Ameresco Inc (AMRC) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ameresco First Quarter 2011 Earnings Conference Call. My name is Keisha, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session.

(Operator Instructions)

I would now like to turn the presentation over to Suzanne Messere, Director, Investor Relations for Ameresco. Please proceed, Ms. Messere.

Hi. Good morning, everyone, and thank you, Keisha. Thank you for joining us today for Ameresco's first quarter earnings conference call. I'm joined this morning by George Sakellaris, Ameresco's Chairman, President, and CEO, and Andrew Spence, the Company's Chief Financial Officer.

This morning Ameresco reported its first quarter results for fiscal year 2011. The press release, as well as our prepared remarks, are available at www.ameresco.com. The prepared remarks provide the same level of insight and detail as will be discussed on this morning's call. As a reminder, when we're discussing awarded projects and awarded backlogs, those two terms can be used interchangeably.

Also, all financial comparisons made during the call are year over year to reflect the seasonality of our business, unless otherwise stated. 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 would 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 annual report on Form 10-K, filed with the SEC on March 31, 2011, 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.

In addition, the Company 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, as well as our prepared remarks. I will now turn the call over to George Sakellaris, Ameresco's President and CEO. George?

Thank you, Suzanne. Welcome, everyone, and thank you for joining us today. We are pleased to be hosting Ameresco's first quarter 2011 earnings conference call.

It was a very good quarter or, we might say, a clean quarter, and as you know, our business is lumpy, especially from quarter to quarter. The lumpiness, however, of our business was in our favor this quarter. This morning I will start with highlights from the first quarter, then Andrew, our Chief Financial Officer, will bring you through a detailed review of first quarter financial performance. Then, I will provide some additional insight about the quarter, as well as the outlook for 2011, and finally, we will open it up for questions and answers.

We are happy to report that we executed our plans very well across all our offerings to deliver unseasonably strong first quarter results. The key drivers were continued momentum from installation activity, recurring revenue growth from our higher margin offerings, and increased operational efficiencies.

Our achievements included the following -- first quarter revenue of $146 million, an increase of 39%, first quarter EBITDA of $12 million, an increase of 130%, first quarter net income of $5.3 million, an increase of 314%, first quarter net income per diluted share of $0.12, an increase of 231%.

We should also point out that we have seen a 2% improvement in total construction backlog versus fourth quarter of 2010. This is primarily driven by a 20% increase in awarded projects. Further, first quarter gross additions to total construction backlog were approximately $143 million, an increase of more than 300% over the quarter of last year -- 2010 quarter. And, of course, this is the kind of lumpiness I would like to see all the time. And now, I would like to turn the call over to Andrew, our Chief Financial Officer, who can provide more details about first quarter financial performance. Andrew?

Thank you very much, George, and good morning, everyone. I will take you through a detailed review of our first quarter 2011 earnings, using year over year comparisons to the first quarter of 2010. First, we'll review the income statement and then the statement of cash flows, and I will also do a review of the backlog.

As George has already stated, first quarter revenues increased 39% to $146 million. The revenue mix for energy efficiency and renewable energy was 73% and 27%, respectively.

Revenue from our core business, energy efficiency, increased by $31 million, or 42%, as installation activity continued to grow. Renewable energy increased by $9.5 million, or 31%, with double digit increases from installation activity, integrated PV, and small scale infrastructure. The operations and maintenance, or O&M, associated with renewable energy projects, experienced at 158% increase from a very small base, as some projects have been starting to come online.

Total gross profit for the first quarter was $28 million, an increase of 52%. Gross margin for the quarter increased to 19.1% from 17.4% last year. Gross margin increased due to an improved seasonal mix of higher margin projects, as well as a onetime benefit from a project closeout, which contributed 60 basis points.

In general, ongoing installation activity continues, and we have not seen an unusual increase in the recognition of project cost savings. As mentioned on our last call, we continue to execute all contracts in a timely and cost effective manner, which is one of our goals for 2011.

Gross margin for energy efficiency and renewable energy was 18.7% and 20.3%, respectively. Gross margin for energy efficiency improved by 220 basis points, while the gross margin for renewable energy improved by 70 basis points. Energy efficiency gross margin benefited from the onetime project closeout mentioned before. The gross margin for renewable energy increased due to margin contribution from installation activity, as well as integrated PV, small scale infrastructure, and O&M.

Operating expenses in the first quarter showed a percentage increase that is roughly one-half of our top line growth rate. As a percentage of revenue, operating expense declined 13.4% versus 15% a year ago for an improvement of 160 basis points. We continue to focus on our goal of maintaining good cost control as discussed on our last call.

