Ameresco, Inc. (AMRC) Q2 2020 Earnings Call Transcript

Good day, everyone, and thank you for waiting. Welcome to the Ameresco, Inc. Second Quarter Earnings call. I would now like to hand over the conference to your host, Ms. Leila Dillon, Vice President of Marketing and Communications. Ms. Dillon, please go ahead.

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

Thank you, Leila, and good afternoon. I hope everyone is staying healthy and safe. First, I would like to state how proud I am of the entire Ameresco family. Across our broad geographic footprint, our employees quickly transitioned to the new working environment and performed their jobs extremely well with no significant interruptions. Also, our robust corporate technology infrastructure, built over many years, has enabled many of our employees to continue to work remotely. With strong job performance by our team comes strong financial results. Our exceptional second quarter results have kept us on track for a record year, and we continue to have very good visibility for 2021 and beyond. In the second quarter, Ameresco experienced broad-based revenue growth across our project, renewable assets, and operational and maintenance businesses as we continued to focus on executing on our backlog. Our business improved throughout the quarter due to strong execution, less restrictive work environments, and favorable weather conditions. We have not only executed efficiently on contracted projects, but also worked hard to grow our strong contracted backlog year-over-year while our smart solution projects continue to yield cost savings, provide resiliency, and measurable environmental benefits for our customers. I would like to highlight a couple of areas where communities are yielding other tangible benefits. Since our inception, public housing authorities serving low-income populations across Ameresco's footprint have been an important market for us. Energy efficiency, renewables, and improved built-in infrastructure are all examples of the type of work we have done for these communities. This includes improvements to HVAC, hot water, building envelopes, lighting systems, energy-efficient windows, and even roof-mounted solar PV. This work not only saves energy, but it also improves residents' overall quality of life, especially comfort, health, safety, and security. These benefits have become notably important in the caring environment as residents are spending more time at home. Ameresco has developed and deployed specific COVID-19-related project management and construction protocols which have enabled us to execute on these projects with no major slowdowns. Given ongoing budget constraints, worsened by COVID-19, municipalities across the country are looking for quick payback, money-saving projects. In response to this, Ameresco launched a customer-focused initiative promoting health and safety in the workplace. Passive controls, updated HVAC systems, and automated entry and access systems are just a few of the energy conservation measures that can make an immediate impact on reopening offices, schools, campuses, and facilities. These measures can often be implemented as part of the overall energy efficiency project with zero upfront costs. In addition, Ameresco continued our extensive work with LED streetlight conversions. With decades of experience and many large deployments under our belt, Ameresco is now the nation's largest ESCO provider of municipal LED streetlight conversion services. Dramatic cost declines in LED technology have created rapid payback for LED conversion projects, providing energy savings of 60% to 70% compared with legacy lighting solutions. In addition to immediate energy savings, LED conversions also substantially reduce expensive ongoing maintenance costs, given the much longer lifespan of LED technology. This is especially true for lights on high-speed roadways, considering the extra requirement for expensive traffic control. Even though the savings are clear, only about half of existing municipal streetlights and traffic signals have been converted to LEDs. We expect the additional financial pressures from COVID-19 on municipalities will only accelerate the historic conversion rate and adoption of advanced technology controls. Ameresco is not only able to perform the conversion work, but we also can provide or assist in financing these projects, creating an extra incentive requiring no upfront capital. Ameresco's household business continued to show strong momentum in the quarter. We signed a comprehensive contract for the installation and operation of a $38 million energy infrastructure project at the Marine Corps Air Station Cherry Point. The project supports the investments we have made in developing and expanding our advanced technology portfolio. Features of the project include wastewater treatment optimization, airfield lighting modernization, electrical distribution upgrades, smart mirrors, and cybersecurity network improvements, a new measure growing in importance. Ameresco was also one of five awardees on a five-year large design-build construction contract vehicle with a capacity of $975 million. The project at the Naval Facilities Command Mid-Atlantic will support recovery efforts following the aftermath of Hurricanes Florence at Marine Corps facilities in North Carolina. Our long-term strategy of increasing the mix of recurring revenue streams continues to strengthen our business model, providing a high level of visibility during periods of uncertain economic conditions. During the quarter, our Ameresco asset and operational and maintenance businesses saw only minor impacts due to COVID-19-related disruptions, demonstrating the great resiliency of these business units. We continue to grow our assets in the development pipeline, including green gas and solar, and win additional operation and maintenance contracts. In summary, the COVID-19 situation remains a top priority. We continue to follow the highest safety standards and protocols to protect our customers, our partners, and our employees. While this presents many challenges, we expect to once again achieve record results for the year. We believe that our critical cost-saving services and flexible financing capabilities will be in even greater demand in a post-COVID-19 environment. Our aggressive investments over the years in our people and capabilities position us excellently to execute in this greatly expanding market opportunity. I will now turn the call over to Doran to provide some comments on our financial performance.

