Ameresco, Inc. (AMRC) Q2 2022 Earnings Call Transcript

Good day, ladies and gentlemen, thank you for standing by and welcome to the Ameresco, Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I’d now turn the conference over to your host, Ms. Leila Dillon, Vice President, Marketing and Communications. Ms. Dillon, you may begin.

Thank you, Valerie, 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, Executive Vice President and Chief Financial Officer; and Mark Chiplock Senior Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. Today's earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today's earnings materials, the safe harbor language on slide two, and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental financial information. I will now turn the call over to George. George?

Thank you, Leila and good afternoon everyone. I am very pleased to report that Q2 was another record quarter for Ameresco, both in our financial results and in our team's tremendous execution. We achieved growth across all four of our business lines and drove a substantial increase in profitability. This outstanding performance demonstrates the strength of our people, the fortitude of our business model, the expanding market opportunities, and the operational diversity and flexibility that is part of our entrepreneurial culture. This corporate characteristics also enabled Ameresco to better navigate the industry-wide inflationary and supply chain pressures being experienced in the market. I wish to thank the entire Ameresco team, along with our valued customers, partners, suppliers, and subcontractors, who have worked together with us to mitigate these challenges. Before we discuss the strong quarter, I would like to provide an update on our Southern California Edison battery projects. During the second quarter we made substantial progress on the projects, achieving a number of key milestones despite COVID, supply chain, and permitting challenges. Just last week I walked all three sites, and our team is doing an excellent job executing. I am pleased with the progress that they're making at each project site. Approximately two-thirds of the batteries for the projects are on-site and the balance is in transit. We now expect 200 megawatts to 300 megawatts of capacity to be in service in September and continue to expect completion by the end of this year. I'm also very pleased by the extraordinary efforts of both the Ameresco and the Southern California Edison teams in working around the clock to deliver these battery storage projects this year. This is a true example of a partnership, and together, I know we will succeed in providing critical resiliency and reliability to the California grid. Turning back to our Q2 highlights, our robust revenue growth was led by our projects business. We continue to not only execute on the Southern California Edison projects, but also we’re able to execute more quickly on other large projects due to earlier than expected customer approvals. Well, we had the benefit of upgrade results, we also continued our new business momentum this quarter. We added $223 million of new awards to our project backlog. But what I am particularly excited about is that our proposal activity was at multi-year highs in the second quarter, more than double the level of previous years. This clearly demonstrates that customers are seeking solutions to address their increasing energy cost, resiliency needs, and carbon reduction goals. For example, we have seen a total of seven comprehensive Federal requests for proposals in the first half of this year, compared to only five for all of 2021. But our proposal activity was not just limited to Federal, we are developing and delivering many exciting advanced technologies, renewable energy, battery storage, and traditional energy efficiency projects across all customer segments and all of our geographies. We also have exciting news from the energy asset side of the business. We signed our largest ever combined PV solar and battery deal, The KuponT Solar, LLC Asset. We are thrilled to be partnering on this with Bright Canyon Energy, a wholly owned subsidiary of Pinnacle West Capital Corporation. Bright Canyon will also be an equity owner in this asset, marking our first Energy Asset equity partnership. It is designed to include 42 megawatts of solar energy and 168 megawatt-hour battery storage system. It will be installed on Joint Base Pearl Harbor-Hickam under a 37-year enhanced use lease with the Department of Navy. Upon its expected completion in early 2024, it will operate under a 20-year power purchase agreement with Hawaiian Electric and will provide clean and resilient energy to the island of Oahu. We look forward to executing on this and working on other future opportunities with Bright Canyon Energy. I will now turn over the call to Doran to provide some comments on our financial performance. Doran?

