Ameresco Inc (AMRC) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ameresco Earnings Conference Call. My name is Karma, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following (inaudible) remarks we will have a Q&A session.

I would now like to turn the presentation over to your host for today, Ms. Susan Stillings, with Ameresco. Please proceed, Ms. Stillings.

Thank you, Karma, and good morning everyone. Thank you for joining us today for Ameresco's third quarter 2010 financial results conference call. I'm joined today by George Sakelleris, Ameresco's chairman, president and CEO, and Andrew Spence, the Company's Financial Officer. This morning, Ameresco reported its third-quarter 2010 financial results. The release is available at www.ameresco.com. And for your convenience, a replay of this call will also be available on our website.

Before I turn the call over to George and Andrew, I'd like to make a brief statement regarding forward-looking remarks. Today's call contains forward-looking information regarding future events and the future financial performance of the Company. Ameresco cautions you that such statements are just predictions, and actual results may differ materially as a result of risks and uncertainties that pertain to our business.

Ameresco refers you to the Company's press release, issued this morning, and its quarterly report on Form 10-Q, filed with the SEC on September 7, 2010, which discusses important factors that could cause actual results to differ materially from those contained in the Company's projections or forward-looking statements. Ameresco assumes no obligation to revise any forward-looking statements made on today's call.

I will now turn the call over to George Sakellaris, Ameresco's President and CEO.

George?

Thank you, Susan. Welcome, everyone, and thank you for joining us today. We are very pleased to be hosting Ameresco's third-quarter-ending conference call. We continued to see strong demand for our products in the third quarter. This is encouraging, as our clients chose to move ahead with projects either with their own capital, or by having better access to capital through us, than they had in the prior 18 months.

Importantly, we executed well on all our projects, and I'm very pleased to report that it shows in our financial results. We had record earnings for the third quarter, and for the nine months, year to date, as we continued to see improvements in our operating leverage.

The highlights include a 45% increase in our third-quarter revenues year-over-year, and a 49% increase for the first nine months of the year. This strong growth, combined with substantial improvements in our operating leverage allowed us to grow EBITDA by 67% over the third quarter of 2009, and by 112% for the first nine months of 2010.

Over the same periods last year, third-quarter net income grew by 47% and year-to-date, net income grew by 103%. This resulted, of course, in strong earnings per share of $0.28 for the third quarter and $0.53 for year-to-date. This compares to $0.23 for the third quarter last year, and $0.30 for the first nine months of 2009. Importantly, we had positive cash flow of $9.1 million in the third quarter. And, as you know, this is in addition to the $2.5 million in positive cash flow that we had generated in the second quarter.

Andrew, our Chief Financial Officer, will now provide more details on our financial results, and I will be back with some closing remarks afterward.

Andrew?

Thank you very much, George, and good morning, everyone. Today, Ameresco announced third-quarter 2010 net income of $12 million, or a 47% increase over the third quarter of 2009 net income of $8.2 million. Earnings per share were $0.28 for the third quarter 2010, compared with $0.23 per diluted share for the third quarter 2009.

For the nine months ended September 30, 2010, net income was $21 million, or an increase of 103%, when compared to net income for the first nine months of 2009 of $10.3 million. Earnings per diluted share for the first nine months were $0.53, compared to $0.30 per diluted share earned in the same period last year.

The results for the quarter and for the nine month period in 2009 included non-recurring realized and unrealized gains from derivative activity totaling $2.8 million. Adjusting last year's results for the impact of these items, the net-income increase year-over-year for the quarter and for the nine months would have been 91% and 149%, respectively. The principal drivers for the third quarter were once again stronger revenues, higher gross margins, and better operating leverage.

We recorded total revenues for the three months ending September 30, 2010, of $191.9 million, which was 45% higher than the $132.3 million earned in the third quarter last year. Revenue from energy-efficiency projects increased $41.1 million, or 38%, as installation activity continued to grow.

Renewable-energy revenue increased by $18.5 million, or 73% in the third quarter of 2010, compared to the same period in 2009, due mainly to an increase in the size and number of renewable facilities being developed by us for our customers. Sales of renewable energy from facilities owned by us, and from renewable-energy products, contributed approximately $4 million to the increase.

Gross profit for the third quarter of 2010 grew at a slightly greater rate than revenue, as we were able to better realize gross margin -- or realize better gross margins. Total gross profit for the three months ending September 30, 2010, was $34.9 million, an increase of 46% over the $23.9 million recorded in the same period in 2009. Our overall gross margin improved to 18.2% in the third quarter, from 18.1% in the third quarter of 2009.