Salary and benefit expenses increased almost 24% during the first quarter. We added key staff to support our development and future growth, and we added new positions that are customary for a public Company. As a percentage of revenue, salary and benefit expenses decreased to 6.9% for an improvement of 80 basis points. This was due to improved staff utilization on projects, both in development and implementation.

Project development costs are tied directly to selling activity and to our sales cycle. Project development costs experienced growth in line with top line growth, which reflects our efforts to increase proposal activity and finalize awarded projects. As a percent of revenue, project development costs were flat at 3%.

General, administrative, and other expenses increase by 14%. However, as a percent of revenue, these expenses were just over 3%, an improvement of 80 basis points. The principal drivers of the increase were higher insurance expenses and consulting fees.

Careful management of our operating expenses, another one of our goals, resulted in an improvement of first quarter operating income of 224% to $8.3 million.

First quarter income before taxes increased 334% to $7.4 million. Our income tax provision increased from $429,000 in the first quarter of 2010 to $2.1 million this year, due to higher pretax income and an increase in the effective tax rate from 25% to 29%.

As I believe everyone is aware, the principal difference between the statutory tax rate and the effective tax rate were deductions permitted under Section 179(d) of the tax code, which relate to the installation of certain energy efficiency equipment in federal, state, and local government owned buildings, as well as some production tax credits to which we are entitled from the sale of electricity generated by certain plants that we own.

For the first quarter of 2011, net income was $5.3 million, compared to net income of $1.3 million, an increase of 314%. Net income per diluted share of $0.12, compared to $0.03 per diluted share last year.

EBITDA, which is an operating -- which is operating income plus depreciation and noncash, stock based compensation, totaled $11.8 million for the first quarter, a 130% increase. EBITDA as a percentage of revenue was 8.1% for the first quarter, compared to 4.9% a year ago. That's an improvement of 320 basis points. The higher EBITDA margin was due to increased volume of installation activity, better gross margins, and an improved efficiency ratio for operating expenses.

We refer you to this morning's press release, as well as our prepared remarks, for discussion of EBITDA, which is a non-GAAP financial measure, and for a reconciliation of EBITDA to operating income, the most directly comparable GAAP measure.

Now, moving on to cash flows, we used $25.6 million in operating cash during the first quarter. Cash flow is typically negative in the first period, as we experience a seasonal slowdown in overall business activity.

In the first quarter, we invested $6.6 million in renewable energy projects that we will own and operate. We intend to raise approximately $25 million in non-recourse debt for renewable projects during 2011, in addition to the $5.5 million that we closed on in the first quarter. We also received $6.7 million from the US Treasury under the 1603 grant program. And separately, we are now in the process of renewing and increasing our $50 million corporate credit facility and are considering including approximately $30 million of fixed rate, longer term debt.

As far as our customer financing is concerned, we continue to see strong interest from lenders for budget neutral energy efficiency projects. Finally, we saw an improvement in our total construction backlog, as well as awarded projects, at March 31, 2011, which George will cover in a few minutes.

For analytical purposes, we believe it is important to use yearend figures when making annual comparisons that help identify longer term trends. The dollar value of the fourth quarter contracted backlog, in particular, is a good indicator of the expected revenue to be generated from the backlog over the next 12 to 24 months. It can also be reasonably expected that a percentage of awarded projects will flow through as revenue generated from backlog, as awarded projects typically convert into contracted backlog over a six to 12 month period.

Using sequential quarter over quarter performance can be a useful indicator of short-term trends. However, backlog tends to exhibit seasonal patterns, making year over year comparisons more useful than sequential comparisons. Please refer to our 2010 10-K for a complete description of backlog.

Overall, we executed very well across all of our offerings during the first quarter of 2011, delivering unseasonably strong results, driven by continued momentum from installation activity, recurring revenue from our higher margin offerings, and increased operational efficiencies. And with that, I will turn the discussion back over to George.

Thank you, Andrew. And now, some more insight into our first quarter results. Revenue generated from backlog experienced strong growth for an increase of 41%. The Federal Group was the largest contributor to this strong growth. We also, though, experienced strong growth in some of our other regions, such as Canada, Pacific Northwest, Northeast and Southeast.

And since we are talking about the Federal Group, as mentioned on our last call, legislation to clarify enhanced competition was passed on December 29. Subsequently, in late March, the Department of Energy modified the Energy Savings Performance and IDIQ contracts to revise competition requirements. The final competition changes were released to all federal facilities and agencies in April. This has caused a delay in converting proposals to awarded and contracted backlog. The good news, however, is that we expect to see a pickup in the Federal Group's contribution to awarded and contracted backlog starting in the second half of 2011.