Thank you, George, and good afternoon everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market close today. As George noted, the Ameresco team delivered excellent second quarter results. And while our projects business led to very impressive top line growth, it's important to note that all four of our lines of business grew nicely during the quarter. In addition, the combination of the total project backlog and expected future revenues from our contracted energy asset and O&M businesses remain over $5 billion, giving us excellent long-term visibility and predictability during these uncertain economic times. Robust year-on-year top line growth was led by our projects business driven not only from continued execution on the SoCal Edison projects but also from acceleration in other projects that mobilized faster than anticipated. As we have stated in the past, executing on the SoCal Edison projects has and will continue to impact our near-term cash flows due to the temporary increases in our working capital needs, particularly in accounts receivables and unbilled revenues. This increase in working capital was expected from the onset and is one of the reasons why we amended our senior credit facility early in the year. Subsequent to the end of the second quarter, we collected another $33 million from SoCal Edison, which we had previously invoiced. Unbilled revenues, which are labeled on our balance sheet as costs and estimated earnings in excess of billings, convert to accounts receivable when invoiced under contract terms, which usually considers passage of time or completion of contractual milestones. On the other hand, revenue is recognized under the percentage of completion basis, which does not consider contractual milestones. Therefore, the timing of the invoicing typically does not match up with the timing of revenue recognition, which is why the SoCal Edison project has resulted in a temporary increase in unbilled revenues. We expect all components of working capital to return to more normalized levels for our business with the completion of the SoCal Edison contract and the collection of the remaining amounts. Moving on to the energy assets, I want to highlight our discipline as it pertains to the underwriting with new assets. Our funnel of early-stage assets in development continues to show strong growth with an incredible pace of proposal and award activity. However, recent increases in inflation and interest rates have impacted overall market returns on assets. We, therefore, have been particularly prudent in our capital commitments over the past couple of quarters, ensuring that our assets in development continue to align with our hurdle rates. We're also increasing focus on executing our nearly 500-megawatt portfolio of assets in development. We also note a new disclosure in our supplemental slides with respect to our assets in development this quarter. Given the partnership with Bright Canyon Energy that we announced in Q2, we're now reporting both the total assets in development, as well as a pro forma megawatts total after adjusting for our partner's equity interest. This should help investors better understand the positive impact these assets are expected to have on our future financial performance. Those who are newer to the Ameresco story, I wanted to provide a bit of background on how we approach our exposure to the various environmental attributes we generate in our Energy Assets business. Renewable Identification Numbers or RINs are generated as part of our RNG business. When we build a new RNG asset, we generally sell forward approximately half of the expected RINs under a three to five year fixed-price off-take contract to support our project financing. We then will look to dynamically hedge a majority of the remaining RINs during the year in which they are generated, using forward sales of large blocks. This helps to mitigate the effects of daily RIN price volatility on our financial results. Near the end of the second quarter, RIN pricing began to experience a pull back after multi-year increases. However, we're not expecting this to materially impact our 2022 results, because we are already over 90% hedged on our 2022 RINs. Renewable energy certificates, or RECs, that we monetize are generated from our renewable electricity assets, primarily in solar, and are concentrated in a few select Northeastern markets which have government-mandated renewable portfolio standards. The vast majority of these assets generate RECs under the legacy Massachusetts SREC-I and SREC-II programs, where there are effective price floors. This has helped to minimize the impact of any REC volatility to our results. So while we do have some exposure to RIN and REC price volatility, Ameresco is proactively managing those risks. Back to the P&L, we achieved impressive year-over-year adjusted EBITDA growth as a result of our strong operating leverage, again demonstrating our ability to add gross profit dollars without adding direct incremental operating expenses. Execution on contracts remains strong as we converted contracted backlog into revenue with the continued progression of the SoCal Edison projects. Business development remains equally as robust as we backfill it with new awards. Total project backlog was a healthy $2.8 billion at the end of the quarter. As George noted, we were seeing and participating in exceptional proposal activity in the market. We expect this will lead to further growth in awards in the coming quarters. There has been ongoing discussion around inflation, interest rates, and energy prices. Our customer value proposition is based on energy savings. Higher costs of materials and higher interest rates tend to work against us, while higher energy prices work in our favor. At this stage, the year-on-year increase in energy prices has far outpaced the year-on-year increase in Ameresco's all-in project delivery costs. This has actually enabled even more projects to pencil out and is driving interest and engagement in our innovative demand reduction solutions. Our excellent year-to-date performance, as well as our visibility across all of our business lines, has enabled us to reaffirm our 2022 annual guidance, despite the delays we have experienced in the SoCal Edison projects. As to the quarterly cadence, we expect Q3 revenue to be slightly greater than Q4. We expect gross margins to start moving back to normalized levels of approximately 18% for the third and fourth quarters. Now I'd like to turn the call back over to George for closing comments.

