Good day, ladies and gentlemen and thank you for standing by. Welcome to the Ameresco, Inc. Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Leila Dillon, Senior Vice President, Marketing and Communications. Ms. Dillon, you may begin.

Thank you, Justin, 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 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. George?

Thank you, Leila, and good afternoon, everyone. The third quarter was another strong quarter for Ameresco, as robust new business development activity yielded significant growth in both our project backlog and our energy assets in development. Our results continued to benefit from our diversified business model, as growth in our higher margin asset and O&M businesses, plus a favorable project mix drove an increase in profitability that more than offset the impact of supply chain and COVID-related delays. Our energy asset business had an exceptionally strong quarter with revenues up 29% and 35 megawatts added to our assets in development. Ongoing additions to our energy asset base create a higher margin, long-term revenue stream that, together with our O&M business, helps to smooth out the variability that we can experience from quarter to quarter in our projects business. Of note, we were very pleased to add an additional four RNG sites and an innovative battery system to our assets in development during the quarter. Given our deep and wide expertise in advanced energy technologies, Ameresco is able to pursue a very broad range of high yielding opportunities across our entire geographic footprint. During the third quarter, several projects in our off-grid integrated solar business were impacted by interruptions and delays due to the industry-wide supply chain issues and COVID-19 related disruptions. It's important to point out that these issues primarily impact the timing of execution, and that the delayed revenue will be recognized in later quarters. Our projects business proposal activity has been robust, and we saw a considerable increase in our total project backlog, which was up 7% sequentially at the end of the third quarter. At the same time, a significant increase in proposal activity is taking place across our customer base, which we see as a positive signal for Ameresco's growing business. Several factors have started to come together that are influencing customer decisions. For many customers, the attraction to budget neutral cost savings remains a key selling point. But we are now seeing a significant increase in projects being driven by the demand for greater power and water resiliency, as well as advanced technology solutions that can lower our customers' carbon footprint. Ameresco's ability to provide comprehensive solutions addressing all these elements puts us in a very strong competitive position and has significantly expanded our addressable market. The transformational 537.5 megawatt battery energy storage contract that we announced 10 days ago is an excellent example of the growth potential we see on the horizon. The contract is the largest in Ameresco's 20-year history. We will be designing and building three battery energy storage systems for Southern California, Arizona. In total, the project will provide the California grid with four hours of clean, resilient power storage for a total of 2150 megawatt hours. The incredibly fast-paced timetable for this project has been driven by the devastating impacts and higher frequency of extreme weather events, which continue to create energy supply emergencies in California. California law is not the only state or region facing extreme weather events. Over the last few years, the grid has been disrupted by numerous wildfires, extreme heat, and cold, as well as hurricanes in many regions of the country. Many utilities and their customers are now looking at distributed energy resources and micro grids to augment the grid and create a more reliable, resilient system. As a larger percentage of our energy supply comes from intermittent resources like solar and wind, blackouts and energy shortages may become more likely. We continue to support these technologies as they are a very important part of the new energy mix and our economy. However, their intermittent nature creates a need for more backup power and resilient solutions, including a firm supply of renewable energy resources. Ameresco's portfolio of solutions perfectly complements this approach. While the Southern California battery contract is our first of this size, we are actively engaged in numerous other discussions for similar solutions. We believe the next decade will be marked by dramatic changes in the domestic power system with resources shifting to more distributed assets and micro grids to increase overall reliability and resiliency. I will now turn the call over to Doran to provide some comments on our financial performance and guidance. Doran?