Thank you, George, and good afternoon everyone. I'm pleased to review the company's second quarter financial performance. Please refer to our press release and supplemental slides for additional financial information. Second quarter revenue demonstrated strong double-digit growth across our major business lines, up 13% year-over-year. While Ameresco continued to navigate a challenging work environment due to various COVID-19-related restrictions, we did see sequential improvements in our ability to execute project work throughout the quarter. The less restrictive access to work sites and favorable weather conditions that George mentioned contributed to strong performance in many of our key geographies. As we have noted previously, we have seen meaningful growth in design-build projects. We strengthened our capabilities in the design-build business over a year ago with a small acquisition. We have rapidly grown this offering, which represents quick turnaround projects with limited or no upfront auditing work and no ongoing performance guarantees. Importantly, we are able to leverage our existing project and operational infrastructure as the actual work performed is closely aligned with our traditional performance contract work. While these projects carry lower gross margins, they are additive to our EBITDA, given this operating leverage. I did want to touch on our gross margins during the quarter, which were 17.7% compared to last year's 21.8%. In our first quarter press release, we gave specific details on the factors which we anticipated would impact our second quarter results, including incremental expenses related to COVID-19 that we would incur in executing our projects. While this did occur, the overall impact was below our original cost expectations, given better-than-expected execution. However, there were increased levels of design-build work, along with other lower-margin projects as part of the project revenue mix during the quarter. We also incurred some unplanned maintenance costs in our O&M business above our expected quarterly maintenance expense levels. These were quarter-specific items, and we expect gross margins to improve in the second half of the year. Operating expenses were $26.6 million, 12% below last year's level. The company reacted very quickly to the COVID-19 operating environment, implementing tight cost controls across the organization. Net income attributable to common shareholders was $4.4 million compared to $9.2 million due to the impact from noncontrolling interest activities during the quarter of $4.5 million. We note these are noncash accounting adjustments made to results. Non-GAAP net income was $9 million compared to $8.6 million. Adjusted EBITDA, a non-GAAP financial measure, was $24.1 million compared to $23.6 million, an increase of 2%. EPS was $0.09 compared to $0.19 and non-GAAP EPS was $0.19 compared to $0.18, an increase of 3%. Despite our previously anticipated slowdown in new business development activity, our awarded backlog increased 6% quarter-over-quarter, representing a surprisingly strong quarter for new awards. Our contracted project backlog of over $1 billion grew 29% year-over-year, providing us with substantial visibility. Our recurring revenue businesses, which accounted for approximately 78% of our year-to-date EBITDA, have over $2 billion in long-term contracted revenue and incentives, giving us annuity quality revenue streams for years to come. Ameresco's liquidity remains strong, with ample cash and available credit to execute our asset development pipeline plans. We ended the quarter with cash on hand of $42 million after paying down $15 million on our line of credit. Increased focus on cash collections during the quarter reduced our DSOs to under 100 days from 122 at the end of Q1. During the quarter, we executed on many nonrecourse financings, further shoring up our liquidity position and providing the company with additional capacity for future investments in renewable energy assets. As George pointed out, our assets in development are increasing. The availability of financing, combined with our ability to monetize development assets, provide us with the confidence to execute on this development pipeline with conviction. Turning to our outlook, we are pleased to reaffirm our 2020 full-year guidance as detailed in our earnings press release. Now I would like to turn the call back over to George for closing comments.