As mentioned earlier, we saw, though, some improvement in our total construction backlog during the first quarter. Despite the lack of federal government activity, our total construction backlog increased by 2% to $1.17 billion. Of that, awarded backlog was $577 million, compared with $483 million at the end of the fourth quarter of 2010, a sequential increase of 20%.

Fully contracted backlog was $580 million, compared to $659 million at the end of fourth quarter of 2010, a sequential decrease of 11%. That is, of course, due to the higher volume of installation activity that we saw during the first quarter.

In addition, we saw gross additions to total construction backlog of approximately $143 million during the first quarter, an increase of more than 300% from the first quarter of 2010. Total gross additions to backlog were mainly driven by activity within our institutional market. Further, we want to point out that we expect to see an improvement in contracted backlog during the second half of the year.

And my final point about backlog, would like to point -- say. We are very comfortable with the current level that we are at. We have enough to carry us through the next 18 to 24 months, while providing for a healthy growth, assuming else -- everything else remains the same.

Moving on to our pipeline activity. The overall pipeline at the end of the first quarter remains strong at $2.2 billion. This represents proposals, awarded projects, and new contracted backlog. This is an increase of 22%, again, a very healthy increase, considering the lack of major federal activity. Our focus in 2011 remains to increase our conversion rates, as well as to pursue higher quality, higher margin projects. For clarity purposes, we like to point out that we use a calendar year to track our pipeline activity.

Next, I do like to discuss revenue from all other offerings, such as small scale infrastructure, integrated PV, and operation and maintenance and others. Revenues from the group increased to $28 million in the first quarter for an increase of 30%.

Annuity based revenue from renewable assets that we own, or small scale infrastructure, was up 27%. We placed three renewable energy projects into operation last year and are in the process of designing, permitting, and installing six more. We anticipate that annuity based revenues from renewable assets will continue to grow at double digits over the next few years. And as you know, our goal is to continue investing in renewable projects, using excess cash flow in projects that make good economic sense.

For the integrated PV, revenues grew in excess of 40%, and I would say it made a very good contribution to operating income. Again, we expect this group for double digit revenue growth throughout 2011 and beyond.

The O&M and other offerings was again up 22%. We anticipate O&M momentum to continue to build as projects, such as Maguire Air Force Base, Savannah River, and others move on to the operation and maintenance phase.

In addition to the goals that Andrew pointed out, the final goal for 2011, of course, is increasing market penetration and expanding our footprint. We have recently opened offices in Portland, Oregon, Atlanta, Georgia, and Red Bank, New Jersey. We continue to use our strategy of expanding geographically in a careful and measured manner.

We will also continue to use strategic acquisitions to either expand geographically or offer additional services in existing markets. And while we currently have the beginnings of what we might call a footprint in Europe through our projects in Italy and Spain, we will also start exploring other markets that we believe could provide potential opportunities for future growth.

And, as such, we believe China could be an attractive market opportunity if they were to adopt ESCO industry standards similar to what we use in the United States. Therefore, we may take advantage of opportunities as they arise in an attempt to influence the development of the ESCO industry in China. If our exploratory activities should result in a potential opportunity that we believe could have a material or meaningful impact on our business, then we will provide relevant detail as appropriate.

Now, let's move on to our 2011 outlook. We are reaffirming our 2011 guidance, and we continue to expect the following. Total revenue to be in the range of $690 million to $705 million, EBITDA in the range of $67 million to $70 million, net income to be in the range of $35 million to $37 million, and, of course, net income per diluted share to be in the range of $0.75 to $0.79.

In closing, we are very happy with our first quarter results, and while we expect the momentum to continue, we do not expect that it will be at the same pace as -- at the same pace. We expect our growth to return to a normalized level for the balance of the year. We are encouraged, however, by the industry trends.

Ameresco's approach to energy efficiency and renewable solutions is part of a long-term sustainable theme within North America. Energy efficiency remains the most cost effective source of energy and, due to the budget neutral nature, should continue to grow without the need for subsidies and incentives.

Further, we expect increasing energy costs, budgetary constraints, aging infrastructure, and a greater awareness of the benefits of energy efficiency to continue to drive demand of our innovative and customized solutions. Not to mention that budget neutral energy savings projects and renewable energy solutions are an excellent way to lower operating costs and one's carbon footprint without impacting capital budgets.

Now, we would like to answer your questions, and I will turn the call back over to our coordinator, Keisha.

Thank you. (Operator Instructions). And our first question comes from the line of Chris Wiggins, representing Oppenheimer. Please proceed.