Thank you, George, and good afternoon everyone. Please refer to our press release and supplemental slides that have been posted to our website for additional financial information. As George mentioned, the third quarter clearly demonstrated the resiliency of our business model, as continued growth in our higher margin energy asset and O&M businesses offsets slower project revenue, driving another quarter of profit growth. As we've noted before, quarterly project revenue can be uneven by nature, which has only been exacerbated by industry-wide COVID-19 restrictions and supply chain disruptions. This is one of the reasons the company has purposely built out our recurring revenue businesses since its founding, which now account for over two-thirds of our adjusted EBITDA. Q3 revenue was $273.7 million compared to $282.5 million the previous year. Approximately $30 million worth of project revenue was delayed and is expected to be recognized in subsequent quarters. We anticipate the COVID-19 and supply chain challenges to continue into 2022. We constantly monitor the availability and timely delivery of materials, as well as the availability and cost of labor, especially given COVID-related restrictions and vaccine mandates. Our increased guidance which I will discuss later in the call takes all of this into consideration. Energy asset revenue increased an impressive 29%, reflecting the continued growth of our operating portfolio, improved performance of our existing operating assets, and strengthened RIN prices. O&M revenue also had a robust quarter with growth of 12%, as we continue to attach long-term O&M contracts to our project work. Our gross margin of 21.5% benefited from a favorable project mix and generally continues to benefit from the growth in our higher margin energy asset and O&M businesses. We had GAAP EPS of $0.33 and non-GAAP EPS of $0.41, with adjusted EBITDA of $40.2 million, increasing 9% year over year. During the quarter, we placed four megawatts of assets into operation. We also added an impressive 35 megawatts to our assets in development, including a battery energy storage system and four additional smaller RNG facilities. With the addition of these four, we now have 17 RNG assets in development, with a total expected annual output of over 10 million MMBtu, the equivalent of approximately 129 megawatts. Our 319 megawatts of operating assets have approximately $1 billion in long-term contracted revenue and incentives. Together with our $1.1 billion O&M backlog, we continue to have considerable long-term visibility to these higher margin revenue streams. Moving to our project backlog, we were very pleased to have increased our total project backlog 7% sequentially, and 5% year-over-year to $2.36 billion, as we continue to see a significant pickup in customer interest and bidding activity. Our recently announced battery storage contract with SCE was not included in the Q3 backlog number, but will hit our Q4 contracted project backlog. And as a leading clean tech integrator, we are pursuing many large complex projects with clients who recognize our expertise and proven track record. Let me add a little financial color to the SCE design build contract. Work has already begun in the fourth quarter with anticipated completion by August 1, 2022. As with other projects, revenue will be recognized on a percentage of completion basis, and we expect a relatively uniform level of work throughout the life of the contract. As we have stated, design build contracts typically yield gross margins in the high single-digit range. We've included the estimated impact from this contract for the remainder of this year in our raised 2021 guidance ranges. We will not be commenting on the 2022 impact yet, as it will be factored into our 2022 guidance ranges when we release that information early next year. Given our strong year-to-date performance, the addition of the SCE contracts, a lower than anticipated tax rate, plus an increased investment in our people, new resources and growth strategies, we are pleased to be increasing our 2021 guidance as detailed in our press release. With these factors, we are increasing the revenue midpoint by $80 million, and the EBITDA midpoint estimate by $5 million. Now I'd like to turn the call back over to George for closing comments.

Thank you, Doran. In closing, I want to again take a moment to thank our employees for their dedication and outstanding execution, as well as our customers and stockholders for their continued support. I believe that the prospects we see in front of us have never been more exciting. Our portfolio of innovative solutions and our track record of execution and delivering top-quality products make Ameresco the industry's preferred partner for the most complex and comprehensive advanced energy projects. Our recent battery storage contract win is a tremendous achievement for the company, and we believe it's also indicative of the types of opportunities that are rapidly evolving in the market as we focus on a clean resilient future. Finally, I'm excited to announce that Ameresco will be holding its first Investor Day in New York City on January 13. We will provide analysts and investors with an opportunity to gain better insights into our compelling long-term opportunities. Operator, I would like now to open the call to questions.

Thank you. And our first question comes from Noah Kaye from Oppenheimer. Your line is open.

Good afternoon, and thanks so much for taking the questions, everyone. So first of all, congrats on the contract win with Southern California Edison. This is very significant, and so I'd like to ask a couple of questions related to it. I guess, number one is a housekeeping matter. Is it possible to do a simple bridge to the $80 million increase in revenue guidance? I think you mentioned that you expect revenue recognition on this project fairly rapidly over the life of the contract. But maybe you could kind of help put a little bit of a finer point on it for us. I guess as long as we're at it, we could also ask a little bit about your mentioning the increased investment in people and systems to support growth. There's any details you can provide there?