Our gross-profit margin declined from the prior 2010 quarter, as we recognized approximately $1.4 million in accelerated depreciation related to the expected termination of the long-term operations-and-maintenance portion of our contract with Boeing. The additional depreciation reduced third-quarter gross margin by approximately 70 basis points.

Operating expenses were in line with our 2010 plan, but increased 29% from the third quarter last year, to just under $16 million. With the growth of overall business activity, salary and benefit expenses increased 16% in the third quarter, compared to last year. The most significant increase in operating expenses was in our project-development costs.

While the amount of development costs recognized in this year's third quarter were in line with our plan, it was the 2009 amounts that were low, favorably impacted by the timing of significant contract signings, including the DOE's Savannah River Project. Overall, operating expenses as a percent of revenue improved in the third quarter to 8.3% from 9.3% in last year's third quarter.

Operating income totaled $18.9 million for the third quarter of this year, compared to just under $11.6 million last year, an increase of 63%. EBITDA, which is operating income plus depreciation and non-cash stock-based compensation, totaled $24.4 million for the third quarter, a 67% increase over the $14.6 million recorded last year.

EBITDA as a percentage of revenue was 12.7% for the recent quarter, compared to 11% in the 2009 third quarter. We refer you to this morning's press release for a discussion of EBITDA, which is a non-GAAP financial measure, and for a reconciliation of EBITDA to operating income, the most comparable GAAP measure.

Other income and expense decreased by $2.9 million from the third quarter of 2009 to a net expense of $2 million in the third quarter of 2010. During the recent quarter, we paid down a term loan to one of our project entities. This was the loan that we reported previously was in a technical default due to a bankruptcy at one of the off-takers.

As part of that payoff, we were required to make to the lender an early termination payment of $680,000, which is included in other income and expense. Additionally, as part of that payoff, we wrote off about $140,000 of deferred financing fees. I would like to add here that the off-taker never actually missed a payment and emerged successfully from bankruptcy and we continue to operate the facility.

As I mentioned before, the third quarter of 2009 benefited from a $2.8 million of realized and unrealized gain on derivatives. As of the second quarter of this year, we have designated all of our interest-rate swaps as hedge instruments, no longer requiring a periodic mark-to-market recognized through the income statement.

The net result of this activity is a $4.4 million increase in net income before taxes, to $16.9 million in the third quarter of 2010, which compares to $12.5 million in the same quarter last year, an increase of 35%.

Our income-tax provision increased from $4.3 million to $4.9 million, or an effective tax rate of approximately 28.8% in the third quarter of 2010. The tax provision in the recent quarter brings our year-to-date effective tax rate to 28.5%. The principal difference between the statutory rate and the effective tax rate were the deductions permitted under Section 179D of the tax code, which related to the installation of certain energy-efficiency equipment in federal, state and local-government owned buildings, as well as production tax credits to which we are entitled from the sale of electricity generated by certain plants that we own.

Moving on the cash flows, the net cash provided from operated activities during the three month ended September 30, 2010, was $9.1 million. This was below plan and below the third quarter of 2009. Increases in retainages and certain unbilled receivables were more than planned, and we expect to collect those amounts in the fourth quarter. Additionally, results in 2009 were stronger due to the settlement of an interest-rate hedge instrument totaling $4.8 million, and several large contract pre-payments.

Cash used in investing activities in the recent quarter totaled $19.4 million, primarily for the development of renewable-energy facilities that used landfill gas and photovoltaic systems. In addition, we invested $6.1 million in the acquisition of Quantum Energy, near Seattle.

Net cash provided from financing activities was $18 million in the third quarter. Net proceeds from the issuance of stock, including the IPO, was $59.6 million. We paid down the balance of our revolving facility with Bank of America, and we repaid the subordinated debt. As mentioned earlier, we also paid off the term financing of one of our project companies.

Finally, as was noted in the press release this morning, our total backlog of projects that are contracted, and those that are awarded but not yet contracted, remains strong at $1.12 billion. Of that, fully contracted backlog was $593 million at September 30, 2010, compared with $380 million a year earlier. Awarded, but not yet contracted, as of September 30, 2010, was $531 million, compared to $734 million in 2009.

I will now turn the discussion back to George.

