets in development and construction with a diversified mix of solar, battery, RNG, and biofuel assets supported by our recent awards in Hawaii. Turning to our balance sheet and liquidity, I'll draw your attention to some additional metrics we are providing in our press release and supplemental information, both available on our website. First, let me spend a few minutes on our debt. As many of you are already aware, Amoresco carries two distinct types of debt, corporate debt and energy asset debt. The vast majority of our debt is energy asset debt, supported by our large and growing portfolio of profitable energy assets. As most of our assets are backed by multi-year offtake agreements, banks are willing to lend a high portion of the cost of these assets at competitive rates, given the long-term nature of contracted cash flows they are expected to generate. As of year end, our energy asset debt represents only 72% of the book value of the related energy assets, a fairly conservative level. It is also important to note that the majority of our energy asset debt for our operating assets is fully amortizing over the 15 to 20-year term of the OPTIC contracts, matching our debt with our contracted revenue flows for these assets. And for a significant portion of our assets in construction and development, we have already lined up long-term debt financing through our existing sale leaseback, RNG, and other portfolio financing facilities. In addition, given the strength of our asset development efforts, we're continuing to pursue a develop and sell business model for a portion of our assets in development. This allows us to convert assets that would otherwise require cash equity into EPC and O&M contracts, which instead generate project revenue and more immediate positive operating cash flow. Even with these develop and sell transactions, we will continue to target long-term operating energy asset portfolio growth of 20% plus. Lenders and investors have continued to fund these attractive assets at competitive rates, allowing us to minimize the use of the company's own equity. Our corporate debt, which includes our term loans and revolving line of credit, is the minority of our total debt. At year end, our corporate debt was $280 million with a leverage ratio of 3.3 times, below our bank covenant level of 3.75 times. It is important to note that our corporate debt covenants do not include energy asset debt as part of the leverage ratio calculation. In the end, the vast majority of our debt is covered by our strong and profitable energy asset business backed by multi-year contracted revenue streams. And our corporate debt should decline as we bill and collect on the SoCalEd projects. Another consistent topic of discussion with investors and analysts is our cash flow generation. Our quarterly cash flows can be quite volatile given the variations in the timing of collections and outlays on our contracts. Because of this, we're providing a quarterly moving average of adjusted cash flow from operations over an eight-quarter period. which is broadly representative of our implementation cycle. In our supplemental information, we have provided a longer-term chart of this metric over the past several years, which clearly shows the temporary impact of the working capital we needed for the SoCal Ed contract. We expect this metric to improve back towards its historical positive trend as we bill and collect from SoCal Ed. Now turning to 2024, We are guiding to revenue and adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively. Included in our non-GAAP EPS guidance is the anticipation of a likely net tax benefit. Our ranges are slightly wider than prior years given the operating environment. We believe the primary variables that can impact our results this year will include the timing of converting project awards, the execution of develop and sell transactions, as well as the pace of implementation of our contracted project backlog. Other important variables include the timing of bringing our new energy assets into operation, realized RIN pricing, and tax benefits. We anticipate placing approximately 200 megawatts of energy assets in service during 2024, including our large Kapono asset and United Power battery assets. Our 2024 asset guidance also includes placing three RNG plants in operation, one of which went COD already in January. Our expected CapEx for 2024 is $350 to $400 million, the majority of which we expect to fund with energy asset debt and tax equity. As we look to the first quarter, we estimate revenue and adjusted EBITDA to be in the range of $225 to $275 million and $20 to $30 million, respectively, with negative non-GAAP EPS. As we noted, we saw approximately $40 million of project revenues from faster implementation of active contracts in the fourth quarter, impacting our Q1 guidance. We expect the remainder of the year to follow a more normal quarterly seasonal cadence.
spk07: Now I'd like to turn the call back over to George for closing comments. Thank you, Jordan. We ended the year on a high note, even in light of a difficult industry environment. And that positive momentum has continued into the new year. And Maresco's outlook for 2024 reflects the strong visibility from our backlog recurring energy assets, and O&M revenue streams. Our top focus for 2024 is the execution of our tremendous project backlog and assets in development and the generation of cash flow. In closing, I would like to once again thank our employees, customers, and stockholders for their continued support. Operator, we would like to open the call to questions now.
spk36: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. Wait for your name to be announced before proceeding with your question. We as well ask that you limit yourself to one question and one follow-up. Please wait while we compile the Q&A roster. One moment. Our first question today will be coming from Noah Kay of Alpahara and Company. Your line is open.
spk25: Good afternoon. Thanks for taking the questions. Let me talk about the energy asset portfolio planning for 2024. You indicated expectations for 200 megawatts placed in service. So, Doran, picking up on the comments in your prepared remarks around developing portfolio growth, but also doing develop and sell, is how much of the 200 megawatts do you kind of envision retaining? And then the 350, 400 million capex, I mean, how much of that do we sort of see an immediate kind of turnaround on in terms of monetization and sales of assets?
spk14: Yeah. So, Noah, the short answer to that is the entire 200 is what we're retaining on balance sheet. The capex figures are what we're retaining on balance sheet. So the develop and sell is, you know, we fold that develop and sell into our financial plan under the project business because it becomes EPC, but we do not include it in those asset metrics.
spk17: All right.
spk15: All right. Very helpful.
spk25: Yeah, it's a very substantial, you know, growth versus what's in operations today. So I guess talk to us a little bit about your guideposts for develop and sell versus retaining on balance sheet, how much of it is sort of unique to the assets and the nature of the offtakes versus kind of an overall sort of philosophy of managing diversification of resources in the portfolio.
spk14: Yeah, I think the primary feature is based on returns, right? Obviously, customer relationships will feed into that sometimes when we're making those decisions, but that's essentially it, and we've just got a tremendous backlog of development going on. We want to grow the portfolio 20% plus. That gives us a lot of room to convert those into projects.
spk25: Great. If I could sneak one more in, just on the project side of the business, you know, really strong awards and backlog to close out the year here. Give us a sense of what's happening with the conversion cycle in and around, you know, awarded to, you know, to firm contracted and, you know, how that's sort of flowing in. Is it, is it, Have you noticed a material improvement, I guess I would ask, in terms of the pace of conversion? And if so, what's driving that?
spk07: Going from the awards, the awarded contracts to execute it, the conversion has not changed. What we used before, the 12 to 18 months, it's still. And sometimes, for example, like now they're talking about the government shutdown. Then you have delays, and all of a sudden from 18 months you've got 24 months. But the ones that the time has changed a little bit is the design build, the UPC work that we are doing, and that's helping. Another thing I wanted to give a little bit of perspective on the column, on the back wall, that the bread and butter, what I call the performance contract, we have seen a very healthy increase.
spk15: All right, excellent. I'll turn it over. Thank you.
spk36: Thank you. One moment for our next question. And our next question will be coming from George Giannikos of Conacore. Your line is open.
spk19: Hi. Good afternoon, everyone. Thank you for taking my questions.
spk03: Thank you.
spk19: I'd like to ask about 2024 EBITDA guides, which I know you just gave an initial look last quarter that was a little bit higher than what you're talking about now. Can you just maybe discuss anything impacting your profitability for 2024? Thank you.
spk14: Yeah, I'll just start with the fact that we're building a little more conservatism in to the forecast, you know, to what we're guiding. And in addition, you know, as I talked about in my comment, my prepared remarks, that, you know, we had some revenue, you know, $40 million worth of revenue pull into Q4. So I think the combination of those two things really put us where – where we are, and despite the wider ranges, you know, this is a set of figures that we feel very good about.
spk19: Great. And maybe just to clear any confusion, can you just remind us what the, you know, quote, unquote, normal quarterly cadence of your business is throughout the years for modeling purposes? Thank you.
spk22: Sure. This is Mark. Yeah, I think we consider the normal quarterly cadence that we've talked about. Q1 is seasonally our lowest quarter, and then it tends to be a steady ramp generally with Q3 and Q4 being our heavier quarters. So it will definitely – the shape will definitely have a heavier, you know, back half, and Q1 is always our – unless something unusual, you know, comes into the mix.
spk15: It's generally our lowest seasonal quarter.
spk37: Thank you.
spk16: Well, the other note that we might add on that comment, thanks, Mark, that it's not as heavily weighted as it was 23 to the last quarter.
spk15: Thank you, George.
spk36: Thank you. One moment for our next question. Our next question will be coming from Eric Steen of Craig Helium. Your line is open.
spk20: Hi, everyone. Thanks for taking the questions.