Hey, Noah, this is Mark, maybe I can start just talking about the guidance. So, on the $80 million, I don't think we're going to talk about specifics there. I mean, there are a number of puts and takes going into those increased estimates. Certainly on the revenue side, we took into account an estimate of additional revenue coming from the battery contract. But, as we talked about in the prepared remarks, and as we saw in Q3, we still are anticipating the impact of various supply chain and COVID-related impacts to the revenue. I think we feel really confident in that revised range, just given the visibility that we have coming out of our project backlog for sure. We anticipate greater than 85% coming from our contracted backlog on the project revenue line, and certainly a high percentage overall coming from contracted revenue sources. If we work our way down the P&L, I think the expected contribution from that contract, and the adjustments we made to revenue, when you combine those with some of the investments that we're going to make, I think it's a combination, certainly on the human capital side, as we focus on retaining our people, as well as the investments we're going to make in new resources to support the growth. We're also expecting to see some increases on the project development side, as we continue to focus on the robust pipeline of projects. So, we're going to see those investments continue to impact OpEx, and I think that's what's flowing down to the adjusted earnings guidance.

Well, what I’d add to that is, as you may recall, that during COVID-19, we did cut back a little bit on the expense side, and focused a lot on executing the contracts that we had in place. And I think that's why we came out through COVID-19 very well. And we thrived in it, by the way. But the last couple of months and this quarter, we're increasing our OpEx, and that's why we saw the considerable pickup in the projects awarded over 31% year to date, but we have to make the investment in order to maintain and probably accelerate the growth down the road.

Right. And as you pointed out, I think your prepared remarks that increase in order backlog didn't reflect the contract, so you had significant growth in your other projects business and we'll see that.

Yeah. And that’s what got us excited about the performance of the third quarter. The fact that we've been waiting, we say, we knew that proposal activity is more than double what we had in the previous years. And finally, we’re beginning to see the results, the awards; and then as our time and work through the backlog, get the awards, and then six months, a year later, you get the actual contracts. But, if you get the Southern Cal, it went from proposal to award to contract with a few months in the proposal stage, and then about 10 days in the award to contract stage. So that's why we like this contract, by the way.

Thank you, George. This brings me to my final question regarding the urgency of this project. I would like to understand how you successfully secured the contract and how you were able to stand out based on your service capabilities and the technology you proposed. Additionally, I’m interested in what this might signify for other opportunities at the utility scale. You mentioned this in your prepared remarks, and it appears there is a significant opportunity available.

We were closely monitoring the situation with Southern California's RFP and acted quickly to respond, being one of the first companies to do so. In addition, we are involved in another smaller project with them, which has allowed us to establish a strong relationship and they recognize our capabilities in this area. Around three months ago, I visited them, and we proactively organized suppliers and EPC contractors. A major challenge is the procurement of batteries, which are quite scarce. We have secured suppliers for all key equipment, including transformers, and also have partners to assemble and construct it for us. I want to emphasize to our investors and analysts that although this contract is significant when viewed as a single entity, it consists of three contracts across different sites. If we look back to the Savannah River project we completed in 2010, which was one-third the size of our company and involved a $200 million wood biomass contract, this current deal is considerably less complicated. The main challenges lie in the schedule and supply chain issues, and we are consistently working to ensure timely delivery. The demand for microgrids and battery storage solutions is growing and is expected to be the future trend. As I noted earlier, the reliance on more solar and wind energy sources poses challenges due to their intermittent nature, influenced by weather conditions. We have to find ways to compensate for these fluctuations, highlighting the ongoing need for backup power and energy storage technologies in the future.

Right. Well, thank you very much for the color. I'll jump back in the queue.

Thank you. Our next question comes from Julien Dumoulin Smith from Bank of America. Your line is now open.

Hey guys, this is Anya stepping in for Julien. My first question here is I was wondering if you could just elaborate a little bit more on the supply chain issues? How much of that is driven by shortages versus cost inflation? Which of your businesses are particularly affected? And then, do you see any risks or I guess any impact at all to your annual cadence of three to four RNG projects? Or, do you think you could kind of make up over the long-term? Just wanted to get your thoughts on that.

I will discuss this briefly and then Mark can add his thoughts. We experienced some minor delays with our RNG projects, but there were no significant issues that affected our economics too much. For instance, materials for the LED controls were sourced from a factory in Vietnam that was shut down for three weeks, impacting all of our LED projects. Fortunately, this did not significantly affect the company's profitability because the project mix included several lower-margin projects, minimizing the overall impact. One surprise was related to vaccination status in the Northwest region; some subcontractors had one or two unvaccinated employees, leading to restricted access to certain facilities. Previously, we could perform work at night in schools, but with their opening and concerns over unvaccinated individuals, that option was no longer available. Mark, do you want to add anything?