Thank you, Doran. The need and demand for Ameresco’s comprehensive portfolio of clean energy solutions has never been greater. As the world faces numerous geopolitical, climate, and budgetary concerns, we are very excited with the heightened level of customer engagement at this time. And given the growing market opportunities, our leadership in the market, and our portfolio of comprehensive cleantech solutions, we believe we will experience robust growth for years to come. In closing, I want to once again take a moment to thank the entire Ameresco team for their dedication and outstanding execution. We also want to recognize the ongoing support of our customers and long-term stockholders. Operator, I would now like to open the floor to questions.

Thank you. Our first question comes from Julian Demulan-Smith of Bank of America. Your line is open.

Hey, good afternoon. Thank you for the time, I appreciate it. So maybe just to jump right in, I'd love to hear a little bit more on the IRA and your thoughts about the opportunities that this would unleash for your business. Specifically, Doran, I heard your comments about RINs here, but as you think about the RNG business here, what kind of opportunity exists as it pertains to the tax credit that might open up for you, both in terms of projects that you've already originated and are actively in development, as well as for the opportunity set this might enable? Again, I'm focused on RNG, but would love to hear where else do you see opportunity emerging for you guys?

Sure, Julian. First and foremost, the expansion and extension of the credits will benefit the industry overall. We are analyzing the provisions related to qualified biogas property and assessing the law's wording. We need to see what happens before it is finalized to determine how it might apply to the specific renewable natural gas facilities we produce. Importantly, we are technology-agnostic and exploring various technologies, including RNG. Regarding other technologies, we are excited about battery storage and solar, especially with the upcoming technology-neutral provisions in a couple of years that align well with our business. Unlike many in the industry, Ameresco is well-versed in the elements of the law that can raise the credit from 6% to 30%, such as prevailing wage, union, and domestic content. We are experienced in this area and believe we can effectively engage with these provisions to support the intent of the legislation proposed by Manchin and Schumer. However, it is important to note that the legislation has not yet been signed or passed, so we continue to analyze it.

If it does get signed, there is no question about a tremendous upside potential for the company. Whether it's solar, battery storage, or RNG. Especially in the RNG sector, we have over 18 projects that we'll build over the next three to four years. So, and we are working on quite a few others. So it will be a tremendous uplift for the company.

And George, just to clarify, would that capture the tax for considerably on everything already that's underway, even if it wasn't contemplated, right? Again, I think that's the key nuance here?

No, it hasn't been built yet. It's all going to be new assets we put in service after the effective date.

Excellent. And so one more clarification if I can here, obviously, good stuff on getting some clarity and line of sight up with SCE here. Just with respect to that progress, can you talk a little bit about any incremental costs you all, as it pertains to the slight shift here. I mean, how are those conversations evolving, if you can characterize those at all? Obviously, it's dynamic; obviously, you guys are coming to some degree of resolution here; it's not too meaningful in terms of delays, but just the incremental cost and defraying that, etc.?

Regarding the additional costs, a positive aspect of working with the battery supplier is their pricing strategy. This has been beneficial for us because we established our contract with Southern California prior to officially signing it. However, shortly after we announced our quarterly results, we faced a setback when they provided us with an updated schedule, resulting in a four-week delay in battery deliveries. The encouraging news is that we currently have about two-thirds of the batteries on-site while the rest are en route, which gives us a much stronger sense of control than we had previously. Additionally, we are on track with all related materials for this project, leading us to feel confident about completing everything this year. The developments from the last quarter, especially the past six weeks, have significantly boosted our confidence in delivering these projects on time this year.

Yeah, Julian, the only thing I'll add is there has been no change in the nature of the dialog and the relationship we have with SoCal Ed as far as finishing these projects. So the focus is on finishing the projects, compressing to on schedules, and doing it in a safe manner.