Thank you, Doran. Ameresco is not only well-prepared to weather the near-term challenges that the current business environment presents, but we have the people and resources in place to take advantage of the numerous exciting growth opportunities in front of us. Before we take your questions, I would like to again thank our employees, our customers, and our partners for making Ameresco a great success story and for their extra hard work during these challenging times. The entire Ameresco team hopes you and your families stay safe. Kevin, I will now like to open the call to questions.

Our first question comes from Noah Kaye with Oppenheimer.

And I guess, just to start with the energy assets. It looks like the megawatts of development increased by 25 megawatts sequentially, which is good to see. The value of energy assets in development went up sequentially by, it looks like, almost $100 million. And you added 11 megawatts of RNG sequentially. So just what drove the jump in the value of the energy assets in development? Did you reach some major project milestones? What can you share with us?

Yes. It's because we have a good green gas plan coming into the pipeline that went into the award category. And as you know, the value of those assets is considerably higher than the value of the PV. And Doran, do you want to add something?

Noah, thanks. I think the dollar value, like George mentioned, of renewable natural gas plants is quite a bit higher, and those pipeline adds did include a good amount of RNG. I think that's what's driving it. The PV, as you know, can be sort of all over the place in terms of carport versus ground mount, but nevertheless RNG is the higher value assets.

And that's any new project in addition to the three you've mentioned, McCarty Road and the two others that you're looking to bring online by the end of next year?

This is in addition to the projects that we had announced before, and that's what we figured out.

Terrific. And then can you just update us on your current expectations for this year megawatts placed in service. Are you still looking around 50 megawatts, and does that include McCarty Road?

Yes. We still keep that number around 50 megawatts. And as you know, because of the COVID-19 situation and some of the utility interconnections, we might have some delays, but the number right now, we're firm on it.

Okay. Great. Switching to the project business, how sustainable is the current pace of contracting in the traditional project sector based on your activities and discussions with customers? I'm asking because in the past, you experienced slower contracting times as the economy recovered. However, you mentioned municipalities seeking cost savings, and the pandemic introduces new factors for customers to consider. I'm interested in your views on the sustainability of the current contracting pace.

We think that the pace, especially on the awards and looking at the pipeline and what's going on, is beginning to pick up. So, I will say that it's very good. It's sustainable. No question about it. And as I said in my remarks, I think that the fact that we bring the financing to the table and a positive budget-neutral situation with positive cash flow to the ultimate customers, in addition to that incorporating some of the health and safety measures associated with COVID-19, we're going to see an acceleration of our business. It's going to take some time, but I think it's going to happen.

Our next question comes from Jed Dorsheimer with Canaccord Genuity.

Congratulations on a successful quarter despite the challenges. My first question is about the project side of the business. In the short term, we are still facing COVID-related limitations, but it appears that the work-from-home trend may continue to some extent in the long run. Given this situation, could you share your expectations regarding municipalities and the sources of funding, especially considering the pressures on tax revenues alongside the significant availability of capital in the markets?

Yes, we see the activity on the projects continuing. Even in a work-from-home environment, we have adapted very well, so it won't impact us. Regarding our customers, due to their need for infrastructure upgrades, such as replacing boilers or chillers, they often lack the necessary funds. We approach them with options, stating that they can replace their boilers or chillers, and we can provide financing for that. The response has been very positive, which is why we remain optimistic about the strong financing for these projects.

Exactly. That's why I was asking, George. I mean, I wasn't asking from a negative standpoint; I would assume that you should be seeing an acceleration on the project side and that it's not a short-term phenomenon. Even if you consider that there's a 50% or 30% chance of this becoming the new normal, it should continue for a while.