spk29: Maybe we could just start on Europe. I mean, obviously, a pretty great story there, the growth that you have seen. Seems like it's a pretty wide-open opportunity. You know, maybe just talk about how you see it playing out going forward. I mean, do you see that acquisition, organic combination of both, partnering with people? you know, just maybe your thoughts on that part of the business going forward?
spk14: I mean, I think in the near term, you're going to see a lot more organic. The thing about this acquisition, that's, you know, it's a relatively small company that we bought. They've overperformed based on our own expectations. And we expect to use that platform, that local content to actually help them grow organically and actually help us grow organically throughout the continent. So I think that's, That's one thing. The other thing is that a lot of the new technologies, battery, EV charging systems, you name it, those things are starting to really come into play in the U.K., And so I think we're expecting some really good organic growth there from some of the new technologies. So it's kind of, you know, it is across the major jurisdictions, you know, Greece, Italy, and the UK, where we're focusing the most. But there's other opportunities in other markets where we haven't been yet that we see coming as well. So it's actually really exciting.
spk29: Thanks for that. And then maybe just to follow up, you know, the Bristol opportunity, can you just talk about Where things stand with that, I mean, I would assume that that is some of the growth, but, you know, that also is just starting. So, you know, maybe how that plays into it, and do you see other projects out there or opportunities out there like that?
spk07: It's a great, great question, actually, about the beginning of the year. I spent a couple of weeks in Europe and Bristol, Syria. I spent some time, and we had the board meeting. It's beginning to have traction right now. Otherwise, we are in the implementation phase, and we're getting to do more projects than we did last year. So, in addition to that, we are working with the mayor of Bristol, and we're going to have a conference very soon that we invite quite a few other cities that are thinking of going down this particular route. So, it's a great opportunity for us, and it's right up to our toolbox, The reason they picked us, because we provided comprehensive services across the full spectrum of the green tax technology. So it's a great project, and I think we'll see more coming down the pipe. And the other thing I wanted to say, you know, organically growth, we're growing a lot in Europe, but the European market is fragmented. And don't be surprised that you will see some small but good tech acquisitions in the near future, but we're not counting. right now in our forecast for them, but we will be aggressively looking for them.
spk33: Okay, thank you.
spk36: Thank you. One moment for the next question. Our next question will be coming from William Griffin of UBS. Your line is open.
spk21: Great. Thanks very much. Just wanted to ask first about the debt raise pursuant to your creditor requirements. And what is the plan and timing there? And then following completion of the SCE project in accordance with their requirements, what would the inflows and outflows of cash look like there?
spk14: um so you know we we outlined a bit of this in the press release there's not much more we can say beyond what we put in the press release the process is underway we've got you know strong interest uh you know we'll um uh you know we'll we'll obviously be talking about that deal as uh you know as it comes to fruition but um i think you know we kind of have to stick with the info that we put in the press release you know, that the timing of that deal, the, you know, the overall parameters not really directly linked to when we expect to collect cash from SoCal, to be honest.
spk21: Fair enough. And then on tax credits, maybe a bit of a technical question here, but what is the main process you intend to use for realizing the benefit of the tax incentives? Are you doing ITC transfers here? And how much are you embedding in the guide?
spk14: So I don't have a figure to give you how much we're embedding in the guide, but we've got a combination of strategies. So we've got ITCs that we take directly that benefit our tax line. We have 179D deductions that we take directly that impact our tax line. We have and we will employ the sale of tax credits in tax credit transfer transactions. Those, in fact, don't go on the tax line. Maybe a subject of a future Professor Doran commentary. But we actually reduce the book basis of the assets when we sell those credits. And then we will continue to do traditional tax equity financing as well for the solar and battery assets. We have not included anything related to investment tax credits on the RNG plans in our guidance. So to the extent that that changes based on the recent hearings and some of the recent guidance changes, that would be outside for us.
spk21: Okay, so just to put a final point on that, what I'm hearing is you don't need IRS clarity on any points of the IRA to sort of hit the guide with respect to whatever is embedded for tax incentives.
spk14: That's correct. Yeah, that's correct. I mean, the stuff that's still outstanding impacts what might be upside to our figures.
spk07: Understood. Thanks very much for the time. We have to make sure we get the clarification in order to be able to use it down a little. Great. Thank you.
spk36: Thank you. One moment for the next question. Our next question is coming from Christopher Southard of B Reilly. Your line is open.
spk08: Hey, guys. Thanks for taking my questions here. Just any clarity you can provide on the expected timing around those first two SoCal Ed projects? And then, you know, any color you can provide on expectations around, you know, how long after completion, you know, you'd expect the cash flow in from that I think would be helpful.
spk14: So, look, I mean, I don't think we're going to put specific timeframes out there. We're continuously, constantly, daily, hourly working on, you know, getting these substantial completion checklists completed with SoCal Ed. And, you know, obviously there will be announcements when the time comes. The terms of the contract remain 60-day payment terms after we have substantial completion kind of fully declared and agreed by SoCal Ed as it relates to the timing of the cash flows.
spk08: Okay, great. And then just on the develop and sell, what would be the timing in the development cycle where you'd be looking to sell? I'm just kind of curious. How much working capital or project debt we'd be expecting to kind of flow through to that? Or is it kind of earlier before you start substantial kind of spending on a project that you'd be looking to sell? And just how much, I guess, of that is baked into your EBITDA guidance for next year if there's kind of a more concerted effort towards that space?
spk14: Yeah, I mean, we're not breaking out how much of the EBITDA guidance comes from the develop and sell business model, but the strategy, of course, is to get those assets identified and transacted before we start construction. um i wouldn't say that that happens 100 of the time it's certainly our circumstances where we may transact after we've started construction or maybe you ordered some long lead time equipment as you guys know we talked about switchgear and transformers and since this is Pretty much just battery and solar assets. Those types of CapEx are particularly relevant here. But beyond that, that's really it. And as we've disclosed in the past, we've got a solid construction and development financing facility that we use for those assets as we go through the process of executing those development and self-transactions.
spk08: Got it. Okay. So it would probably be, you know, maybe a little bit of CapEx related to that, but then, you know, it would kind of flow mostly just through, you know, backlog on your project side. This is how we could kind of watch that speak.
spk15: Yep.
spk35: Got it.
spk15: Thank you.
spk35: Thank you. One moment for the next question, please.
spk36: The next question is coming from Cassie Harrison. of Piper Sandler, your line is open.
spk29: Hey, good afternoon, and thanks for taking my questions. So, you know, the first one, I guess, just surrounds the guidance. If we look at Q1 revenues, it's about 15% of the full year. And if we think back to 2023, the original Q1 guidance was also 15%, you know, before you guys were forced to walk that back due to project delays. I guess my question is, you know, what's the difference between 2024 and 2023? What gives you the confidence that, you know, you can actually meet expectations this time, just given the similarity and, you know, the really low Q1 as a percentage of the full year? And I have a follow-up.
spk22: Yeah. Hey, Cassius. This is Mark. I'll just take that. Again, I think the simple answer there is just visibility. I think what we see in terms of Q1 and what's available and what's coming out of our, which is pretty much all contracted backlog, it's just really our confidence and our ability to execute on that contracted backlog during Q1. So we're not expecting much of anything from conversion of awards that we would then need to execute on the implementation. So we feel pretty good about, although it's lower than normal, visibility gives us the confidence in Q1.
spk07: Yeah, what I might add there too is that last year, at this particular time, we were counting more projects to move from the awarded to the contracted category. And this year, over 75% of our total revenue is already contracted. That's why it's important to execute on the contracted backlog that we have. And the other one, don't forget that we did take off $40 million from this quarter to last year for the acceleration. Once we started focusing in accelerating the construction of some projects, things began to happen. And that helped last quarter, and I think it's going to help as we go through this year. But the most important thing is we do not have, we don't count for as many contracts to go from the award category to contract it in order to make our plan this year.
spk29: Got it. I'd appreciate the caller there. And then my follow-up question is surrounding the FTE project. I imagine you guys are, you know, frustrated that it's taken so long, but it is now, I think, 18 months now delayed just based on the potential summer COD versus, I want to say, the original late 2022 COD. And so, you know, similar question of, you know, You know, what gives you the confidence that, you know, it is a summer date, in fact, and we won't see additional delays?
spk14: You know, I would only jump in with, because I'm kind of personally involved in all of the calls that are taking place. So, we've got a lot of heavy attention being paid to the day-in, day-out commissioning efforts. going on on the site that not only is it the team on the ground from amoresco and our major subcontractors but also at the executive level of each of those subcontractors as well as the executive level of socal ed there's a tremendous amount of momentum on getting those two projects through the testing through the you know through the open items on the checklist for substantial completion uh the visibility is is definitely there and You know, I mean, I think we feel, we do feel comfortable that those are really close to being completed and being completed safely.