Got it. All right, fair enough. I'll leave it there. Thank you, guys.

Thank you, Julian.

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

Thanks, and good afternoon everybody.

Good afternoon.

So two things from me. One is just on the number of energy assets that were put into service in the quarter and the outlook or the cadence for energy assets in the back half of next year, just seem that it was below our expectations in the actual quarter. I was curious if there was anything going on there or just timing of projects coming on stream?

Yeah, it's more of a timing issue and some projects they get delayed because of the interconnection or whatever the case might be. But as far as we're concerned, we did say to the street that we will install between 60 to 80 megawatts of assets this year; we maintain that guidance. And the only thing that has become a big issue is the utility interconnections; we have some projects already finished, but we haven't been able to interconnect them because their schedules is so much demand for them to do work that it has become a big bottleneck.

Great, thank you. And then just as a follow-up and I know Doran you probably don't want to go into a ton of detail, but the gross margin guidance that you suggested for the back half of the year seems to indicate that you've recognized a larger chunk of the SCE revenue already than maybe we had expected in our model. Is that accurate?

I don't think it's a larger amount. I believe it's within our expectations, and that's why we are really.

I don't think a larger amount. No, I think it's within our expectations, and that's why we really...

And that second half just reflects the mix moving back toward the normal business but not different than what we were expecting.

Yeah, it's a mix of the other projects that are getting in, but greater percentage.

Great. Thank you, that's helpful.

Thank you. Our next question comes from Noah Kaye of Oppenheimer. Your line is open.

I want to follow up on your comments regarding the record levels of bidding proposal activity. While you mentioned the federal sector, it would be beneficial to understand where this demand is appearing more broadly and what specific areas are becoming the focus. Additionally, I would like to discuss the contracting and sales cycle for these projects; for instance, federal projects may have a longer conversion cycle compared to other customers. As we examine the award and backlog trends, how should we consider this moving forward?

The typical cycle ranges from 12 to 18 months once we submit a proposal to receive an award, especially with the federal government, where there is significant activity. However, we anticipate that this will mostly reflect in awards and contracts next year. Some Commercial and Industrial sectors have quicker turnaround times, potentially around six months or even shorter. We're witnessing a high level of activity in that area, particularly within our Canadian Group, which is highly engaged in the C&I market. We're receiving substantial interest from utilities and cooperatives for battery storage projects, where we have established ourselves as a known player in the market. We're now proposing core battery storage initiatives, and I expect that within six to 12 months, we will see a very healthy increase in awards and signed contracts. I am quite excited about the level of activity, which exceeds what we have previously experienced. Additionally, we have hired about 100 new employees this year to keep pace with this uptick in activity.

How much of this activity, particularly in relation to federal initiatives, do you think could apply to Europe? Given the potential winter energy crisis for the EU, it seems like your value proposition has a greater opportunity than ever. What insights do you have on this, and could it significantly contribute to business wins and increasing the backlog?

I think many, many customers know their carbon footprint. Look at Bristol City, that is becoming more of the blueprint. And now I think last time in the last quarter, we were talking to one; now we're talking to three potential new cities going down that direction. But the energy costs being as high as they are, it has become a catalyst and many people, especially the C&I or even the other, what is the federal government or institutions, they are concerned about the high energy costs. As Doran pointed out, even though we have seen probably around 10% to 12% increase from the project costs and somewhat increase in the interest costs, the energy prices from the average is over 40%. So the value proposition has increased.

Yeah. Thanks so much for the color.

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

At the Investor Day in March, you provided a 2024 outlook with an EBITDA of over $300 million. I would like to know your confidence in achieving those goals and whether you foresee the need for another large storage contract. Is the expected momentum and increase in both new awards and proposal activity what you are counting on to reach a higher target in 2023 and ultimately your goal for 2024?

I will address this first, and then Doran might want to add some more details. We are still very confident about achieving $300 million in EBITDA by 2024. Regarding another large contract related to battery storage like the one in Southern California, that is not part of the current plan. We believe that the development of our assets, including renewable natural gas and solar plants, along with the increase in operations and maintenance, along with our usual contracts, will help us reach our goal. Additionally, the rise in energy prices is better than what we anticipated when we first made that plan. Our only concern is the supply chain issues, but once those are resolved, we will be in a better position to execute. We remain very confident about our outlook.