I agree with you, but I don't want to be overly optimistic. As you've noticed, we are confident that the COVID-19 situation will lead to an acceleration of our business. However, the impact remains uncertain. The fact that teams are working from home and unable to convene their Boards or school committees to approve projects may pose some challenges. That said, as I mentioned in the last call, people are adapting. We managed to get some school committees together and facilitate project evaluations during the RFP process. Both our employees and our customers are beginning to embrace this change. This is why we're seeing solid activity in our pipeline. We were initially surprised that awards increased this quarter, as I previously anticipated business development would remain flat. However, we noticed some increased business, and we believe it will continue to accelerate. Still, we aim to stay cautious and not portray an overly optimistic outlook. The flexibility in financing is significant and often underestimated by customers. Having been in this business for 30 years, I can tell you that this concept has gained considerable traction in the marketplace over the last five years, contributing to our overall business acceleration, not just for us but for all our competitors. Additionally, advancements in technology have driven down costs, resulting in larger and better projects for clients.

Got it. That's helpful. Just, I guess, from a metric perspective, I would assume headcount might be the best way to measure that. Could you talk a little bit about headcount now and what we should expect that to grow, stay flat, or decline? How should we think about that? Is it overlays with your comments on the higher?

I would think the headcount will continue to grow, but we have some leverage, operating leverage. But in order to get more projects' construction, you need more project managers. You need more design engineers. It is very hard to duplicate people or get much more productivity out of them. So you will see us adding more people but administrative staff or maybe more accounting, more billing and so on. But you will see some growth, but the top line will grow faster than what the OpEx line grows at.

Great. One last question for Doran. Last quarter, I asked about credit markets and just in the time of turmoil with respect to yields. Yields have come down, but the availability of capital seems to be as full as we've ever seen it. And I'm just wondering if you could provide any comments in terms of what you're seeing in the credit markets at this point. Yes. And that's it.

Sure. Well, I mean, I think we mentioned some nonrecourse financings in my comments about liquidity. And I think that we're still continuing to see inquiries on the nonrecourse side and the asset-based financing. That market continues to be quite active. With respect to other capital markets, I think it is fair to say that the market is very active right now. I think we consider ourselves to have multiple alternative ways to go to raise capital currently. And it doesn't seem to be slowing down. And specifically to George's comments about some of these municipal and even federal contracts, the funds that are pouring into ESPC contracts, the rates continue to come in, and the interest in the projects continues to go up. So I think we're feeling fairly confident right now on where our capabilities are in terms of raising capital.

Our next question comes from Craig Irwin with ROTH Capital Partners.

Congratulations on another really solid quarter here. Impressive.

Thank you, Craig.

One of the things that I notice sort of going through the P&L is your operating expenses seem to be tracking a little bit lower than what the revenue upside would have maybe suggested, I think we're down $2.3 million sequentially and $3.5 million year-over-year despite nice growth. Can you maybe comment about where the reduction in operating expenses is coming from? Is this something that may be sustainable? Or is it related to new project development? What can you share with us about the reduction in expenses here?

Yes. As Doran pointed out, we were very careful to make some wise cuts, you might say, reducing expenses and so on. What's helping us the most right now is this shift from putting a lot of effort in the development and to the execution side. And because if you recall, we said that we might slow down on the development and the sales side. So some of the people who were working in development, they've been working through actual projects so that their salaries have been charged to actual direct costs. And that's why as we get more and more dollars into the development in order to increase our business and grow the top line. And on the awards as well as the contracted backlog, you will see some of the expenses come back up. And Doran might want to add a little bit more color to that.

Craig, I think, not surprisingly, still not a whole lot of travel going on. I think we will continue to focus on controlling costs. We aren't really changing the way we're guiding OpEx because we feel like, as George mentioned, as business activity and business development activity picks up, then we potentially could have more of these salaries and benefits allocated to pre-award costs that go to OpEx as opposed to cost of goods sold in contract execution or capitalized costs when we're going through awards. So I think that, that's a pattern that we're going to continue to keep our eyes on. And at the same time, of course, like I mentioned, we're looking at controlling costs in all the ways that we can adjusted to the COVID working environment, thinking about real estate. We are not blind to ideas about ways to keep our cost base down as long as we can remain productive, like we have.