Thank you very much, Andrew. We are very pleased with the progress that we are making. And, most importantly, in some of our marquee projects; specifically, Savannah River, which is our largest project, is on-schedule and within budget, and our US [Capitol] Project is well underway.

We are 60% complete with the installation of the water-savings measures for our Boston Housing Authority Project. And the design is substantially underway for the mechanical measures, as well as many others.

We've participated in the groundbreaking ceremony for an $11.7 million grant-funded infrastructure project with the San Francisco Housing Authority. We also have a broader $27 million energy-conservation project with them, and we are currently waiting for an approval.

Further, we are pleased with our expanding market opportunities across our business and in the diverse geographies where we operate. We signed 97 contracts this quarter, across all of our regions and our various product lines. We continue to gain traction across North America, where our new projects include a $25 million project at the University of Kentucky, a $4.7 million project in Sangamon County, Illinois, and $3.3 million project with the Peel District School Board in Ontario, Canada, and a $3 million project for the Alaska Energy Authority.

We are also starting to see demands for projects outside of North America. This quarter, we signed a project for $13.5 million with the US Navy and their facilities in Naples and Sigonella, Italy. Also, we signed a small energy-efficiency contract with [school of mines] in Madrid, Spain. As you might recall, we had previously signed a large project for the US Navy base product in Spain, and we've learned to use that contract to expand locally.

These are just some of our new projects. We are very pleased with how the market is evolving, and how our customers are taking advantage of energy efficiency and renewable solutions, which we provide.

Our new proponents in the market are 58% ahead of this time last year. This is down from the 80% that we reported through the second quarter, but that is as expected, since proposal-generation is seasonal and is the highest in the winter and spring months. As you probably can surmise, most of them -- they get executed by the end of the year.

In terms of fulfilling our growth strategy, we continue to add resources in key markets and regions. We started the year with 631 employees, and we are now at 713. We gained 15 employees with the acquisition of Quantum Engineering, which we acquired at the end of August. We will continue to seek acquisitions that are accretive to our earnings.

We look for businesses similar to Quantum that meet our strategic goals. And, of course, those are expanding our services and geographic reach. With Quantum, we now have an office in Seattle area, and we plan to open one in Portland, Oregon very soon. These offices and the talent we acquire through Quantum Engineering will give us a great base to expand our Northwest operations.

As Andrew discussed, our construction backlog remains strong, at over $1.12 billion. In the third quarter, we built out $165 million, and we also added $155 million of new energy-efficient contracts. This compares to the third quarter of 2009, when we built out $106 million and executed $55 million of new contracts.

Now, a little bit about -- turning to our outlook -- our strong performance for the third quarter and year-to-date, coupled with our ability to maintain a strong backlog, we believe, is indicative of the demand that we are seeing the marketplace for energy efficiency and renewable projects and, most importantly, Ameresco's great position in the marketplace. We believe that these favorable trends for the industry and Ameresco will continue for the rest of the year and beyond. As a result, we are in the position to revise upwards our outlook for 2010.

Most likely now, we anticipate that total revenues for the year will be between $585 million and $595 million. Our EBITDA will be in the range of $55 million to $57 million for the year. Our net income will be in the range of $27 million to $28 million, and our net earnings per diluted share will be between the range of $0.65 and $0.68. We anticipate that the strong demand that we kept seeing this year will continue into 2011, and we plan to give 2011 outlook when we report our year-end results.

I would like to thank you again for joining us in today's call. And, now, we would like to answer any questions that you might have, and I will turn the call back to Karma. Thank you.

(Operator Instructions)

The first question comes from the line of Dale Pfau from Cantor Fitzgerald. Please, proceed.

Good morning, gentlemen. Congratulations, on a stellar quarter out of the box, here.

Thanks, Dale. Good morning.

Good morning.

Thanks, Dale.

We talked just a little bit about the proposals, and I'm trying to get a feel here if this is sort of a normal trend. You said the proposal activity was down a little bit, year-over-year, relative to the second quarter, but that you kind of expect that because now people are maybe thinking about actually executing the contracts. If that's the case, should we expect sort of a tick-up in your contracted and awarded business here in the fourth quarter?

The proposal activity, generally -- because we zero it out at the beginning of the year. So, the first two quarters, we always have more proposals that we send out than the third and fourth quarter. So, most likely, you will see -- and it levels out. So, by the end of the year, ultimately, the proposal generation -- we will come close to the growth of the executed contracts. And some of them -- of course, they flip out into the following year.