Yeah, no, I think you hit on a lot of the examples. The only thing I might add is that it was certainly wasn't unique to any particular business unit or region, we saw it across really all of our project-related businesses. And so, I think we even saw beyond that just sheer delivery of materials or COVID-related impacts. We saw contracts being delayed, because COVID wouldn't allow certain officials to get into the same room. So you're getting just impacted the timing on a contract that we probably would have expected to see in Q3. So, we certainly ran the gamut of different challenges across supply chain and COVID.

Thank you for the great answer. As a follow-up, I wanted to inquire about the guidance increase. Is it mainly driven by this contract, or how much is influenced by your thoughts on D3 RIN pricing? What expectations have been considered in the guidance? Last quarter, you mentioned being relatively conservative on that. Have you incorporated any positive pricing into your guidance for 2021?

Yeah, we have for sure. I mean, it's definitely one of the puts and takes. I think, again, without talking specifics about all the moving pieces and the guidance, our estimates are just slightly below where the market is. So, I think that certainly has to be a factor, but that's probably what I'll say on that particular input.

Thank you. Our next question comes from Eric Stine from Craig-Hallum. Your line is now open.

Hey, everyone. So just going back to the SCE award, and arguably, California has got the most urgency in this area, but obviously, as you mentioned other areas as well. I mean, you talked about this building pipeline of similar large projects, just curious if you could expand on maybe the size of those compared to the one that you just won and timing of when we could start to think about that? Obviously, these are large and maybe they move slowly, but this one seems to have moved actually pretty fast given what's going on.

Well, this one moves very fast because like I said, it's an emergency situation in California. I will say this much, we are working on quite a few of them; generally, they are smaller than this particular project. And I think you will find that the market is moving more and more towards battery storage, microgrids, and so on. I’m sorry, if you get away with that echo there. No, those are landfill sites. I’ll follow them. But I will say this much in the dairy, we are working on some sites and some other potential deals. I will still put them in a proposal category right now. But I think in the near future, you will see us moving more, but we'll be able to put them in what I call asset in development. But right now, they're in medium stages I will call them. But because they are fast growing much lower, the value proposition is much better for them and so on. We are looking at it very aggressively.

Okay. Appreciate it.

Thank you. Our next question comes from Chris Souther from B. Riley.

Yeah, thanks for taking my question here, guys. And congrats on the SCE deal. Maybe to start for me, talk about the uptake in energy asset development pipeline, you saw strong additions in both solar and storage demand and then also the renewable gas. Can you talk about the types of solar and storage where we're seeing strength here? And then it looks like you had a pure kind of battery added during the quarter here, I wanted to get a sense of within the pipeline and kind of current assets, how many are pure battery versus hybrid or solar only if you can kind of give like a breakdown of where things stand and the momentum between those. And then the timeframe for the renewable gas plants that were added before would be great as well.

Sure. So I'll try to hit all those questions in one fell swoop. So you will notice that we kind of labeled the solar and battery in the supplemental slides now. Out of the figure that you see for solar and battery, 39 megawatts of that represents the battery capacity. Some of that is standalone, and some of that is combined with solar. The one that's being added is a battery that's being added to an existing solar project, that we've already got in our operating portfolio. So that's kind of a great example of being able to go back and figure out how battery resiliency can be a supplement to things that we already own and operate. I think on the RNG side, there hasn't been really any change to the cadence of implementation. So we've talked in the past about the 2021 single asset that's placed in service already, 2022, three assets, and 2023, four assets. The four that have been added, I think clearly, we talked about 17 assets in development, and the '21 through '23 don't add up to 17. So you can kind of see the timeframe is going to stretch beyond that 2023 mark, to get the rest of these in operation.

Okay, that's very helpful. And then, project delays, obviously, challenged the whole space. And you talked about pushing about $30 million from some of these supply chain challenges. It sounds like that was stuff that you thought was going to be in the third quarter, but got pushed to fourth quarter and beyond. I'm just curious, how many projects are being pushed into 2022 versus the prior guide? And then kind of curious around the timing, where you guys are seeing there might be kind of a light at the end of the tunnel here, is it too tough to call at this point?