spk15: Appreciate it.
spk35: Thank you. One moment for the next question.
spk36: And our next question is coming from Julian Doolim of Bank of America. Your line is open.
spk26: Hey, good afternoon, team. Thank you guys very much for the time. I appreciate it. Hopefully you guys can hear me. Hey, thank you, George. Thank you, George. Look, I just talk about the debt, right? You mentioned in the prepared remarks talking about being roughly at three times below the covenant of 375. You also talked about effectively deleveraging through the course of receiving some of these SoCal payments here. How do you think about the cadence of that leverage through the course of the year? How do you think about where you want to end the year? And then related, how do you think about the force majeure related to SCE decisions you can offer up? Any comments about that 90 million dynamic?
spk28: I mean, again, I appreciate that this might be a little tricky, but really focusing on that deleveraging commentary.
spk14: Yeah, sure. I mean, I think the deleveraging, so we've all kind of, uh circled around the amount of unbilled that stored is still sitting there we've got to get these projects to substantial completion collect the amounts after 60 days and see those go to pay down that corporate leverage especially our revolver uh the um the the third project finishing later in the year obviously you'll see that substantial completion payment the final acceptance payments coming in uh you know i don't think i'm putting a particular you know, time period on it. I'm not going to say it's going to happen in Q2 or Q3 or Q4. I think it's going to kind of spread itself across the rest of the year as we delever over the course of the year. That's the way that I would answer that. And then, you know, frankly, on the liquidated damages and the force majeure claims, there's not really any new information. You know, we're continuing to exchange information with
spk26: so pal ed and that's what we've been doing and we're continuing to do it and the and and the hard yards on that will probably come after we finish you know after we finish the projects yeah got it all right so right so really don't expect any updates until after the summer or something like that on the on the force majeure um uh liquidity or you know payments here and then on the the specifics of where you're targeting leverage to be just You know, there are a bunch of puts and takes here. By the end of the year, any specific metric that you would offer up relative to 3X today that you would kind of aspire to be?
spk14: So the short answer, Julian, is no. I probably won't put that metric out there. And the primary reason is because George talked about being opportunistic in Europe. If something pops up and we want to go make a small acquisition in Europe or something else happens, then we want to be able to use the corporate resources to actually go after transactions and ideas that will help us grow the business. So I don't think it's appropriate for us to kind of put a target out there. You know, the numbers are pretty clear as far as the way that the SoCal will reduce that leverage. If there's anything that we do that will increase the leverage, it's going to be something we'd be talking about, right? Whether it's asset opportunities or M&A opportunities or something along those lines.
spk15: But no particular target, Julie.
spk18: Thank you. And one moment for the next question.
spk36: Our next question is coming from Craig Irwin of . Please go ahead.
spk31: Thanks for taking my question.
spk32: So, George, looking back to the times of COVID where you very successfully hold forward execution, it was a large part of the significant appreciation of your stock, right? Looking back to that time, a lot of the success was your ability to move your resources away from prioritizing pipeline backlog, contracted backlog, towards execution in a quarter. Can you maybe explain for us whether or not this was a factor in your fourth quarter upside? And how are your employees positioned in the current quarter compared to historical? Are you leaning in a little bit, maybe so we could see some upside over the course of this year, given that the pipeline and backlog and everything is so incredibly healthy there? Or is this sort of more of an even distribution like we've seen over the last 10 years?
spk07: Great questions, Greg. But this year, to the management team and to the board, I told them, look, guys, the development, we're developing business in a pretty good clip. We have to execute, execute, and execute. And when we reorganize the company a little bit in order to take advantage of of the people that we have around the company. We reduce it by a couple of units, so we have more interaction between the management teams right now. And taking advantage of some of the expertise we have around the company by having less units, we can transfer that knowledge from one group to another, purchasing being done through the headquarters. So we're saving money in the purchasing of equipment. And the other thing, sometimes a lot of people, they focus on smaller projects and maybe they are not in our wheelhouse, within our wheelhouse. So I'd say we got to focus in larger projects and to the ones that we have a competitive advantage. And those are the ones that are on our expertise. And that's why I particularly I mentioned the federal government, we have over a billion dollar backlog just on that one alone, and the institutional accounts, again, the backlog is very good. So the bread and butter business, which is the energy efficiency, which is our core business, we have the organization. We focus a lot on that. Because what happens once you pivot in some of these new strategies, new technologies, everybody is rushing to that. So we want to take it back and say, hey, guys, this is what brought us here, and I want you to start focusing this particular project. It has an impact already. We started that process, I would say, late last summer, and we've seen some good results coming out of it.
spk14: Yeah. I would only add, Craig, I think that the comparison to COVID is an interesting one. It's probably not quite as drastic in terms of the reallocation of resources of what we saw in COVID because of the fact that the business development world hasn't kind of come to a halt like it did early in COVID. And for that reason, what we're focusing on is making the business development process much more efficient, and then the operational efficiency of getting proposals into awards, high hit rate projects, and then converting awards to contracts. Certainly you'll see some more resources going into execution because we've got the management team focused on execution and reducing OpEx and so on and so forth. But it's a good comparison. It's not quite as extreme.
spk32: Thank you. So my second question is about margin and backlog, particularly contract backlog. So your growth in contract backlog is really impressive. But the EBITDA guidance is lagging versus this growth. So can you maybe help us understand if we are seeing compression from the increased size of large projects, increased contribution from large projects, and maybe lower margins on energy storage projects compressing the profitability of that backlog and pipeline? Is this something that's really just a short-term item that will pass?
spk14: I'll answer that, Craig. So I think that if you look at the awarded backlog and the contracted backlog conversions during the year, entirety of the year of 2023, no fundamental changes in the margins. I think Q4 certainly had some larger awards in there where the margins on some of the solar EPC, especially in Europe, are a little tighter than what we normally would go after. Again, very, very good operating leverage for that because it doesn't require a huge amount of resources from us. because we have a JV partner that manages the execution. But that, to me, actually feels like the latter part of your question is sort of, you know, maybe a temporary, you know, jump in that, because we did sign a couple of, you know, a few pretty sizable projects in Europe in the fourth quarter that probably would have had that impact. But I don't see that necessarily impacting long-term. And, in fact... Post signing those contracts, George and I have been, you know, back to that team on the origination and, you know, preaching the same thing we're preaching in the U.S. You need to go with the higher margin, higher hit rate projects. We've got a lot of great stuff in the backlog, but let's focus on the really high quality stuff going forward.
spk32: Great. Well, if I can say congratulations for that success in Europe. George, the 15 plus years I've known you, you've been trying to figure out how to get a business there and grow it. And it's nice to see, you know, MRS go figure out that formula and seeing, you know, real success, you know, driving revenue and profits over there. So congrats.
spk07: Thanks, Greg. Thank you, Greg. We are a good place, I would say.
spk37: Thank you.
spk36: Thank you. One moment for the next question. Our next question is coming from Tim Mulroney of William Blair. Your line is open.
spk10: Yeah, thank you. I just have a couple industry-related questions as it relates to energy storage. We recently read an article about Duke Energy decommissioning cattle battery systems at Camp Lejeune military base. We know you do work for military bases. do you think we'll see more of this type of action across the government space? And, you know, how do you think that might impact your business if at all?
spk14: We, so, um, I'd say that there probably will be more action similar to that as the national security concerns start to raise, no different than the 5G network stuff that was going on a couple of years ago. That being said, the primary concern doesn't really have to do with You know, the CATL battery containers or the quality of their systems, they're still one of the largest manufacturers of those in the world. And, in fact, most battery manufacturers use their cells. It's really about the software in the battery management system, the BMS systems. And I think that... You know, CATL is going to need to respond and figure out a way to ensure that they can get the federal government comfortable with what the BMS systems are. And so I think there's more to come on that space. Importantly, from our perspective, we are agnostic to suppliers. CATL is not the only game in town. We're deploying batteries from numerous other manufacturers in our projects and things that are in our backlog. We're bidding other manufacturers into these projects. And, you know, those just don't – they simply don't carry the same concerns.
spk07: Yeah, great. And what I might add. Once this came to reality, I went back and I checked with Nicole that runs the federal group whether we have any of the cattle batteries with the military bases. We have none.
spk10: That's interesting. I appreciate all that clarification. That's really helpful. Sticking on batteries, you know, we've heard lithium ion phosphate batteries come down quite a bit, even since the prices, that is, even since your last earnings call. Now, I guess my question is, are you seeing that as well? And can you talk about what kind of impact a greater availability of batteries for energy storage or lower costs for these batteries might have on the project economics for you and your customers?