So I -- we feel very good where we are with the proposal activity. Actually, we can share with you that our issue is not whether we have enough opportunities, it's whether we have enough time to respond to the opportunities.

Great. And could you talk a little bit about where you are in the negotiation of those various proposals? Are people proceeding to the negotiation stage? And do you expect that to accelerate here in the next two months?

Yes. You will see -- like, for example, you saw an acceleration in execution contracts from the second quarter to the third quarter. And it's reasonable to expect that you will see an acceleration from the third quarter to the fourth quarter in executing contracts. In addition to that, you will see more movement -- or I will say -- from the proposal stage to the awarded stage, over the third and fourth -- and the fourth quarter.

Great. And about general trends -- are you seeing a general trend -- more commercial instead of more industrial and government? Any shifts there at all?

We're beginning to see some activity in the commercial -- more activity in the commercial and the industrial sector. And in addition to that, we see the last quarter and the last couple of -- the last month -- we've seen more activity in the government sector as well.

If you recall back in the road show, we had said that some of the various entities -- they had slowed down the process because they were waiting to see how much money they can get through the Stimulus Package. And, now, it's either drying up or they know what they're going to get. So you see more movement now of contracts from the proposal state to going forward to the awarded stage, and so one.

Great. Thank you.

And the next question comes from the line of Steve Milunovich from Bank of America/Merrill Lynch. Please, proceed.

Great. Thank you, very much. Regarding the backlog, the awarded backlog did rise nicely. The contracted backlog went down. Could you talk a bit more about that? It does sound like you expect the awarded backlog to continue to go up in the fourth quarter, and maybe the contracted backlog to come down a bit because that's where you're executing?

But the contracted backlog went up. And, also, the overall backlog -- it, too, went a little -- slightly up from the last quarter. In addition to that, as I pointed out in my presentation, we built out $165 million in the way -- we're building out at a very fast pace. And we still almost kept up to it by executing $155 million of new contracts.

Right. Wasn't the contractor backlog down sequentially?

Oh, you're talking about from quarter two?

Quarter two? Okay.

Yes. Yes, that was down. And that -- and, as you said, Steve, that's -- the reason is we've built out $165 million of that in the last quarter.

Okay. So the total backlog is relatively flat year-over-year. Do you feel like that's going to be sufficient to support a 15% to 20% type of revenue growth next year, which, I think, is what a lot of us are expecting?

Well, I feel very comfortable that we will be most likely on the higher range of what you quoted because of the backlog -- contractors backlog that we have at this point in time. And we are in the process of working out the plan. And we know we are in a very good position. And we know also what contracts we have in negotiation right now, and that we will turn to be -- actually get those contracts by the end of the year.

Okay. That's great.

And the other thing, Steve, that we have to watch on that contractors backlog -- even if I had $2 billion of a contractors backlog -- I mean, of a total backlog that doesn't mean I couldn't build it out. That -- it will get stale. I want to make sure that we have enough backlog to carry it out for the next 18 months, and executing that backlog.

Yes, exactly. Actually, I'm kind of more focused on the awarded backlog, which did show a nice sequential uptick. So, I thought that was pretty good.

And the other thing, which we don't report -- we -- our backlog for the -- what we call contracted revenues associated with renewable assets that we will own -- we saw a 20% increase on that since last year and into this year to what we had, actually -- to this year. So, that part of the business is growing at a very good clip.

I'm sorry. You said renewables backlog up about 20% year-over-year?

That is correct.

Okay. Andrew, can you give us any sense in the fourth quarter of the percentage breakout of revenue between energy efficiency and renewable energy?

Yes. I think you'll continue to see about the same rate that we've been running with through the year-to-date. The third quarter -- the percentage -- will actually be maybe a little bit higher in Q4 -- probably see it in terms of dollars be relatively flat, and then the -- but the total revenue for the fourth quarter won't be quite as high as what we're seeing in Q3. So, I think you can use that as the -- sort of the percentages.

Okay. And any comment in terms of particularly the gross-margin trend over time? Are you beginning to see some of the scale benefits that you're looking for, and still looking to head toward kind of a 20% gross margin?

We're still headed in that direction. We won't -- I don't think we'll there this year, but we still like the trend on gross margin and we see it continuing to get stronger.

Okay. George, any comments on the competitive situation -- any changes?

We talked about that a lot because we had the management meeting the other day, strategizing where we're going next year and so on. And I would say it's stale. It hasn't changed much. And the players that we were competing before -- we continue to compete very effectively. And I could say that some of them -- they are not as aggressive in the marketplace as they were six months ago. So we're getting very, very good traction against them.