Okay. No, that's great. That is helpful. And then maybe just following up on commentary from your prepared remarks, but you mentioned the award or the first project, kind of partnered project in energy assets with Bright Canyon, maybe you could just talk a little bit about the pipeline there and how you see that developing over time?

That project has evolved interestingly. We received the award for the enhanced use lease for the Navy in Hawaii. Bright Canyon Energy had the power purchase agreement, and we are already moving forward with Hawaiian Electric. This has created a strong partnership for us. The base mentioned that while we hold the lease contract, Bright Canyon has been a long-term collaborator and secured the PPA. Together, we have developed a great working relationship and are exploring additional deals. Our collaboration has been excellent, and while we haven't frequently engaged with channel partners in the past, I believe this will accelerate our business growth. We also established a partnership for a couple of projects in Greece, which has proven successful. In response to Noah's question, we are seeing substantial activity in Europe, particularly in the UK, and in several other regions we're not ready to disclose yet. Expect good news from us in the future.

Okay. Thanks for the color.

You're welcome.

Thank you. Our next question comes from Tim Mulroney of William Blair. Your line is open.

Yeah, thanks for taking my questions. Two quick ones. George, I want to make sure I heard your comments correctly earlier in the Q&A, you said you were talking to a few more cities about signing the type of contract that you've signed with Bristol City, are those all isolated to European cities or are you also having some of these conversations with US cities as well?

That's a good question. One is another European and two others they are American.

Okay, that's good to know. Thank you. It's good to know it's on the side of the pond as well. And then just one more probably for Doran or Mark, it sounds like there's some noise in cash flows this year primarily due to the SCE project. After we see normalization, so I'm looking out a year or two here. What is the right range for cash flow conversion rate you think this business can support as we look out in those future years?

We have analyzed our working capital, and when excluding SoCal Ed, we've maintained a normalized level of working capital that is approximately 10% to 15% higher on an annualized revenue basis. There hasn't been much volatility in this area, so we anticipate returning to those levels. Regarding cash flow, we aim to provide additional metrics to assist with calculating free cash flow. Historically, we've demonstrated consistent positive free cash flow over the past 12 months, and we expect to return to that trend once we move past SoCal Ed and continue it into the future.

Okay. Thanks very much.

Thank you. Our next question comes from Kashy Harrison of Piper Sandler. Your line is open.

Good evening, everyone. Thanks for taking my questions and congrats on the results. So my first question relates to the backlog, it's become kind of difficult to evaluate it, just given the impact of the SCE project. I was hoping you could help us quantify how much of that current backlog is associated with the SCE contract? And then I have a follow-up.

We don't break it out. The only thing I will say is that the overall backlog, what we contemplate and signed in this quarter and next quarter is going to put us in a great, great position. We'll have another great year next year.

You can assess the situation by examining the revenue estimates and how we recognize revenue during this quarter, as well as in prior quarters, in relation to the SCE contract compared to the overall contract size. We have not yet discussed what it would look like excluding the SoCal Ed contract, mainly because the SoCal Ed contract is in effect, and we continue to secure new awards while maintaining revenue flow. As you observe increases in our awarded and contracted total project backlog both sequentially and year-on-year, it underscores our strong visibility and capacity to replenish the backlog with these new awards while we see revenue from SoCal Ed being recognized. The backlog remains at $2.8 billion, representing two to five years of revenue, which hasn't changed.

That's helpful. Thank you. And then my follow-up question, I wanted to maybe dig in a little bit to the RNG business. In early June, the EPA reduced the RVO for D3, as you mentioned, that impacted prices temporarily. However, prices have since begun to recover. And so I was just curious what you're hearing from counterparties in terms of RNG industry supply growth, is it underperforming expectations? And then maybe part and parcel of that, do you have any market insights on how the EPA might set the RVO as we think about 2023? Thank you.