spk14: Yeah, certainly positive moves in the economic benefits, you know, whether it ends up, I mean, you know, ultimately all this ends up benefiting the rate payers in the utility districts where these utilities are putting the batteries. Right. You know, the utilities are rate basing either a long term capacity contract that they have with us when we own the batteries or it's just the EPC price and the cost of the batteries. If it's coming down, those rates come down and it it really helps helps them pass those savings on to their rate payers.
spk10: OK, so so so input prices here. doesn't really impact project economics for you. It's more about the end customer.
spk14: I mean, it certainly gives a little bit more room. It allows us to sharpen our pencils on contingencies that we have to include, right? That's, you know, that's most certainly the case.
spk09: Okay. Okay. Thanks so much.
spk36: Thank you. One moment for the next question. And our next question is coming from Pavel Malcheval of Raymond James. Your line is open.
spk30: Thanks for taking the question. You have a lot of interesting businesses in Europe, except one. I don't believe you've ever operated an R&G plant in Europe. Would you be interested in either developing or acquiring RNG assets in Europe?
spk07: Actually, we are looking at some. You're right, though. We haven't done one of them over there yet. But we have hired a business developer to go after RNG facilities in Europe. And don't be surprised. We might have some partners. But rather than, we're not a bank to operate, to just buy operating assets unless we believe we can add some value to it and get a good return. But we are looking, no question about it. Actually, two days ago, I approved a particular proposal that we are making in Europe for a loanless business.
spk30: Okay. Kind of a big, big picture question about, the economics of energy efficiency. We've talked about, through the past two years, constant escalation in power prices and the incentive for building owners to invest in energy efficiency. Is that economic rationale the best it's ever been right now?
spk07: I would say so, because energy prices are going up Even though the inflation has gone up, there's still the value proposition. And that's why on my commentary, my script, I said energy efficiency doesn't need any government incentives whatsoever. But with 179, it helps. It helps. And that's why I've been preaching to the world that 30% of the energy can be saved economically, and it pencils out. So it's And what the other thing that's happening, the technological advancements that we have, they're bringing the cost down.
spk15: So it's great, and it's getting greater, I would say.
spk18: Okay. Thanks very much. Thank you. One moment for the next question.
spk36: Our next question will be coming from Craig Shear. of Tucci Brothers. Your line is open.
spk11: Good afternoon. Thanks for fitting me in. A couple of quick ones. First, last quarter you all mentioned similar supply chain and project execution issues, but noted that Europe had been largely exempt from that. Is that still the case?
spk14: It is, yeah. Europe has still been really good. Availability, solar modules. Of course, we were all kind of spooked by the Red Sea, but it ended up kind of not being much at all. We have a supply management consulting business in the UK as well, and I talk to the head of that business quite often about what's going on with natural gas and power supply markets and what happened with the Red Sea on supply chain. Yeah, not a whole lot impacting our business. It's been good.
spk11: Right. And staying on Europe a little, George, as you talked about more internal communication, centralized purchasing, increasing project sizing. How do you see those kind of internal initiatives playing into your European strategy?
spk06: Go ahead, Doug.
spk14: Yeah, I mean, the short answer to that is me, because George has me, you know, kind of directly involving myself in the execution of the operational aspects of a lot of what's going on in Europe. And many of those centralized functions are things that, you know, I've been developing over the last couple of years on the procurement side, enterprise risk management, et cetera, risk review committees. So, We have mechanisms in place to ensure that these large projects go through risk reviews that involve the folks in the U.S. who have been involved in the large projects, and also that we can kind of capitalize on these efficiency measures, these operational efficiency measures that we're implementing here. We're still a very flat organization. We've got a lot of direct involvement directly with the The gentleman who runs our Italian business, Intercoast, directly with the JV partner, directly with the guy who runs our UK business, you know, we're in constant conversation.
spk18: Thank you. One moment for the next question.
spk36: And our next question is coming from Benjamin Callow of Beard. Your line is open.
spk39: Hi. Thank you. Good evening. If possible, could you just kind of give us a kind of back of the envelope or any kind of color on the assets you add to the balance sheet this year? What kind of EBITDA you project to layer on for next year when they're all completed?
spk14: So I don't think I've got a really good guide. We can probably reiterate some of the guidance we've provided in the past as far as EBITDA per megawatt with respect to solar and battery. We're talking about a couple of hundred thousand dollars per megawatt, mostly solar. I think the range for The renewable natural gas still kind of remains valid there on the EBITDA side, $750,000 to call it a million and a half if RIN prices are doing great. But based on those particular cadences, I think that should give you some idea of the breakdown. And you probably have the megawatt numbers that we're looking at, the three RNG plants I think we have a total of, is it about 20 megawatts of the new megawatts going in this year is RNG. The rest of it is kind of solar and battery with that 200K number being a good back of the envelope, like you said, Ben.
spk39: Thank you. Have you guys changed any way that you contract or think about doing energy storage or battery development, either on balance sheet or for customers because of SoCal Edison. Thank you.
spk14: Actually, I think the contracting framework, as it relates to that, the things that we think about, you know, if it's an EPC project, obviously we're being very, very tight with working capital now. We've got a lot of guidelines out to the business units to minimize the amount of working capital that is associated with any project where we're doing EPC projects. And then secondly, from an execution perspective, you know, clearly a lot of heavier focus up front about the commissioning process, and that feeds into supplier selection. But as far as, you know, markets where we're developing, types of assets that we're developing, we're still kind of pulling things in from multiple jurisdictions. economics and risk will determine whether we end up putting those in kind of a develop and sell category or put them on the balance sheet.
spk17: So that's probably the best description I can give you, Ben. Great. Thank you, guys.
spk36: Thank you. This does conclude today's conference call. You may all disconnect. you music music Thank you. So,
spk37: music music you
spk36: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Amoresco Incorporated fourth quarter 2023 earnings 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 your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your host, Ms. A'Lelia Dillon, Senior Vice President, Marketing and Communications. Ms. Dillon, you may begin.
spk34: Thank you, Lisa. 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 Mark Chiplock, Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on slide two of our supplemental information, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental information.
spk23: I will now turn the call over to George.
spk07: George? Thank you, Lila, and good afternoon, everyone. Fourth quarter results marked a strong finish to a challenging year for the renewable industry and for MRSCO. We not only achieved very positive revenue, adjusted EBITDA, and net income growth, but also our business development execution remained very strong. We exceeded 2023 with record backlog and asset development metrics. These metrics, together with our intense focus on execution, point to 2024 being a year of
spk15: sustainable growth.
spk07: Demand for energy efficiency and renewable solutions remains robust, and MRS's ability to effectively compete and win new business demonstrates how well aligned our capabilities and offerings are with our clients' priorities. At the same time, we are also growing our assets in development at a strong pace. which together with our project backlog give us excellent multi-year visibility. This supports our 2024 mid-point guidance for revenue and adjusted EBITDA growth of 20% and 38% respectively, and provides us with over $7 billion in multi-year visibility and profitable revenue. Amoresco's total project backlog was record $3.9 million at the end of 2023, up approximately 50% versus 2022, with new awards for the year of $2.2 billion. And proposal activity remains at record levels. During the year, we also placed 118 megawatts of assets into operation, bringing our operating energy assets to over 500 megawatts. We also added 198 megawatts of assets in development in 2023, ending the year with 669 megawatts of MRSCO-owned assets in development and construction. Now, I would like to make some comments on the industry environment and what MRSCO is doing to address current challenges. First and foremost, As I stated before, industry demand remains very healthy. Elevated power prices, greater demand for electricity and green resiliency combined with attractive incentives have created a very favorable demand backdrop for renewable energy and energy efficiency solutions. This robust industry demand, though, has also strained some parts of the system. The industry continues to experience lengthening award conversions, interconnection and permitting delays, supply chain disruptions and shortages of critical equipment and skilled labor. With a focus on execution and cost efficiencies, Maresco continues to take steps to adapt to this new environment. We are optimizing our operational structure to bring more uniformity and scalability across all of our geographies and business units. Taking a more conservative approach to our construction schedules. Promoting knowledge sharing and increasing best practices across our teams. and focusing our business development efforts on larger opportunities in our core markets and areas of expertise. We also remain very focused on our working capital levels and liquidity. As part of this, we are prioritizing the timely conversion and execution of our tremendous project backlog. These actions are already yielding results. Our 40% project revenue growth in the fourth quarter was halved by the conversion of the words to contracts that had been previously delayed. Our focus on conversion also helped drive a 32% year-over-year increase in our contracted backlog, which ended the year at $1.3 billion, giving us good visibility into our 2024 revenue. Demand for our services remains very strong. And Maresco is well positioned for 2024 and beyond. As I mentioned before, there are a number of very favorable macro factors driving this strong demand. One of these is the IRA legislation. Looking at Maresco's history, one can see that we have performed quite well regardless of the party in office. The main reason for this is the diversity of our business model and the fact that our solutions are driven by economic returns and cost savings to our customers, many without additional government incentives, especially in our project business. We also see tremendous support for our resiliency solutions from utility, government, and military customers, again, regardless of the administration. Therefore, we continue to see strong demand and great opportunities ahead. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran? Thank you, George, and good afternoon, everyone.