Okay. And, then, finally, could you comment on the budget situation for municipalities and state governments and so forth? My understanding is that a little bit of pressure may actually help you. But, at some point, if things get too difficult, financing could become a problem and so forth -- what appetite are you seeing there?

Very, very good appetite. And I think that question came up on the road show, too, only to the extent that some of those financial -- the municipalities -- they cannot get any financing -- then, it would become a problem. But, so far, we have not seen that.

In fact, we are seeing more lenders interested in this space. So there seems to be -- at least on the credit side -- interest in lending on these projects against -- for projects from state and local-government customers.

Actually, that's a great point. If I may add there -- and some of the interest rates that we get lately -- they are very, very good.

Excellent. Thank you very much.

Yes.

The next question comes from the line of Stuart Bush from RBC. Please, proceed.

Hi, George, and Andrew -- great quarter.

Good morning, Stu.

Good morning.

Morning. I was hoping you could remind investors -- you said you built out $165 million -- and how that matches up to the $191.9 million in revenues in the quarter. When you built out $165 million, how was that split between energy efficiency and renewables? And is there some PPA revs that you're getting in renewables that are not going to be reflected in that built-out quote?

That number -- the $165 million is only the energy-efficiency projects. And that's one of the issues at the -- that represents the construction.

It's construction, but it does -- there is some construction in the renewables line. The reason it differs from the $191 million is that we have other revenues that are not specifically construction-related. So that just refers to the construction component. I can't give you, off the top of my head, what the breakout is between --

Okay.

Well, I know this much -- that, for the -- just the renewables -- the revenues to-date. The annuity-based revenues -- it's over $21 million. So, that covers some of that. And, then, we have some of the other -- the operation-and-maintenance contracts and so on.

Okay. And, George, if I heard you right, you said you added $155 million in new contracts.

$155 million.

What's that?

One-five-five.

Right -- one-five-five. It was 97 contracts. So, that implies that the average contract is about $1.6 million. As you look forward, do you expect that trend to increase in the average price of contract here? Are you seeing that in the pipeline? And, to that point, are you seeing larger and larger projects becoming more prevalent that are out there for RFPs?

We see larger and larger projects. But our sweet spot -- and I think I mentioned that before -- we prefer to do, let's say, $10 million -- ten contracts of $10 million each, rather than $100 million contracts. But I think we can work better margins there, with customer distribution and so on, and better flexibility in executing the projects. But, the trend is for higher projects.

But my math is right. Right? $155 million, divided by 97.

Yes.

Okay.

Can you talk a little bit about the international business? I know that you have some international business through the Navy. Can you talk a little bit about how you were awarded this project in Spain and what's --?

Again, if you recall -- by the way, our strategy always -- how we open offices, rather than getting to far ahead of ourselves, we say, let's win a contract in a particular area and we do it here in the United States, in a particular state. And, then, after we win that contract and start executing in the contract -- otherwise building it out, let's hire a couple people locally and see if we can -- use that as a base to get more business in that particular area.

In Spain, they're coming out with an RFP, actually -- they have legislation whereby they want the federal-government buildings and all other governmental agencies to implement energy-efficiency projects through the energy-saving (inaudible). [Otherwise], similar legislation that's been enacted in the United States.

So we said, well, if they're going to do that, why don't we open a little office and see what we can do? And through an RFP process, we won that particular school of mines. It's one of the first -- by the way, RFPs -- requests for proposals for this kind of -- type of project just went out in Spain. And, now, they're contemplating about 300 government buildings will be the next one coming out.

Okay. And, so, to that point -- as we look forward, what percentage of your business do you expect to be international? I bring this --

Right now, I wouldn't expect too much over the next one to two years. We are not counting -- I look at it as more of a development for three to five years down the road.

Okay, great. And, last question is, on the renewables business -- it's proper for us to assume that that decline in 2011 versus 2010, as you complete the Savannah Project. Correct?

Yes, we've had that out, yes. I think that's fair -- that you will see a little bit of a falloff as a result of Savannah, because it's quite large.

Great. Okay. Thanks, guys.

And the next question comes from the line of Chris Wiggins from Oppenheimer. Please, proceed.

Hi. Good morning.

Good morning, Chris.

Good morning.

Related to the Savannah Project -- I think that was supposed to peak this -- in the third quarter. Did that, in fact, happen, or did any of that get pushed into the fourth quarter?