Chris, I don’t see the number of actual projects being pushed, right. I mean, we're kind of looking at it from a total revenue standpoint, and certainly, we would see some of the revenue that got pushed out in Q3 go into Q4. But in terms of pushing out into next year, I mean, again, look, we continue to anticipate that we're going to see these challenges through Q4 and into next year. And so we'll continue to pull revenue out of this year and into 2022.

I would just say that it's not common project delays, that's why I said revenue delays. For example, take some of the streetlight jobs and we're going to get to control, but we could do some other work. So otherwise you delay some of the revenue associated with a particular project, and that's why in my remark I said, delay, that revenue will be recognized, but a little later time.

Understood. Okay, thanks, guys.

Thank you. Our next question comes from Tim Mulrooney from William Blair. Your line is now open.

Hey, this is Sam filling in for Tim. Thanks for taking our questions here, guys. Congrats on the quarter, first of all. You've discussed in the past the ongoing shift towards more comprehensive and complex projects. I was curious if you had any stats to help us understand the magnitude of that shift, like maybe the average size of a project five to ten years ago versus the average size of project today, or even a range just anything to really kind of help frame the issue for us?

It's a great question. If we revisit one of my favorite projects, Parris Island, the size changed significantly. When we secured that contract through the RFP process, it was valued at around $48 million, involving tasks like replacing boilers, some key work, and lighting upgrades, among other typical HVAC boiler retrofits. Later, the client came to us and mentioned their need for resiliency due to frequent storms and a federal requirement to have 30% renewables by a certain year. We went back to the drawing board and designed a project featuring an 8-megawatt combined heat and power plant, an emergency generator, battery storage, and a solar plant. To ensure the load matches the generation instantly during a grid outage, we incorporated a microgrid and necessary computer controls. This project has been running very successfully. Similarly, at Portsmouth Naval Shipyard, which maintains nuclear submarines, they experienced the only power supply during the ice storms over the last couple of winters. Parris Island also maintained power through one of the hurricanes. The demand for such solutions continues to grow. Historically, when I was involved with New England Electric, we designed the system for a loss of load probability of one in ten, requiring about 10% of the total load as spinning reserve. Currently, with 30% to 40% reliance on solar and wind energy, we need backup solutions, especially in data centers and hospitals, and this realization has started with the federal government. Consequently, the project has expanded to include smart sensors and advanced technology.

Awesome. Appreciate the color there. Maybe pivoting back to the battery technology a little bit, but more so on the distributed energy front. When we look at LED mining technology, and just how to ensure that it helped lower the cost of the technology by 90%. And that ushered in a wave of retrofits and mass adoption. When we look at the state of distributed energy now and just the battery storage, where do you think we're at on the technology maturity curve here? And then how much do costs need to come down for more than currently at to kind of see maybe a similar mass adoption of it?

There are several cases that make economic sense right now, especially considering the potential interruption of service. For instance, hospitals cannot afford to lose power. Universities or data centers also need reliable power. Concerns about cybersecurity and power loss are significant, and sometimes the consequences can be severe. The market has expanded partly due to the decrease in costs for various technologies, like smart sensors, LEDs, solar panels, and wind energy. While we are making progress with batteries, it hasn’t reached the level I believe it will eventually achieve. Microgrids are also advancing to a point where they are becoming economically viable.

Got you. Appreciate the answers here. Good luck in the next quarter.

And that's why the market expanded, it went from a $10 billion to a $20 billion market to a $90 plus billion market, if you look at some of these studies by Navigant and those guys out there.

Hi, thanks. I guess first question just maybe an extension on the storage side. It looks like that was for – it wasn't for long durations storage, just doing the calculation of four-hour backup. So I'm curious, maybe could you provide a bit more detail on how that came about? And because your comments around micro grid would maybe suggest a combination of both long duration and short duration storage, and so I'm just trying to figure out, sort of where we're at if this is the tip of a much larger iceberg, or how to think about this?