spk14: For additional financial information, please refer to the press release and especially our supplemental information that was posted to our website after the market closed today. and which contains some new financial content that I will describe in more detail. We ended the year on a high note with total revenue for the quarter of $441 million up 33% from the previous year. Each of our four business lines experienced double-digit revenue growth. Our projects business had a particularly strong quarter as the company executed on a number of large contract conversions, some that had slipped from the previous quarter, and benefited from increased overall activity. We also saw a benefit of approximately $40 million from faster implementation of active contracts. We continue to make great strides in growing our European footprint. You will notice in our upcoming 10K that our European revenue now accounts for over 10% of our total revenue and is therefore now separately disclosed going forward. We experienced strong revenue growth of over 150% this year with solid organic growth and a significant contribution from our very successful intercoast acquisition. We believe the European market remains highly fragmented and very economically attractive to Amoresco. Energy asset revenue grew 12%, largely due to the greater number of operating assets compared to last year, as well as higher RIN prices experienced during the quarter. we continue to bring assets into operation, growing this important recurring revenue stream. Our O&M business and other lines of business grew 13% and 12% respectively. Gross margin of 17% dipped during the quarter as project mix impacted this quarter's results. Like in other quarters, our gross margins can be impacted by the mix of projects we are executing during the quarter, ranging from higher margin performance contracts, to lower margin design build revenue. While gross margin can vary from quarter to quarter and year to year, we are not seeing any fundamental changes in the margins of our projects. As always, we remain focused on driving incremental gross margin dollars and operating leverage over gross margin percentages. Adjusted EBITDA grew 33% to $54.9 million in the quarter with non-GAAP EPS almost doubling last year's results, a key driver of tax benefits. We expect to continue to take advantage of a number of tax incentives, which we've accounted for in our 2024 guidance. Q4 was not only an excellent quarter for execution, but also for business development, with over $500 million of new project awards in the quarter. Our project backlog represents a very well-balanced mix of performance contracts and design-build work with particular strength from the federal government sector. During the quarter, we also placed 63 megawatts of energy assets into operation and added 198 megawatts to assets in development and construction with a diversified mix of solar, battery, RNG, and biofuel assets supported by our recent awards in Hawaii. Turning to our balance sheet and liquidity, I'll draw your attention to some additional metrics we are providing in our press release and supplemental information, both available on our website. First, let me spend a few minutes on our debt. As many of you are already aware, Amoresco carries two distinct types of debt, corporate debt and energy asset debt. The vast majority of our debt is energy asset debt, supported by our large and growing portfolio of profitable energy assets. As most of our assets are backed by multi-year offtake agreements, banks are willing to lend a high portion of the cost of these assets at competitive rates, given the long-term nature of contracted cash flows they are expected to generate. As of year end, our energy asset debt represents only 72% of the book value of the related energy assets, a fairly conservative level. It is also important to note that the majority of our energy asset debt for our operating assets is fully amortizing over the 15 to 20-year term of the OPTIC contracts, matching our debt with our contracted revenue flows for these assets. And for a significant portion of our assets in construction and development, we have already lined up long-term debt financing through our existing sale leaseback, RNG, and other portfolio financing facilities. In addition, given the strength of our asset development efforts, we're continuing to pursue a develop and sell business model for a portion of our assets in development. This allows us to convert assets that would otherwise require cash equity into EPC and O&M contracts, which instead generate project revenue and more immediate positive operating cash flow. Even with these develop and sell transactions, we will continue to target long-term operating energy asset portfolio growth of 20% plus. Lenders and investors have continued to fund these attractive assets at competitive rates, allowing us to minimize the use of the company's own equity. Our corporate debt, which includes our term loans and revolving line of credit, is the minority of our total debt. At year end, our corporate debt was $280 million with a leverage ratio of 3.3 times, below our bank covenant level of 3.75 times. It is important to note that our corporate debt covenants do not include energy asset debt as part of the leverage ratio calculation. In the end, the vast majority of our debt is covered by our strong and profitable energy asset business backed by multi-year contracted revenue streams. And our corporate debt should decline as we bill and collect on the SoCalEd projects. Another consistent topic of discussion with investors and analysts is our cash flow generation. Our quarterly cash flows can be quite volatile given the variations in the timing of collections and outlays on our contracts. Because of this, we are providing a quarterly moving average of adjusted cash flow from operations over an eight-quarter period. which is broadly representative of our implementation cycle. In our supplemental information, we have provided a longer-term chart of this metric over the past several years, which clearly shows the temporary impact of the working capital we needed for the SoCal Ed contract. We expect this metric to improve back towards its historical positive trend as we bill and collect from SoCal Ed. Now turning to 2024, We are guiding to revenue and adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively. Included in our non-GAAP EPS guidance is the anticipation of a likely net tax benefit. Our ranges are slightly wider than prior years given the operating environment. We believe the primary variables that can impact our results this year will include the timing of converting project awards, the execution of develop and sell transactions, as well as the pace of implementation of our contracted project backlog. Other important variables include the timing of bringing our new energy assets into operation, realized RIN pricing, and tax benefits. We anticipate placing approximately 200 megawatts of energy assets in service during 2024, including our large Kapono asset and United Power battery assets. Our 2024 asset guidance also includes placing three RNG plants in operation, one of which went COD already in January. Our expected capex for 2024 is $350 to $400 million, the majority of which we expect to fund with energy asset debt and tax equity. As we look to the first quarter, we estimate revenue and adjusted EBITDA to be in the range of $225 to $275 million and $20 to $30 million, respectively, with negative non-GAAP EPS. As we noted, we saw approximately $40 million of project revenues from faster implementation of active contracts in the fourth quarter, impacting our Q1 guidance. We expect the remainder of the year to follow a more normal quarterly seasonal cadence.
spk07: Now I'd like to turn the call back over to George for closing comments. Thank you, Doran. We ended the year on a high note, even in light of a difficult industry environment. And that positive momentum has continued into the new year. And Maresco's outlook for 2024 reflects a strong visibility from our backlog recurring energy assets, and O&M revenue streams. Our top focus for 2024 is the execution of our tremendous project backlog and assets in development and the generation of cash flow. In closing, I would like to once again thank our employees, customers, and stockholders for their continued support. Operator, we would like to open the call to questions now.
spk36: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. Wait for your name to be announced before proceeding with your question. We as well ask that you limit yourself to one question and one follow-up. Please wait while we compile the Q&A roster. One moment. Our first question today will be coming from Noah Kay of Alpahara and Company. Your line is open.
spk25: Good afternoon. Thanks for taking the questions. Let me talk about the energy asset portfolio planning for 2024. You indicated expectations for 200 megawatts placed in service. So, Doran, picking up on the comments in your prepared remarks around developing portfolio growth, but also doing develop and sell, is how much of the 200 megawatts do you kind of envision retaining? And then the 350, 400 million capex, I mean, how much of that do we sort of see an immediate kind of turnaround on in terms of monetization and sales of assets?
spk14: Yeah. So, Noah, the short answer to that is the entire 200 is what we're retaining on balance sheet. The capex figures are what we're retaining on balance sheet. So the develop and sell is, you know, we fold that develop and sell into our financial plan under the project business because it becomes EPC, but we do not include it in those asset metrics.
spk15: All right. All right.
spk25: Very helpful. Yeah, it's a very substantial, you know, growth versus what's in operations today. So I guess talk to us a little bit about your guideposts for develop and sell versus retaining on balance sheet, how much of it is sort of unique to the assets and the nature of the off takes versus kind of an overall sort of philosophy of managing diversification of resources in the portfolio.
spk14: Yeah, I think the primary feature is based on returns, right? Obviously, customer relationships will feed into that sometimes when we're making those decisions, but that's essentially it, and we've just got a tremendous backlog of development going on. We want to grow the portfolio 20% plus. That gives us a lot of room to convert those into projects.