Excellent. Just maybe a little color around that. Can you maybe share with us approximately how many employees were moved from business development over to operating execution?

Yes, Craig. So it's actually not a number of employees, and there's not a specific assignment. We have staff who cover multiple responsibilities. In essence, what happens is that portions of their time are tracked to particular projects as opposed to being tracked to business development activities, and that's simply it. It's not a headcount shift equation.

We have around 100 development engineers, and many of them are focused on creating new projects. Currently, a significant number of these engineers are dedicating part of their time to working on projects during the design-build phase of various initiatives we have in the pipeline.

Understood. So one thing that really surprised me this quarter is both the awarded backlog and the total backlog were up sequentially. In an environment where I understood the customers were awarding less as far as total contracts out there. Can you maybe share with us if you feel you outperform the market here? Do you think that there is potential for similar momentum to continue in the third and fourth quarters of the year? What else should we be paying attention to here as far as Ameresco's competitive position on new project capture?

I will begin with our competitive position, which we feel very confident about. Our market position is robust, and we are winning a significant portion of the projects we pursue, particularly those we are committed to winning. We're prepared to invest in these opportunities and our results are strong. I have been impressed by our team; they have excelled not only in executing projects but also in engaging customers. A couple of months ago, we initiated a program focused on reconnecting with customers, including establishing direct contact with Chief Executive Officers who have collaborated with developers. This approach is benefiting our business. While we believe there is momentum, it’s difficult to predict its extent and duration since delivering on our commitments takes time. That’s why we are being somewhat cautious to ensure we meet our promises. Overall, the business trend is positive, which is an encouraging message for us. We anticipate exciting growth opportunities ahead as our market is expanding rather than shrinking, thanks to new additions to our offerings that customers can utilize.

Great. And then last question, if I may. A lot of investors out there are excited about the stair-step addition of additional RNG plants over the next few years, 1, 2, 3. It's a great progression. What's very difficult to quantify from someone outside the company is how big are these stairs we're stepping up? Can you maybe share with us approximately what we're looking at as far as the size of these stairs, some megawatts, gallon equivalents, and the other factors that will impact the incremental EBITDA, such as LCFS eligibility, RIN lock agreements, and then offtake agreements necessary with the parties where you're citing the landfill caps or the new generating facilities?

Yes. Currently, I'm addressing the latter part of your question because we are exploring some potential long-term agreements with the off-takers. We have a couple of potential clients we're in discussions with. However, due to the decline in RIN prices, they were seeking favorable deals. Now that RIN prices have increased, they are showing renewed interest. In summary, I firmly believe that many gas utility companies we are engaging with will ultimately sign long-term contracts for those green gas projects. Regarding their sizes, we haven't focused extensively on that aspect. Previously, we mentioned that McCarty is about half the size of Woodland and the project we have in Michigan. For the other two projects, we have not provided specific details yet, but they are smaller in scale. I can share that information at this time, and we will provide some numbers for them eventually.

Excellent. Excellent. So then another question on this line. It appears from analyzing some of the other companies and talking to people involved with private companies in the space that Ameresco has outperformed many of its peers that own green gas generating facilities. And one of the reasons, I believe, is due to your conservative gas hedging practices. Can you maybe explain those a little bit for investors on this call and if you could share any color about the typical average duration of your hedge agreements? And what sort of protection you have at this point for the three existing facilities?