Yeah, I didn’t look at it this way. The four-hour battery storage for this particular application came from looking at the load profile of the utility. That's what basically they went out to and requested. So what they thought in order to beat it actually, believe it or not, this was a morning pick that they were worried a lot about. But ultimately, with a micro grid such things, and that's why I said in my comments, we will need firm renewable supplies. And for example, go back to the Parris Island that we use natural gas right now, it has a combined heat and power. And the battery storage has been used to bridge the gap. Because even though you have your own generator, you cannot bring it up to maximum load instantaneously, the battery can. You have the battery, it bridges use, it keeps you up and running for the next two, three hours until your load picks up. But now 20 years from now, we want to be net zero, that natural gas, we have to fire the turbine with the hydrogen clean fuel. And that's why I say ultimately, we will need firm renewable resources.

I wanted to ask about the recent discussions regarding Massachusetts and its stance on natural gas. There's a perception in California that natural gas is being treated similarly to oil. I fundamentally disagree with that viewpoint, as it seems many don't grasp the underlying physics. Given this context, I'm interested in how you're considering your strategy, especially with reference to hydrogen and the political debates currently happening.

Well, I think when you look at hydrogen and what's potentially coming there, I think that we like the optionality that we have with the portfolio of operating landfill gas and renewable natural gas plants that are in development. So that's something that there's a reason why we're keeping our eyes on this. You've mentioned a couple of technologies that are coming and just kind of circle back to the fact that we're an integrator. We're a clean tech integrator, focusing on the highest and best technologies. We're looking at new technologies pretty continuously. We start to pilot these in certain projects, sometimes it's on the EPC design build side, sometimes it's on the energy asset side. I can say that I've seen pilots on hydrogen as well as long duration storage, flowing through into our backlog. They're small, but they're small for a reason. Because we need to test them out, we need to make sure that we're comfortable with the technologies because the customers that we have, like us to stand behind our work. And so we need to be able to stand behind the technologies. But nevertheless, as these technologies advance, we're just going to position ourselves to have the technological capability to understand, install, operate, maintain, and if we liked them on our own balance sheet we will own them, if that's better suited for our customers then our customers will own them. I think that's the way I see that.

I agree.

That's helpful. Thanks, guys. I'll jump back in the queue.

Thank you. Our next question comes from Stephen Gengaro from Stifel. Your line is now open.

Thanks. Good afternoon, everybody. Two things for me, and I'll start with the significant award that you guys announced over in California. Can you talk about with a project of this size, sort of the safeguards you've put in place and the confidence you have on the execution front? Because it's the one thing I worry a little bit about is, there's obviously a pretty large project. And you mentioned in gross margin ranges for similar projects. What's the level of confidence? And how do you think about execution here?

We are very confident in that we will execute and execute well. And it's an extremely important project for us. We develop contingency plans to make sure that nothing falls through the cracks and the whole management team is focused on that. But look, if I go back, and I told that to the management team and to my board, because it breaks down into three different projects, if you think about it, what does it involve? Battery storage, transformers, inverters, and of course, then you scale them up if they are many of them, but then you have to interface them. I feel very comfortable. I have built a 650 megawatt power plant and coal fired way, way back when I started as an engineer for the Savannah River, which was the biomass plant. We think we can execute very, very well.

Okay, great. Thanks for that color. The other quick one for me is when I think about, and I know you're not going to give me an exact timeframe, but when I think about the energy assets under development, and it's obviously a very healthy portfolio. Should we think about that sort of becoming active over a four year time period? Or, is that a reasonable way to gauge how they kind of unfold and come into operation?

I think that's probably fair, Steve. We have talked before about a three to four year time horizon. Based on the assets that are going in and coming out, I don't think that's changing substantially. Some of those assets can move a little bit more quickly than others, but three to four years is probably fair.

Okay, great. No, thank you. This is helpful.

Thank you. Our next question comes from Ben Wheelan from Piper Sandler. Your line is now open.

Yeah, hey, thank you for taking my question today. So, in the past, you guys have talked about the theme of increasing demand for resiliency solutions, which is leading to that larger ticket size or larger project size overall. And I'm trying to figure out just how that impacts your margin profile of your projects business? So does this mean because you're taking larger projects it hurts your margin over time because you're giving customers discounts? Or, am I thinking of that incorrectly? And then I have a follow-up. Thanks.