spk25: Great. If I could sneak one more in just on the the project side of the business, you know, really strong awards and backlog to close out the year here. Give us a sense of what's happening with the conversion cycle in around, you know, awarded to, you know, to firm contracted, and you know, how that sort of flowing in? Is it? Is it Have you noticed a material improvement, I guess I would ask, in terms of the pace of conversion? And if so, what's driving that?
spk07: Going from the awards, the awarded contracts to execute it, the conversion has not changed. What we used before, the 12 to 18 months, it's still. And sometimes, for example, like now they're talking about the government shutdown. Then you have delays, and all of a sudden from 18 months you've got 24 months. But the ones that the timing has changed a little bit is the design build, the EPC work that we are doing, and that's helping. Another thing I wanted to give a little bit of perspective on the column, on the back wall, that the bread and butter, what I call the performance contract, we have seen a very healthy increase.
spk15: All right, excellent. I'll turn it over. Thank you.
spk36: Thank you. One moment for our next question. And our next question will be coming from George Gianniscus of Conacore. Your line is open.
spk19: Hi. Good afternoon, everyone. Thank you for taking my questions.
spk03: Thank you.
spk19: I'd like to ask about 2024 EBITDA guides, which I know you just gave an initial look last quarter that was a little bit higher than what you're talking about now. Can you just maybe discuss anything impacting your profitability for 2024? Thank you.
spk14: Yeah, I'll just start with the fact that we're building a little more conservatism in to the forecast, you know, to what we're guiding. And in addition, you know, as I talked about in my comment, my prepared remarks, that, you know, we had some revenue, you know, $40 million worth of revenue pull into Q4. So I think the combination of those two things really put us where – where we are, and despite the wider ranges, you know, this is a set of figures that we feel very good about.
spk19: Great. And maybe just to clear any confusion, can you just remind us what the, you know, quote, unquote, normal quarterly cadence of your business is throughout the years for modeling purposes? Thank you.
spk22: Sure. This is Mark. Yeah, I think we consider the normal quarterly cadence that we've talked about. Q1 is seasonally our lowest quarter, and then it tends to be a steady ramp generally with Q3 and Q4 being our heavier quarters. So it will definitely – the shape will definitely have a heavier, you know, back half, and Q1 is always our – unless something unusual, you know, comes into the mix.
spk15: It's generally our lowest seasonal quarter. Thank you.
spk16: Well, the other note that we might add on that comment, thanks, Mark, that it's not as heavily weighted as it was 23 to the last quarter.
spk15: Thank you, George.
spk36: Thank you. One moment for our next question. Our next question will be coming from Eric Steen of Craig Helium. Your line is open.
spk20: Hi, everyone. Thanks for taking the questions.
spk29: Maybe we could just start on Europe. I mean, obviously, a pretty great story there, the growth that you have seen. Seems like it's a pretty wide open opportunity. You know, maybe just talk about how you see it playing out going forward. I mean, do you see that acquisition, organic combination of both partnering with people? you know, just maybe your thoughts on that part of the business going forward?
spk14: I mean, I think in the near term, you're going to see a lot more organic. The thing about this acquisition, that's, you know, it's a relatively small company that we bought. They've overperformed based on our own expectations. And we expect to use that platform, that local content to actually help them grow organically and actually help us grow organically throughout the continent. So I think that's, That's one thing. The other thing is that a lot of the new technologies, battery, EV charging systems, you name it, those things are starting to really come into play in the U.K., And so I think we're expecting some really good organic growth there from some of the new technologies. So it's kind of, you know, it is across the major jurisdictions, you know, Greece, Italy, and the UK, where we're focusing the most. But there's other opportunities in other markets where we haven't been yet that we see coming as well. So it's actually really exciting.
spk29: Thanks for that. And then maybe just to follow up, you know, the Bristol opportunity, can you just talk about Where do things stand with that? I mean, I would assume that that is some of the growth, but, you know, that also is just starting. So, you know, maybe how that plays into it, and do you see other projects out there or opportunities out there like that?
spk07: It's a great, great question, actually, about the beginning of the year. I spent a couple of weeks in Europe and Bristol, Syria. I spent some time, and we had the board meeting. It's beginning to have traction right now. Otherwise, we are in the implementation phase, and we're getting to do more projects than we did last year. So, in addition to that, we are working with the mayor of Bristol, and we're going to have a conference very soon that we invite quite a few other cities that are thinking of going down this particular route. So, it's a great opportunity for us, and it's right up to our toolbox, The reason they picked us, because we provided comprehensive services across the full spectrum of the green tax technology. So it's a great project, and I think we'll see more coming down the pipe. And the other thing I wanted to say, you know, organically growth, we're growing a lot in Europe, but the European market is fragmented. And don't be surprised that you will see some small but good tech acquisitions in the near future, but we're not counting it.
spk16: right now in our forecast for them, but we will be aggressively looking for them.
spk33: Okay, thank you.
spk36: Thank you. One moment for the next question. Our next question will be coming from William Griffin of UBS. Your line is open.
spk21: Great. Thanks very much. Just wanted to ask first about the debt raise pursuant to your creditor requirements. And what is the plan and timing there? And then following completion of the SCE project in accordance with their requirements, what would the inflows and outflows of cash look like there?
spk14: um so you know we we outlined a bit of this in the press release there's not much more we can say beyond what we put in the press release the process is underway we've got you know strong interest uh you know we'll um uh you know we'll we'll obviously be talking about that deal as uh you know as it comes to fruition but um i think you know we kind of have to stick with the info that we put in the press release you know, that the timing of that deal, the, you know, the overall parameters not really directly linked to when we expect to collect cash from SoCal, to be honest.
spk21: Fair enough. And then on tax credits, maybe a bit of a technical question here, but what is the main process you intend to use for realizing the benefit of the tax incentives? Are you doing ITC transfers here? And how much are you embedding in the guide?
spk14: So I don't have a figure to give you how much we're embedding in the guide, but we've got a combination of strategies. So we've got ITCs that we take directly that benefit our tax line. We have 179D deductions that we take directly that impact our tax line. We have and we will employ the sale of tax credits in tax credit transfer transactions. Those, in fact, don't go on the tax line. Maybe a subject of a future Professor Doran commentary. But we actually reduce the book basis of the assets when we sell those credits. And then we will continue to do traditional tax equity financing as well for the solar and battery assets. We have not included anything related to investment tax credits on the RNG plans in our guidance. So to the extent that that changes based on the recent hearings and some of the recent guidance changes, that would be that would be outside for us.
spk21: OK, so just to just to put a final point on that, what I'm hearing is you don't need IRA, sorry, IRS clarity on any points of the IRA to to sort of hit the guide with respect to whatever is embedded for tax incentives.
spk14: That's correct. Yeah, that's correct. I mean, the stuff that's still outstanding impacts what might be upside to our figures.
spk07: Understood. Thanks very much for the time. We have to make sure we get the clarification in order to be able to use it down a little. Great. Thank you.
spk36: Thank you. One moment for the next question. Our next question is coming from Christopher Southard of B. Riley. Your line is open.
spk08: Hey, guys. Thanks for taking my questions here. Just any clarity you can provide on the, you know, expected timing around those first two SoCal Ed projects? And then, you know, any color you can provide on expectations around, you know, how long after completion, you know, you'd expect the cash flow in from that I think would be helpful.
spk14: So, look, I mean, I don't think we're going to put specific timeframes out there. We're continuously, constantly, daily, hourly working on, you know, getting these substantial check, substantial completion checklists completed with SoCal Ed. And, you know, obviously there will be announcements when the time comes. The terms of the contract remain 60-day payment terms after we have substantial completion kind of fully declared and agreed by SoCal Ed as it relates to the timing of the cash flows.
spk08: Okay, great. And then just on the develop and sell, what would be the timing in the development cycle where you'd be looking to sell? I'm just kind of curious. How much working capital or project debt we'd be expecting to kind of flow through to that? Or is it kind of earlier before you start substantial kind of spending on a project that you'd be looking to sell? And just how much, I guess, of that is baked into your EBITDA guidance for next year if there's kind of a more concerted effort towards that space?
spk14: Yeah, I mean, we're not breaking out how much of the EBITDA guidance comes from the develop and sell business model, but the strategy, of course, is to get those assets identified and transacted before we start construction. I wouldn't say that that happens 100% of the time. It certainly are circumstances where we may transact after we've started construction. Or maybe you ordered some long lead time equipment. As you guys know, we talked about switchgear and transformers. And since this is Pretty much just battery and solar assets. Those types of CapEx are particularly relevant here. But beyond that, that's really it. And as we've disclosed in the past, we've got a solid construction and development financing facility that we use for those assets as we go through the process of executing those development and self-transactions.