No.

No. It's on a schedule. And the schedule is continuing. We're going to be working on that through next year.

But it did peak this quarter?

No.

No.

Oh, okay. And, then, going back to the backlog question that you were alluding to as far as taking in as much backlog as you can execute -- is there kind of a backlog level that, right now, you would say, that's our comfort level? If it got above that, maybe it would be -- execution risk would heighten a little bit.

I would say between one to 1.3 -- 1.4 -- because we have talked about that before.

Okay.

You don't want it to get too stale, because, otherwise, people will start complaining you're not building them out enough, why did you sign me up, and so on and so forth.

Okay. And, then, the last question I have -- any other detail you can provide on the termination of the O&M contract -- you had mentioned what kind of drove that decision for them to cancel.

We don't really -- we don't really know why that happened. That was just a management decision that they made.

And it's pretty isolated as far as what you're seeing now.

Oh, yes.

Okay. All right, great. Thank you, very much.

And the next question comes from the line of Steve Sanders from Stephens, Incorporated.

Good morning, guys. Great quarter.

Hi, Steve.

Thank you. Hi, Steve.

Following up on the O&M backlog, is that number staying relatively stable?

No, it's increasing.

It is increasing. And, then, when you finish Savannah River, what will that do, on an annual basis, to your O&M revenues?

It will probably increase by 30% to 50%.

by -- I'm sorry, how much?

We'll see about a 30% increase in O&M revenue once that kicks in full gear.

Okay. Okay. And, then, the operating leverage in the model has obviously been very impressive the past couple of quarters. Kind of setting aside the seasonality, which is going to impact the business, is there anything that's propping up margins right now that you would consider unusual, or do you think, in general, these type of operating margins are sustainable?

Nothing unusual. I think we've tried to highlight some of the unusual items. And, no, I think it's just that the volume is -- that's the way the business is going to work. Yes. No, there's nothing there.

Okay, great. And, then --?

We always plan to see a better operating leverage come through. And now, we are very happy to say that it's beginning to happen.

Right. Right.

Because we invested a lot of money in the infrastructure of developing Ameresco and the offices and so on. And we've been right in all those expenses -- all. And now that we're beginning to get to the level -- otherwise the size -- that you can execute effectively, you -- the operating leverage just shows up, and I'm glad to see that's happening.

Okay. Okay, great. And, then, Savannah -- can you remind us when you actually expect to complete the project, and sort of how steady-state the revenues will be between now and then?

We expect to complete the project at the end of 2011. Actually, the first phase of that project, which is the installation of two of the small -- phase one -- two of the smaller boilers -- it's almost complete. And we will be in the commission stage next month, in November. That will be up and operating by the end of November this year. And -- then rest of it -- and, then, the operation-and-maintenance contract will take effect in 2012.

Okay. And, then, with, basically five quarters left on the project, can you just give us a sense of how level the revenues are over the five quarters? Do we get a surge here over a few quarters, and then the last couple of quarters it falls of significantly? Just what's the general trend there?

I'll be careful there, because what counts here is what goes to the bottom line. And I wouldn't be surprised that at the end of the -- let's say completion, even though the revenues might drop a little bit -- but you might have a substantial pickup on the margin.

Okay. Okay, that's fair. And, then, George, what --?

But it's very uniform, though. And Andrew is checking that --.

Yes, I mean, we're not going to see any spikes in the next several months. And, then, the project will begin to wind down in the second half of the year. And, then, we'll -- if there is any variance that George referenced, you would see that late in 2011.

Okay. Okay, thank you. And, then, George, how would you characterize your appetite for equity ownership in renewable projects sort of relative to three to six months ago? Do you see an increasing number of attractive opportunities? Is it getting more competitive, and maybe you're having to be more selective -- just some qualitative commentary around that?

Yes. No, it's a great question. Actually, we are seeing more activity in that area. And, as you know -- you are aware -- we don't like to use our equity as much. We like to recycle it. So, to the extent that we can find partners -- that we can work together -- we will take -- and we do put all these projects into separate LLCs, so it's very -- and the financials are done that way. So, it's easy for us to take in equity partners.

Or the other thing that we might do -- and you'll probably see it, probably next year -- some of the smaller PV projects at 1 megawatt or 2 megawatts -- right now they are on our balance sheet, and you see the revenues coming through on -- as they occur -- that we might package a group of them and flip them out; otherwise, securitize them. So you might see a bump in the revenues from the income coming from those projects. And, then, take our equity or added gains, and then build some more.