Yeah, I mean, I think we've probably said what we can about the margin profile associated with that big contract. The one thing that I would kind of go back to is something that I pressed upon our own business units again, and again it’s about operating leverage. Gross margin percentage may see impacts from project mix. But when you look at the contribution to the bottom line, if we're taking on lower margin design, build contracts, without the requirement to really boost up or increase our OpEx as a corresponding response to taking on those projects, then we're executing on improved operating leverage, which I measure as gross margin dollars versus OpEx dollars. That's kind of how I think about operating leverage. And as long as we continue to improve that, then we're doing the right thing, even if it means going out and winning business that might have a lower gross margin percentage on that particular thing that might bring a project mixed out. Again, like we talked about in our comments, because we continue to invest in the energy assets and increase the O&M, those higher margin recurring revenue businesses will continue to feed into that mix and temper any impact, temporary or otherwise, that might be on our gross margin percentage.

Got you. That's helpful. Thank you for that. And then switching gears a little bit here. Could you update us on the acquisition front or on some of these inorganic growth opportunities that you have in front of you? I think in the last earnings call, you guys mentioned possibly looking for an acquisition to expand your presence in the European markets. Is that something that's still on the table? And then could you provide any insights into when you guys might make an inorganic growth opportunity? Is that 2022? Is that later this year? Thanks.

So, short answer, we can't really tell you anything, sort of with any kind of certainty about the timing of any particular acquisition. We continue to evaluate things as they come along.

Okay, that's helpful. And then could you maybe comment on what you're seeing in terms of like, multiples you would have to pay for businesses? Is that what's keeping you on the sidelines right now? Is that things are priced too aggressively, and you want those prices to come down? Or what's keeping you guys from making a deal?

I wouldn't put it into any one thing. Ameresco has a strong track record of acquiring businesses over the last 20 years and integrating them appropriately. And so it's not just about the multiple, it's about is it the right business, is it additive, do we view it as financially accretive, does it make strategic sense? The multiple is one of those factors, but I don't think that's determinative.

I wouldn't assume that we stay in a wave. We are actively looking; we haven't changed our rules. That has to fit our metrics when we're looking for.

Thank you. Congrats on the quarter.

Our next question comes from Ben Kallo from Baird. Your line is now open.

Hey, guys. Hey, George, you've been hiring people for a long time. I just want to understand the market right now for hiring. And let's go from there.

We have been hiring, and while we do occasionally lose some employees, we are making strategic investments to retain our top talent. One positive aspect of Ameresco is our ability to attract the necessary talent. Although all the units are actively seeking employees, they are not experiencing a shortage. I can't disclose the exact number of new hires, but we have been very proactive in the past two months, particularly in the last two months of the previous quarter and the first month of this quarter, due to our growth in the RNG facility unit, battery storage, and micro grids. You may recall that in 2018 and 2019, we made significant investments to advance our technologies, and now, as we emerge from COVID-19, those investments are paying off. Overall, talent acquisition has not been an issue for us.

Thank you. There is a lot of discussion in the market about software and how it can be integrated with various technologies, such as smart meters. What are your thoughts on this? Additionally, regarding the previous question about acquisitions, how do you view the role of software and what opportunities do you see? Thank you.

Sure, those software are critically important. So as you know, we have a couple of Software-as-a-Service businesses and what we've been doing has been to continue to integrate the offerings and the capabilities of those businesses into our regular way of origination of energy efficiency of renewable energy business. I think it is critically important. One of our business units that uses software called Asset Planner is currently monitoring data collection on energy infrastructure from, I think, approximately 3 billion, a little bit more than 3 billion square feet of building space. That gives us a tremendous database to provide benchmarking to our customers when we're talking to them about the state of affairs of the state of play from their perspective, where they stand from a building infrastructure, facility condition, carbon reduction opportunities, you name it. And I think the software plays an important part there. And we're continuing to develop that internally; I don't see that as an M&A discussion.

And thank you. Our next question comes from Chip Moore from EF Hutton. Your line is now open.

Hi, thanks for taking the question folks. Wanted to follow up on the utility scale energy storage opportunities. Well, I think you alluded to a number of active discussions underway. Is there a way you can talk about sort of how advanced you are in some of those discussions? Or maybe how the overall pipeline looks, particularly some of the regions that may have a bit more sense of urgency?