I would say that firstly, there are two aspects on the performance that I have seen some analysis on the Street about our business, especially on the landfill gas to energy or green gas performance. If you recall, we were one of the first companies to get into this space, and we have developed what I call a top-quality team, all the way from assessing how much landfill gas there are in those store sites. We have our own people that do the analysis, how to extract it, how to refine it, and build the power plants or the electric or the green gas plant. So we have our own teams, and we do our own EPC. And I would say this much, too. We spend a little bit more dollars than some other people in building the plants. But they operate better than some other plants in the industry. As far as the hedging, I would say that 50%, a little bit less than 50% of our output is hedged for about three years right now. And about 70% of the output is hedged for the rest of the year for this particular year. So that's where we are. And we look at the market daily, and I make at least one call myself, and we watch it. And if the market is right, we increase the amount of hedges we have in place. And the last time, I think we were 55% to 60% hedged for the balance of this year, and now we are up to 70% at relative prices than what you have seen them going on right now.

Excellent. And congratulations again on the very strong quarter.

Thank you, Craig.

Thanks very much.

Our next question comes from Eric Stine with Craig Hallam.

So most have been touched on, but just maybe on the M&A side, I mean, I know you've had a history of opportunistic acquisitions. Just curious as you think about your offering, whether it's geographic expansion, product capabilities, or project capabilities, thoughts there that you might want to fill in. And then also just thoughts on whether COVID-19 might present the opportunity that you can be a bit opportunistic here.

So Eric, I think it's fair to say that I don't have anything specific to discuss. However, you make a valid point about COVID-19. The level of discussion and opportunities in the market is increasing, but we are not going to rush into acquisitions just because it's a popular topic among bankers. We are being very thoughtful and considering our options, and I believe we will continue to be opportunistic, just like George was when he founded the company.

That's opportunistic, if I may add, and disciplined. At the end of the day, if we acquire a company, we want to make sure it's accretive. And in addition to that, it serves what I call some strategic purpose. But I wouldn't pay for it as it has to maybe be in a geography that we are not very strong in. We think the market is developing in that particular place. And that particular company might be undervalued for what we think we can do with it. Or it might be a product offer in this new environment that we think is going to help us. But we have a very good footprint across the United States. We have very good capabilities. For us, we do not have to overspend to acquire any company. We're going to be very disciplined and very careful because we are growing organically, and it's been very good for us, and we have pretty good pace. But if a great opportunity comes along, we will not let it go by.

No. Understood. And then maybe last 1 for me, just kind of high level. Well, first of all, to confirm, I know on last call, you thought that you'd have about $10 million that would get pushed at the third quarter because of COVID and given the strong results, is it fair to say that did not happen and that did get done in the second quarter? And then maybe, I mean, from a high level, is there a way to think about maybe linearity of results just based on what you're seeing from your project schedules today?

We did see some revenues pushed out, but there were also projects that we managed to accelerate, and the results from the quarter reflect that. Looking ahead for the rest of the year, we plan to maintain our expectations. There is still uncertainty regarding COVID due to rising case numbers, making it difficult to predict how things will unfold. However, based on our current outlook, we remain optimistic about the year, which is why we have reaffirmed our guidance.

Okay. Next question comes from Chris Souther with B. Riley FBR.

On the solar piece, it looks like you added 7 megawatts of operation that grew the development pipeline nicely. Can you talk through the pipeline from a regional type of customer perspective? Where are you seeing the bulk of those opportunities on how the competitive market is looking for these types of new projects?

Sure. I don't think we've really given much information in terms of detailed geographic breakdown, but I would say that we have development groups, strong development groups in the East Coast, in the Midwest, Central as well as in the Southwest. So these assets are coming from each of those areas. I think if you look back to the company's history, several years back, you would have seen a lot of those assets here in the Northeast. However, I think now we're doing a good job of kind of spreading that around. We do have a mix of some community solar development here in the East. We have, of course, our traditional market customer, the MUSH market, which is allowing us the opportunity to do solar on landfills, solar on carports, as well as rooftop work, both in the MUSH market and in the C&I space. So the only thing that I didn't mention is kind of your traditional large 200-megawatt utility-scale, ground-mounted solar project, that's not a particular market that we're in. Otherwise, it's fairly evenly balanced.