But some of the larger projects -- so rather than walking away -- that we will either use other people's equity, and then operate them and maintain, or we might just build them for others and get them -- make a margin that way.

Okay.

And, right now, we have several of them under negotiations of building out for others.

Okay. Okay, thanks very much. Congratulations, on a good quarter and thanks for taking the questions.

Thank you.

Thanks, Steve.

The next question comes from the line of [Asid Syn] of Madison and Williams. Please, proceed.

Thank you. Good morning, gentlemen.

Good morning, Asid.

Good morning.

A couple of questions, here -- just going back to the mix of the contractor backlog -- I'm just trying to understand here. So 97 signed contracts, average size $1.6 million. The largest in that was -- George, you mentioned $23 million, the University of Kentucky award?

I assume so. That is the largest, yes.

Okay. And if I remember correctly, the backlog -- around mid year the average size in the backlog was about $6 million to $8 million per contract. Was that because of the contribution of Savannah that skews everything to the right?

That is correct. In addition to that, there are projects we signed this last quarter, for example -- and somebody brought up the question and this is a good point -- that the are what we call the next phase going from an awarded contract to -- executing from a proposal to the awarded contract then executing the energy audit -- where we do a detailed energy audit. And, then, after that, we do the detailed engineering and then the -- finally, they execute the contract. So, there were many contracts that they moved from one stage to another.

Got it. Got it, okay. And did Quantum bring in any backlog or --?

They did, but because the market is very sensitive, I'd rather not give out any numbers.

Got it.

We are talking to a couple more companies that we are trying to acquire right now.

Yes. And since you're getting more traction on the renewable-energy side of the business, could you update us on your CapEx plan or prelim CapEx plan for next year as to what percent of that would probably be tailored towards Chernobyl Energy?

I think during the road show I said we don't like to see more than $25 million, $30 million invested in any given point in time in renewables. And it's -- we carefully built out a cash-flow model for the Company for the year. And we will only invest in those projects as we have excess cash flow. Or if we don't have enough, then we will look for outside equity for a particular project.

Thank you -- very helpful.

And the next question comes from the line of Maureen Drew from Gagnon Securities. Please, proceed.

Good morning, George and Andrew. It's Maureen and Neil.

How are you?

We're good, thank you. What I'd like you to discuss is the quality of the pipeline that you're working on, and how that has built out as the Company is establishing itself in a larger world.

I would say the quality of our pipeline is excellent. And that's why you see the better part of the projects. And actually one statistic that our Senior Vice President had for the Board the other day -- that as much as 57% of some of the projects -- that they are in the proposal stage for -- they ending up into the backlog for his region. And that's a tremendous metric as far as the quality of the pipeline because a couple of years back, we were down to the 30s.

Yes. I was thinking there was a 30% conversion from your pipeline to backlog.

And the overall -- it's somewhere between 30% and 57%. He was reporting three of his regions. And I know another region of ours it's above number. But, overall, we are somewhere -- I would say, right now, 35% to 50%. The trend is good.

Is there much difference in the pattern of the business that you're working on, or is it basically the same type of business?

If you recall, one of the things that we're driving -- and that's why we want to have great -- what I call account executives and development force in the marketplace --

Okay.

-- driving the RFP process ourselves, rather than responding to somebody else's RFP and that's key. Otherwise, you -- and that's why I said earlier there are many, many RFPs -- requests for proposals -- they come through our desks that we do not respond, especially if we think that these -- one of the comparatives are driving that particular RFP.

So, and -- so what happens, if you respond to those your development expenses go way up. So, you want to drive the process. And the better -- and some of the (inaudible) a great job, you will see it in their metrics -- that what they put to the EBITDA is substantially higher than 10% that (inaudible).

Thanks, very much.

You're welcome, Neil.

(Operator Instructions)

The next question comes from the line of Eric Prouty from Canaccord. Please, proceed.

Thanks, and congratulations, on the quarter, guys.

Thank you, very much.

Thanks.

Just a quick question on -- what, if any, percent of your business, do you think is receiving stimulus or related funding and any risk that you're seeing, at least, as those projects start to wind down, as government money gets a little tight? Maybe you could just comment on that a little bit.

Yes, I'd be glad to. I think I mentioned this before. I think before we had one -- was the Boston Housing out of the $60 million project. $10 million of that was --

$10 million was stimulus.

Stimulus. And, now, the San Francisco Project -- the other one that received the --

About $11 million.