No, I mean, I think from a regional perspective, we probably don't even need to say, because it's pretty clear which utility regions are facing the needs for resiliency. And then furthermore, because much of what we're talking about here is at the proposal stage, it's difficult to frame volumes, quantities, timelines, etc., for those particular opportunities. I think it was just important for us to note that the proposal activity and the level of discussions is certainly on the rise in that sector.

And Chip about the reality, then we are in some kind of competitive process. So it's very hard to talk about specific.

Yeah. Understood. And this is probably more for the January Day, right. And just love to get your thoughts on proposed funding and the reconciliation bill, and how you could be positioned there. Thanks guys.

Well, that, of course, the proof is in the pudding, depending on what ends up passing, right? However, our current read of this bill is that what remains is still extraordinarily constructive to the industry overall, and hits directly with a number of the businesses where we operate, whether it be the biofuels or the solar, or the battery storage, or what have you. I mean, energy efficiency. The initial draft when it was still in the $4 billion range was pretty robust, right? And so even when you see things fall by the wayside, there's still a lot in there that is quite meaningful for our business.

Thanks for taking the question. Let me go back to actually the very last one about Build Back Better. Given that one of the, I suppose high profile provisions of Build Back Better is opening the investment tax credit to standalone power storage for the very first time, this $800 plus million project that you're working on, will that qualify for the tax credit, if it is already getting built, and will presumably continue to be built after the Bill passes.

It depends. But the way it impacts us, it will impact the utility, Southern Cal because they will own the project.

Yeah, the technical answer to your question is we don't know until the legislation is passed, and we see the effective dates and the nature of how they view, placed in service versus starting construction, etc., when it comes to those ITC eligibility points on storage. But as George pointed out, this isn't an energy asset on Ameresco's balance sheet. So that calculus is more relevant to our customer.

Right. Okay. Understood. One more policy question, I suppose back in July is when the EPA was supposed to release its RVO targets for 2021. And of course, now we're in November, and it still hasn't happened? What is your understanding on when those numbers will come out for the current year, if they will come out at all?

The latest estimate and the information we get from the people that we have in Washington is sometime in December. But they said that before, so we don't know; it depends. But on the other hand, we know what the supply is. I think the demand for the rings will continue to degrade because the market is under supplied.

Okay. Last question, recognizing you're not speaking about M&A or inorganic opportunities, but three months ago, I think you touched a little bit more about what you're doing across the Atlantic on an organic basis, in terms of new project opportunities. Can you touch on what you're seeing in Europe, now that the Fit for 55 framework has come out and is starting to get implemented?

I mean, we've seen very, very good activity, especially in our UK office. And usually the UK office, we're looking at some opportunities in, I would say, the eastern parts of Southeast parts of Europe. But we are not disappointed that we can't talk about it yet. We could do some additional leadership, like to hire over there and expand. The opportunities are many there. But I want to focus a lot and point out that the United States continues to have tremendous opportunity. And what makes me excited about it, the market is expanding. If we get the legislation, it will be even better for us.

Hey good afternoon, everybody. Thanks for squeezing me in.

Sure Greg.

I know you guys have talked about it at length already. But a couple more questions on the SCE deal. First, just when thinking about the pipeline for similar types of projects of similar size, just curious how is that going to work operationally, maybe from a personnel perspective, or Doran to your point from an operating leverage perspective? Are you able to stack similar types of projects on top of each other? Or is it more of a one-at-a-time approach as of now?

I think we're able to stack. I mean, interestingly, what we also have the ability to do and what was evident from implementing this one, was that we actually have quite a few people we can tap to pull in on a consulting basis as well. We're not afraid to do that. That cost actually doesn't hit our OpEx because they're 100% utilized. There's no real kind of overhead to think about with respect to those people. And actually going through the process that we've gone through in staffing this particular one makes me even more confident in our capability to take on more because we're recognizing that there are people there who really want to work with us.

That's wonderful to hear. Next, I would like to understand the price variability regarding the $892 million in revenue. Will this be finalized soon, or is the intention to keep it flexible in terms of scope throughout the project's duration?

I think that the $892 million is based on the sum of the kind of face price on each of the three contracts, to the three projects. Each of those have standard traditional change order provisions that you would see in a design build contract. So that is probably as good of an answer as I can give for that.

Got it understood. All right, that's all I got. Thank guys.

Thank you.

And thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.

Thank you.