Sure, Kashy. Regarding your question, our stance is that we won't speculate on what we think they might do. Overall, we have been concentrating on the 18 projects we currently have in development and construction. The supply chain has slowed down implementation for many developers of RNG projects, which is a challenge we are facing. We also see our competitors in the Intercom space, but we're not targeting the exact same assets. Trend-wise, there is a growing focus on voluntary purchases of renewable natural gas, which we believe is a positive development for the industry as a whole. It could certainly benefit us as well. I outlined our RIN monetization strategy clearly in the script, and we feel confident about the economics of our development assets and our plans for the coming years.

We remain very optimistic about that segment despite the recent decline in RIN prices. Even considering the inflation concerns mentioned by Doran, we are still generating strong profits and are effectively utilizing our assets. There are no issues with acquiring the equipment, meeting deadlines, executing plans, or obtaining the necessary permits.

Thank you. The next question is coming from George Gianarikas of Canaccord Genuity. Your line is open.

Thanks so much for taking my question. Just quickly to dig in a little bit into the momentum in Europe, can you just expand a little bit there and tell us which technologies are gaining traction? And second, do you feel like you have the assets on the ground to take advantage of the momentum you're seeing, should you expanded there through additional sales offices or through acquisition, just if you can highlight to us what you're thinking about there? Thank you.

We are considering various options, including acquisitions and adding more assets. We've engaged a couple of headhunters to assist in building our infrastructure. Some of the projects we've observed are becoming more advanced, similar to what we experience here. I recently visited a project at the South University of London, where they utilized geothermal heat pumps and incorporated a variety of technologies like solar, microgrids, and battery storage, similar to what we are doing in the United States plus more. They installed solar panels and are also working on energy solutions for dorms. The energy prices in Europe are what they are, and we're looking into solar installations in southern Greece, where the government indicated they need to generate as much energy as possible. We recognize the importance of improving our infrastructure there, and we are actively working on it.

Can I ask one follow-ups on supply chain, you've mentioned pain points there several times during the call, can you kind of help us dig in as to what exactly those pain points are? It sounds like battery cells may have improved a little bit, is it more labor-related, what sorts of equipment are you still having a hard time getting your hands on? And thank you.

On the batteries, as far as we're talking about the projects that we have right now is delivery that we have with them. But sometimes getting some other equipment, especially with the RNG plants, it has become a little bit more difficult to get in there. Transformers, for example, we like it; we have the transformers for the Southern Cal projects, but for some other installations that we are looking at that can become a bottleneck. And basically, what happens now, it extends the implementation of new projects.

The timelines are crucial. It's primarily about delivery schedules. Fortunately, we operate in public procurement, which allows us to set realistic timelines from the start when discussing proposals. This helps us manage expectations, and if timelines do end up compressing, we can deliver sooner. However, we do not anticipate any compression in timelines until we actually witness it happening. We are aiming to be realistic in this regard. Additionally, we continue to increase the number of suppliers in every category of equipment. This ensures that these suppliers not only compete on price but also on customer service, delivery timelines, and overall quality. We are definitely allocating resources toward improving our procurement management practices within the company.

Thank you.

Thank you. Our next question comes from Chip Moore of EF Hutton. Your line is open.

Thanks for taking the question. Want to follow up on European activity, specifically you obviously got in fall for a pretty big role in Bristol, can you maybe just talk about the types of discussions you're having with some of these in-country partners for some of these larger potential projects, and those been picking up since you've gained a little more notoriety?

We have a few locations outside of the UK where this is occurring. The UK, particularly with Bristol as a significant partner, has seen a lot of our efficiency business and proposal activity largely driven by us, similar to what we do here. As Ameresco positions itself as a comprehensive service provider, we often present these solutions independently. However, entering other European countries frequently suggests the advantage of collaborating with a local partner to secure more business. With rising energy prices, we are beginning to witness these emerging opportunities. In terms of technology, George highlighted the relevance of solar and wind, as well as street lighting. We also expect the general trend of energy efficiency observed in the UK to manifest in other countries. Consequently, we are optimistic about the potential opportunities. Go ahead, George.