Yes. I would like to add that on the competitive side, we see a lot of opportunities ahead, particularly with many of our solar projects tied to customers we've worked with, such as the Wayland School System. After completing energy-saving performance contracts with them, we moved on to solar projects and similar partnerships. This makes us very optimistic about the market potential for distributed energy resources, including solar. The costs have decreased, and there is a growing interest in reducing carbon footprints. We are witnessing a significant increase in solar installations across municipalities, school systems, colleges, universities, and hospitals. Our competitive edge comes from having established distribution channels nationwide, whether in the East, Central, or Southwest regions, and maintained strong relationships. Other developers may falter in locations like Massachusetts due to less favorable conditions, but we are positioned to thrive without disruption. This solidifies our market advantage. Additionally, our robust organizational structure further enhances our ability to capitalize on these emerging opportunities, and I am truly excited about our current position and the potential for growth driven by our capabilities.

Understood. That's very helpful color. You've called out strength in a lot of different end markets you're playing in. Are there any that have been kind of more impacted during COVID and are seeing slowdowns? Or it seems like there are a lot of opportunities to capitalize on folks looking at their budgets and looking for ways to save. But I was just curious if there were any kind of softer spots?

I think people in the room may agree that the hospital sector could present some challenges in terms of site access. As we've discussed regarding the warrant and contract award cycles, it's essential to engage senior executives at these institutions, who are currently facing numerous challenges.

I would like to add that there were a couple of jobs we had to close because we were informed that we could not work. This included a few hospitals. However, as the patient numbers decreased, we received permission to return. This is why, in our last call, we mentioned that we had to shut down the sites for sanitization before starting over and remobilizing. That situation occurred. Additionally, some exclusive sites were also closed. Initially, we were asked to leave, but later they allowed us to come back when they had no patients. Overall, I would say that hospitals are the most challenging sector.

Understood. As we approach the election, should we anticipate any effects on the federal contract cycle, or is that not a significant factor for your projects?

I will say that the federal sector continues to be very strong, and one of the things that makes us feel very, very good. They are pivoting a little bit more to design-build contracts, and we have won a good chunk of those projects in the past. And it seems like based on the activity that I see, that track record is continuing. And we signed one contract this last quarter. We anticipate that we will have another good year in the federal market.

Our last question comes from Pavel Molchanov of Raymond James.

Given your skill set in developing RNG projects, I'm curious what you think about green hydrogen. This is something that we're seeing more and more headlines about, probably not as much actual build-out, at least yet. But I'm curious if that's something that you would look at participating in given the adjacency to what you have done for a long time?

We are carefully examining this area. If you want more details, I recommend speaking with Michael Bakas, who oversees that business for us. We are engaging with individuals currently involved in this sector, and I believe we will take steps in this direction in the future. Until I have concrete information, I prefer to keep specifics to a minimum. We are considering technology in this field, and having the assets, like the green gas plant, positions us well for a potential shift to hydrogen, offering significant value opportunities. We are aware of this trend and anticipate the hydrogen market will evolve, possibly within the next one to two years.

Okay. That's helpful. Can I also get a comment from you on the European opportunity? I think since your last call, we saw a lot more headlines coming out of Brussels about the climate law and the European Green Deal. Of course, you have a footprint, but curious if you're looking at opportunities within the EU itself?

Yes. As we pointed out last time, our U.K. operations, they are picking up, and we are very excited about the backlog that they have over there. And they are in a very good position right now. And because we've been reading the same articles that you have, and I have asked our staff to see if we can develop a plan and how we can take advantage of what's coming down the pike. So we are very cognizant of the opportunity, and we will look at it very, very carefully. And I wouldn't be surprised that we'll develop a plan that is going to make that unit in Europe grow for us. Yes, we have positive momentum in our sales. Given the current global situation with COVID-19, I believe opportunities are expanding rather than declining. However, we need to approach the development of new markets with caution. We're performing well and experiencing significant growth, but it's important to remember that opportunities can be fleeting. We must seize them wisely when they arise.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Thank you very much.