-- $11.7 million. But what happened there -- there's a great example. Our $27 million contract, which was the first contract that we wanted to build out -- because they were waiting for the $11.7 million -- we've been waiting for a year for that contract to move along. And the same thing happened with Boston Housing, nut now we -- so it's a small portion. But the impact that they have, as far as many customers waiting out there, it was large. But, on the other hand, we didn't lose the contract, so they're coming to pass anyway.

Great. So kind of the dollar-volume risk -- you wouldn't view current results as being a stimulus-driven bubble of revenue?

No, not at all.

Okay, perfect. And, then, a little bit of commentary -- maybe you could give us some hardcore numbers on maybe a government/commercial breakdown of business. Obviously, still, the majority is government. But is the commercial growing faster, or is government growing faster at this point?

Yes, I will say that faster -- I wouldn't -- no, the government is still the fastest segment and the best segment, but we see a little bit more activity in the commercial and the industrial. To what extent they will turn out to good projects, we will wait and see because some of those guys, they are good shoppers you know.

And, George, just to expand on that a little bit -- I mean, you guys have traditionally been in the government realm. Will it take an acquisition to really boost up the commercial side of the business? Is that a different sell than you guys are used to? Maybe just look a little further out, and talk about the prospects of penetrating that commercial business, and what it will mean for your company to penetrate that side of the business.

That's a very good question. We are looking for acquisitions. But if you talk to some of my key managers around the Company, they will tell you, wait for that market to develop, rather than being out there developing ourselves -- become very expensive

But, on the other hand, we are looking at a couple companies. Especially, one of them might be in one of those markets that you are talking about -- might give us a little bit leg up. But, on the other hand, you've got to be very careful. And that's why -- I think I mentioned it in the last call -- and we had the follow-up meeting with the White House -- they're trying to come up with what I call a good financial package for the commercial and industrial sector, because that does not exist right now.

And many people that -- they talk about some projects they have done in the commercial sector. They have done them on their balance sheets, and they are hoping to flip them out later. We don't want to do that.

Sure, that's fair enough. And, Andrew, maybe -- and I know Savannah River questions have been asked quite a bit already, but do you have the actual number that Savannah River represented during the quarter? Was it in the kind of $15 million to $18 million range?

Yes, that's about right.

Okay. Do you have an exact number yet, or will you be able to get that out of the Q?

I don't have an exact number in front of me --

Sure.

-- but we can look to including that.

Sure. No big deal. And just to follow on -- and, again, a few people have asked this -- and we're just trying to make sure we don't get, I think, caught with this contract with -- as we're trying to model out quarter to quarter. I mean, at what point would you expect that revenue?

In what quarter or couple quarters would that revenue kind of peak out and then start to decline sequentially? Is that the back half of next year, as you've said? And to what order of magnitude is -- will O&M revenue be able to replace the lost kind of construction revenue?

We're feeling in good position that as that project falls off, I don't think it [will shift in] quarter to quarter -- that the other projects and other elements of the business will have picked up.

Okay, that's fair. And, I mean, do you know right now what a quarterly O&M rate will be on that contract?

I think, initially, it will probably be in the neighborhood of about $15 million.

Oh, okay, wow. Okay, fantastic. That's all for me. Congrats. Thanks.

Okay.

The next question comes from the line of Dale Pfau from Canaccord Fitzgerald. Please, proceed.

Hi. I think -- this is Dale again.

Hi, Dale.

My question already was asked. Thanks.

Okay, Dale. Thank you.

And we have no further questions at this time.

Parton the interruption -- you have a question coming from the line of Stuart Bush from RBC. Please, proceed.

Yes, hi. I just wanted to clarify that last comment on the O&M from Savannah. Is that $15 million a quarter or $15 million a year?

No, no -- annual.

No, no. That's where it starts annually, and then moves up to over $20 million in the second year.

Okay, good. And that kicks in starting which quarter?

That would begin probably first or second quarter of 2012.

You'll probably see a little bit into the first quarter, and then it will start again. And, actually, we might see a little bit picking up with the maintenance of the first [two boilers] that we -- that will be operational. So, you might see some of it next year.

Great, okay -- very helpful. Thanks.

Okay.

There's no further questions at this time. I would now like to turn the call back over to Mr. George Sakellaris. Please, proceed.

Again, thank you, everyone, for participating in our conference call today. And I'm looking forward to the -- our annual call again. Good morning, and have a nice day.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.