Basically, some of them, for example, they might have some solar assets they're developing and they need financial partners to bring them over the hump or wind farms and so on. So we're getting all kinds of different proposals, you may call it, the potential partnerships and so on. And that might accelerate our development there since we do not have enough presence on the ground.

Got it. Understood. That's helpful. All right, thank you.

Thank you. Our next question comes from Christopher Souther of B Riley. Your line is open.

Looking at 2024 and how things are shaping, it sounded like things are still pretty on track here. I just wanted to get a sense when do you think we'll have visibility of the energy asset portfolio that can give you confidence like, hey, it's 80%, 100% based on the backlog of projects and the energy asset portfolio. Like what would be the timing where we could expect you guys to say, hey, this is when we should have it in the bag so to speak?

You go ahead, Doran. That's a question for you.

I'll start by saying not today. We just discussed Europe and the potential for more asset expansion both there and in the U.S. and Canada. The market and the energy as a service category are still developing, and we are building it up as we go. There are no plans to change the way we provide guidance moving forward. We plan to give full year guidance for 2023 when we report the full year for 2022. In 2023, once we provide that guidance, we will touch on 2024 if we feel confident enough to do so. We might consider revisiting this earlier or possibly hold another Investor Day. For now, we intend to stick to our previous cadence.

Okay, thanks. On the SCE project, can you maybe just provide a bit more clarity? I know you called out, you've got a $33 million post the Q, which is good to see. But I'm just curious, can you provide the SCE total cash collection and the projects? And then on the accounts receivable, the cash payables, excuse me, can you talk about any impact on SCE that's also related to these as well?

When we file the Q, we can take a look and see what you can see there in terms of disclosures about cash collections. Mark, do you have anything?

Yeah, I think what I would say, Chris, that we've continued to collect timely from So Cal, right, as we invoice them, right. So we really haven't disclosed how much is in AR, but we have disclosed subsequent receipts and they're paying like clockwork. So I think that's the positive there, where we are invoicing as quickly as the contractual milestones allow us to and they're paying us within terms. And so I think that's the positive direction that we're heading in and that's pretty much all I think we can say on that.

Yeah, I think as we said it before, we expect the normalcy to return once everything is going to flow through of that contract, 10% to 15% trailing 12-month revenue, that's our working capital.

I understand. That all makes sense. I have one last question about the potential for inflation reduction. While it may be too early to determine, it seems there are new ways for nonprofits to utilize the investment tax credit more directly. I'm curious about how this might change the mix of customers, particularly regarding ownership of the pages versus leasing Power Purchase Agreements. Could you provide any breakdown based on your current energy asset portfolio or the pipeline related to nonprofit versus commercial and industrial customers?

At this point, it's too early to provide a detailed breakdown of how things will unfold. I can share that we are currently engaged in numerous discussions with customers regarding the specific provisions related to the limited direct pay included in the bill. As previously mentioned, we need to observe how this bill develops and the changes it undergoes before it gets signed. It’s common for such matters to shift as stakeholders express their opinions. If the bill passes in its current state, that provision will be significant for us. As we have noted in our disclosures, approximately 70% of our revenue is derived from government-related entities. We work extensively with municipalities, nonprofits, schools, and hospitals, and we will assess how financing for projects, particularly solar and other eligible energy projects, is impacted, especially since the direct pay option would enable us to pursue projects without needing tax equity. Therefore, we are monitoring this closely, and we believe it will be important as long as it remains in the bill.

Okay. And then just on the labor piece, it sounded like that would be much of a lift for you guys to be taken in a lot of the ways that they can going around. I'm just curious, is that 75% you think that you already are hitting those types of milestones, they would need to see today, is it basically 100% like how in line with how the business operates today with hitting those different targets you think?

Well, without throwing out any particular percentages, I think that we just have such a familiarity with what those requirements mean. I think the devil will be in the details when you get into the nuts and bolts of the apprenticeship requirement, etc. But nevertheless, that's just going to simply turn into a contract discussion, meaning we've got to consider what our sub-contractors are doing and how they're actually considering union or non-union or prevailing wage, etc. But again, it's an area that we are quite familiar with.

And most of our work is prevailing wage or union.

Okay. Thanks, guys.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.