spk08: Got it. Okay. So it would probably be, you know, maybe a little bit of CapEx related to that, but then, you know, it would kind of flow mostly just through, you know, backlog on your project side. This is how we could kind of watch that speak.
spk15: Yep. Got it. Thank you.
spk35: Thank you. One moment for the next question, please.
spk36: The next question is coming from Cassie Harrison. of Piper Sandler, your line is open.
spk29: Hey, good afternoon, and thanks for taking my questions. So, you know, the first one, I guess, just surrounds the guidance. If we look at Q1 revenues, it's about 15% of the full year, and if we think back to 2023, the original Q1 guidance was also 15%, you know, before you guys were forced to walk that back due to project delays. I guess my question is, you know, what's the difference between 2024 and 2023? What gives you the confidence that, you know, you can actually meet expectations this time, just given the similarity and, you know, the really low Q1 as a percentage of the full year? And I have a follow-up.
spk22: Yeah. Hey, Cassius. This is Mark. I'll just take that. Again, I think the simple answer there is just visibility. You know, I think, you know, what we see in terms of, you know, Q1 and what's available and what's coming out of our, which is pretty much all contracted backlog. It's, you know, it's just really our confidence in our ability to execute on that contracted backlog during Q1. So there's, we're not expecting much of anything, you know, from, you know, conversion of awards that we would then need to, you know, execute on the implementation. So, you know, we feel pretty good about, you know, although it's, you know, it's lower than normal, you know, visibility gives us the confidence in Q1.
spk07: Yeah, what I might add there, too, is that last year, at this particular time, we were counting more projects to move from the awarded to the contracted category. And this year, over 75% of our total revenue is already contracted. That's why it's important to execute on the contracted backlog that we have. And the other one, don't forget that we did take off $40 million from this quarter to last year for the acceleration. Once we started focusing in accelerating the construction of some projects, things began to happen. And that helped last quarter, and I think it's going to help as we go through this year. But the most important thing is we do not have, we don't count for as many contracts to go from the award category to contract it in order to make our plan this year.
spk29: Got it. I'd appreciate the caller there. And then my follow-up question is surrounding the FTE project. I imagine you guys are, you know, frustrated that it's taken so long, but it is now, I think, 18 months now delayed, just based on the potential summer COD versus, I want to say, the original late 2022 COD. And so, you know, similar question of, you know, you know, what gives you the confidence that, you know, it is a summer date, in fact, and we won't see additional delays?
spk14: You know, I would only jump in with, because I'm kind of personally involved in all of the calls that are taking place. So we've got a lot of heavy attention being paid to the day-in, day-out commissioning efforts going on on the site that not only is it the team on the ground from amoresco and our major subcontractors but also at the executive level of each of those subcontractors as well as the executive level of socal ed there's a tremendous amount of momentum on getting those two projects through the testing through the you know through the open items on the checklist for substantial completion uh the visibility is is definitely there and You know, I mean, I think we feel, we do feel comfortable that those are really close to being completed and being completed safely.
spk15: Appreciate it.
spk35: Thank you. One moment for the next question.
spk36: And our next question is coming from Julian, Julian of Bank of America. Your line is open.
spk26: Hey, good afternoon, team. Thank you guys very much for the time. I appreciate it. Hopefully you guys can hear me. You're very welcome. Look, hey, thank you, George. Thank you, George. Look, I just talk about the debt, right? You mentioned in the prepared remarks talking about being roughly at three times below the covenant of 375. You also talked about effectively deleveraging through the course of receiving some of these SoCal payments here. How do you think about the cadence of that leverage through the course of the year? How do you think about where you want to end the year? And then related, how do you think about the force majeure related to SCE? Do you think you can offer up any comments about that $90 million dynamic?
spk28: I mean, again, I appreciate that this might be a little tricky, but really focusing on that deleveraging commentary.
spk14: Yeah, sure. I mean, I think the deleveraging, so we've all kind of – uh circled around the amount of unbilled that stored is still sitting there we've got to get these projects to substantial completion collect the amounts after 60 days and see those go to pay down that corporate leverage especially our revolver uh the um the the third project finishing later in the year obviously you'll see that substantial completion payment the final acceptance payments coming in uh you know i don't think i'm putting a particular you know, time period on it. I'm not going to say it's going to happen in Q2 or Q3 or Q4. I think it's going to kind of spread itself across the rest of the year as we de-lever over the course of the year. That's the way that I would answer that. And then, you know, frankly, on the liquidated damages and the force majeure claims, there's not really any new information. You know, we're continuing to exchange information with So, pal, Ed, and that's what we've been doing, and we're continuing to do it, and the hard yards on that will probably come after we finish the projects.
spk26: Got it. All right. So, right. So really don't expect any updates until after the summer or something like that on the force majeure liquidity or, you know, payments here. And then on the specifics of where you're targeting leverage to be, just You know, there are a bunch of puts and takes here. By the end of the year, any specific metric that you would offer up relative to 3X today that you would kind of aspire to be?
spk14: So the short answer, Julian, is no. I probably won't put that metric out there. And the primary reason is because George talked about being opportunistic in Europe. If something pops up and we want to go make a small acquisition in Europe or something else happens, then we want to be able to use the corporate resources to actually go after transactions and ideas that will help us grow the business. So I don't think it's appropriate for us to kind of put a target out there. You know, the numbers are pretty clear as far as the way that the SoCal will reduce that leverage. If there's anything that we do that will increase the leverage, it's going to be something we'd be talking about, right? Whether it's asset opportunities or M&A opportunities or something along those lines.
spk15: But no particular target, Julie.
spk18: Thank you. And one moment for the next question.
spk36: Our next question is coming from Craig Irwin of Ross . Please go ahead.
spk31: Thanks for taking my question.
spk32: So, George, looking back to the times of COVID where you very successfully hold forward execution, it was a large part of the significant appreciation of your stock, right? Looking back to that time, a lot of the success was your ability to move your resources away from prioritizing pipeline backlog, contracted backlog, towards execution in a quarter. Can you maybe explain for us whether or not this was a factor in your fourth quarter upside? And how are your employees positioned in the current quarter compared to historical? Are you leaning in a little bit? Maybe so we could see some upside over the course of this year, given that the pipeline and backlog and everything is so incredibly healthy there? Or is this sort of more of an even distribution like we've seen over the last 10 years?
spk07: Great questions, Greg. But this year, to the management team and to the board, I told them, look, guys, the development, we're developing business in a pretty good clip. We have to execute, execute, and execute. And when we reorganize the company a little bit in order to take advantage of of the people that we have around the around the company we reduce it by a couple of units so we have more interaction between the management teams right now and taking advantage of some of the expertise we have around the company by having less units we can transfer that knowledge from one group to another have more purchasing being done through the headquarters. So we're saving money in the purchasing of equipment. And the other thing, sometimes a lot of people, they focus on smaller projects and maybe they are not in our wheelhouse, within our wheelhouse. So I'd say we got to focus in larger projects and to the ones that we have a competitive advantage. And those are the ones that are on our expertise. And that's why I particularly I mentioned the federal government, we have over a billion dollar backlog just on that one alone, and the institutional accounts, again, the backlog is very good. So the bread and butter business, which is the energy efficiency, which is our core business, we have the organization, we focus a lot on that. Because what happens once you pivot in some of these new strategies, new technologies, everybody is rushing to that. So we want to take it back and say, hey, guys, this is what brought us here, and I want you to start focusing this particular project. It has an impact already. We started that process, I would say, late last summer, and we've seen some good results coming out of it. Yeah.
spk14: I would only add, Craig, I think that the comparison to COVID is an interesting one. It's probably not quite as drastic in terms of the reallocation of resources of what we saw in COVID because of the fact that the business development world hasn't kind of come to a halt like it did early in COVID. And for that reason, what we're focusing on is making the business development process much more efficient. And then the operational efficiency of getting proposals into awards, high hit rate projects, and then converting awards to contracts. Certainly you'll see some more resources going into execution because we've got the management team focused on execution and reducing OpEx and so on and so forth. But it's a good comparison. It's not quite as extreme.
spk32: Thank you. So my second question is about margin and backlog, particularly contract backlog. So your growth in contract backlog is really impressive. But the EBITDA guidance is lagging versus this growth. So can you maybe help us understand if we are seeing compression from the increased size of large projects, increased contribution from large projects, and maybe lower margins on energy storage projects compressing the profitability of that backlog and pipeline? Is this something that's really just a short-term item that will pass?
spk14: I'll answer that, Craig. So I think that if you look at the awarded backlog and the contracted backlog conversions during the year, entirety of the year of 2023, no fundamental changes in the margins. I think Q4 certainly had some larger awards in there where the margins on some of the solar EPC, especially in Europe, are a little tighter than what we normally would go after. Again, very, very good operating leverage for that because it doesn't require a huge amount of resources from us. because we have a JV partner that manages the execution. But that, to me, actually feels like the latter part of your question is sort of, you know, maybe a temporary, you know, jump in that, because we did sign a couple of, you know, a few pretty sizable projects in Europe in the fourth quarter that probably would have had that impact. But I don't see that necessarily impacting long-term. And, in fact... Post signing those contracts, George and I have been, you know, back to that team on the origination and, you know, preaching the same thing we're preaching in the U.S. You need to go with the higher margin, higher hit rate projects. We've got a lot of great stuff in the backlog, but let's focus on the really high quality stuff going forward.
spk32: Great. Well, if I can say congratulations for that success in Europe. George, the 15 plus years I've known you, you've been trying to figure out how to get a business there and grow it. And it's nice to see, you know, MRS go figure out that formula and seeing, you know, real success, you know, driving revenue and profits over there. So congrats.
spk07: Thanks, Greg. Thank you, Greg. We are a good place, I would say.
spk37: Thank you.
spk36: Thank you. One moment for the next question. Our next question is coming from Tim Mulroney of William Blair. Your line is open.
spk10: Yeah, thank you. I just have a couple industry-related questions as it relates to energy storage. We recently read an article about Duke Energy decommissioning cattle battery systems at Camp Lejeune military base. We know you do work for military bases. do you think we'll see more of this type of action across the government space? And, you know, how, how do you think that might impact your business if at all?
spk14: We, so, um, I'd say that there probably will be more action similar to that as the national security concerns start to raise, no different than the 5G network stuff that was going on a couple of years ago. That being said, the primary concern doesn't really have to do with you know, the CATL battery containers or the quality of their systems, they're still one of the largest manufacturers of those in the world. And in fact, most battery manufacturers use their cells. It's really about the software in the battery management system, the BMS systems. And I think that You know, CATL is going to need to respond and figure out a way to ensure that they can get the federal government comfortable with what the BMS systems are. And so I think there's more to come on that space. Importantly, from our perspective, we are agnostic to suppliers. CATL is not the only game in town. We're deploying batteries from numerous other manufacturers in our projects and things that are in our backlog. We're bidding other manufacturers into these projects. And, you know, those just don't – they simply don't carry the same concerns.
spk07: Yeah, great. And what I might add. Once this came to reality, I went back and I checked with Nicole that runs the federal group whether we have any of the capital batteries with the military bases. We have none.
spk10: That's interesting. I appreciate all that clarification. That's really helpful. Sticking on batteries, you know, we've heard lithium ion phosphate batteries come down quite a bit, even since the prices, that is, even since your last earnings call. Now, I guess my question is, are you seeing that as well? And can you talk about what kind of impact a greater availability of batteries for energy storage or lower costs for these batteries might have on the project economics for you and your customers?
spk14: Yeah, certainly positive moves in the economic benefits, you know, whether it ends up, I mean, you know, ultimately all this ends up benefiting the rate payers in the utility districts where these utilities are putting the batteries. You know, the utilities are rate-basing either a long-term capacity contract that they have with us when we own the batteries, or it's just the EPC price and the cost of the batteries. If it's coming down, those rates come down, and it really helps them pass those savings on to their rate payers.
spk10: Okay. So input prices here. doesn't really impact project economics for you. It's more about the end customer.
spk14: I mean, it certainly gives a little bit more room. It allows us to sharpen our pencils on contingencies that we have to include, right? That's, you know, that's most certainly the case.
spk09: Okay. Okay. Thanks so much.
spk36: Thank you. One moment for the next question. And our next question is coming from Pavel Malcheval of Raymond James. Your line is open.
spk30: Thanks for taking the question. You have a lot of interesting businesses in Europe, except one. I don't believe you've ever operated an RNG plant in Europe. Would you be interested in either developing or acquiring RNG assets in Europe?
spk07: Actually, we are looking at some. You're right, though. We haven't done one of them over there yet. But we have hired a business developer to go after RNG facilities in Europe. And don't be surprised. We might have some partners. But rather than, we're not a bank to operate to just buy or operate in assets unless we believe we can add some value to it and get a good return. But we are looking, no question about it. Actually, two days ago, I approved a particular proposal that we are making in Europe for a loanless business.
spk30: Okay. Kind of a big, big picture question about, the economics of energy efficiency. We've talked about, through the past two years, constant escalation in power prices and the incentive for building owners to invest in energy efficiency. Is that economic rationale the best it's ever been right now?
spk07: I would say so, because energy prices are going up. Even though the inflation has gone up, there's still the value proposition. And that's why on my commentary, my script, I said energy efficiency doesn't need any government incentives whatsoever. But with 179, it helps. It helps. And that's why I've been preaching to the world that 30% of the energy can be saved economically, and it pencils out. So it's And what the other thing that's happening, the technological advancements that we have, they're bringing the cost down.
spk15: So it's great, and it's getting greater, I would say.
spk18: Okay. Thanks very much. Thank you. One moment for the next question.
spk36: Our next question will be coming from Craig Shear. of Tucci Brothers. Your line is open.
spk11: Good afternoon. Thanks for fitting me in. A couple of quick ones. First, last quarter you all mentioned similar supply chain and project execution issues, but noted that Europe had been largely exempt from that. Is that still the case?
spk14: It is, yeah. Europe has still been really good availability, solar modules. Of course, we were all kind of spooked by the Red Sea, but it ended up kind of not being much at all. We have a supply management consulting business in the UK as well, and I talk to the head of that business quite often about what's going on with natural gas and power supply markets and what happened with the Red Sea on supply chain. And yeah, not a whole lot impacting our business. It's been good.
spk11: Right. And staying on Europe a little, George, as you talked about more internal communication, centralized purchasing, increasing project sizing. How do you see those kind of internal initiatives playing into your European strategy?
spk14: Yeah, I mean, the short answer to that is me, because George has me, you know, kind of directly involving myself in the execution of the operational aspects of a lot of what's going on in Europe. And many of those centralized functions are things that, you know, I've been developing over the last couple of years on the procurement side, enterprise risk management, et cetera, risk review committees. So, We have, you know, we have mechanisms in place to ensure that, you know, these large projects go through risk reviews that involve the folks in the U.S. who have been involved in the large projects, and also that we can kind of capitalize on these efficiency measures, you know, these operational efficiency measures that we're implementing here. We're still a very flat organization. You know, we've got a lot of direct involvement directly with the The gentleman who runs our Italian business, Intercoast, directly with the JV partner, directly with the guy who runs our UK business, you know, we're in constant conversation.
spk18: Thank you. One moment for the next question.
spk36: And our next question is coming from Benjamin Callow of Beard. Your line is open.
spk39: Hi. Thank you. Good evening. If possible, could you just kind of give us a kind of back of the envelope or any kind of color on the assets you add to the balance sheet this year? What kind of EBITDA you project to layer on for next year when they're all completed?
spk14: I don't think I've got a really good guide. We can probably reiterate some of the guidance we've provided in the past as far as EBITDA per megawatt with respect to solar and battery. We're talking about a couple of hundred thousand dollars per megawatt, mostly solar. I think the range for The renewable natural gas still kind of remains valid there on the EBITDA side, $750,000 to call it a million and a half if RIN prices are doing great. But based on those particular cadences, I think that should give you some idea of the breakdown. And you probably have the megawatt numbers that we're looking at, the three RNG plants I think we have a total of, is it about 20 megawatts of the new megawatts going in this year is RNG. The rest of it is kind of solar and battery with that 200K number being a good back of the envelope, like you said, Ben.
spk39: Thank you. Have you guys changed any way that you contract or think about doing energy storage or battery development, either on balance sheet or for customers because of SoCal Edison. Thank you.
spk14: Actually, I think the contracting framework, as it relates to that, the things that we think about, you know, if it's an EPC project, obviously we're being very, very tight with working capital now. We've got a lot of guidelines out to the business units to minimize the amount of working capital that is associated with any project where we're doing EPC. And then secondly, from an execution perspective, you know, clearly a lot of heavier focus up front about the commissioning process, and that feeds into supplier selection. But as far as, you know, markets where we're developing, types of assets that we're developing, we're still kind of pulling things in from multiple jurisdictions. And economics and risk will determine whether we end up putting those in kind of a develop and sell category or put them on the balance sheet.
spk17: So that's probably the best description I can give you, Ben. Great. Thank you, guys.
spk36: Thank you. This does conclude today's conference call. You may all disconnect.
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