Hi. Good morning, everyone.

Good morning.

Good morning, Chris.

If I could just touch on the revenue guidance first, and I realize that results can be kind of lumpy, and you expect revenue growth to kind of normalize through the year, but I'm just trying to get a sense of, particularly in energy efficiency -- should we kind of expect normal seasonality through the year, and, I guess, how big of a project was it that completed? I mean, is that going to be a meaningful headwind to revenue growth?

And I guess, kind of, if I look at normal seasonality, it seems to imply some decent upside to the guidance, so I'm just trying to parse out how much of the guidance is still conservatism on your end versus something that just is going to change the profile.

Yes. Okay. I think, first of all, the first quarter was a little bit stronger as a proportion of our total year, so I think you might expect to see the second and third quarters, as George mentioned in his comments, not being quite as -- the growth rates not being quite as strong, year over year. I think Q1 is a few percentage points uncharacteristically stronger, in terms of a few percentage points.

As far as that project, that was a -- something that we -- was part of an acquisition that we'd done a number of years ago, and we've been working on it. There wasn't any kind of ongoing revenue associated with it. We just finally got it wrapped up and financed, and there was a pickup connected with finalizing that project. So there's no -- not going to be any kind of effect on ongoing revenue, but it is a -- the gain was a nonrecurring -- of a nonrecurring nature.

Good. Great. Thank you. And then, also, I guess, just the last question on gross margins. You had mentioned last quarter -- it sounded like more than one projects that were kind of deferred, as far as completion, from the fourth quarter to the first quarter. And I know you'd mentioned the one project that completed this quarter.

I mean, are there more of these projects that were still kind of pushed out that might kind of hit completion second, third quarter? How should we think about that? And then, also, on the renewable side, do the margins kind of ramp from here, I guess, particularly in the second half, as the Savannah River moves to operating and maintenance?

Yes. It -- we will see some improvement in the renewable side as we start to move -- as the mix of revenues go into the higher margin O&M sector, as well as the integrated PV. With -- what we recognized in the first quarter, though, Chris, was a -- was really a one off item. It wasn't -- it was a gain related to getting this project wrapped up, but it wasn't what we traditionally see and what we talked about in the fourth quarter of projects being closed out and recognizing contingencies from the original operating budget.

Those -- we didn't see an inordinate amount of savings from project closeouts in the first quarter. As we said before, those will be pushed out later in the year, to the extent we start closing projects. In the upcoming quarters, we will see any savings recognized at that time.

Okay. So, then, is it fair to say then that this year, as far as the projects closeouts go, you would still expect the fourth quarter to be the quarter where you'll see most of the closeout activity?

It will be the quarter that we usually close out that particular project, and it could happen in any quarter this year, and it could happen spill over to next year. As you know, some of the projects that we are working on -- they are two and three year construction periods, and some of them will close out this year, and some we will continue to go on for the second year.

What I would like to say, though, we will encourage them this particular quarter, when the performance of the revenues associated with what we call the other businesses, such as the integrated PV, the revenues -- the new revenues coming from the assets, as well as the annuity revenues coming from the operation and maintenance and others, like the Ameresco access and so on.

And the margins -- and a -- the revenues grew considerably, and thereby, they make better -- more contribution to the total revenue line, as well as the gross margin associated with those groups. It was very good, and that helped. As that portion of the revenues and the margin gets bigger overall, it makes, of course, a bigger contribution to the aggregate margin of our business.

And the other question that you raised, regarding the guidance. I will say this much -- that we had a great, great quarter, and -- but we feel more comfortable, probably, at the end of this quarter than we did at the beginning of the quarter, while achieving our guidance. So -- and we feel very, very good about it, but like to get a couple quarters under our belt more, and like we do always, review where we are. But it's early in the year. We had a great quarter. We will enjoy that, and then we'll move on and try to perform as well for the other quarters.

Great. Thank you for your time.

Yes.

And our next question comes from the line of [Zach Locken], representing Stephens & Co.

Good morning, gentlemen. Congratulations on the quarter.

Good morning, Zach.

Thanks, Zach.

Hey, first off, I wondered if you could spend a little bit of time talking about the federal market and what your expectations are through the rest of the year. And also, on the 4Q call, you mentioned that there was around $200 million in delayed orders that you were expecting to come through in the 1Q and also wondered if you could address if that had happened or if that's something that, with these [continual] announcements, got pushed out into future quarters as well.

No, that has not happened yet. It has been delayed, and that's why I wanted to bring it up and talk about the federal government, because the -- they sent out the new legislation or -- and the guidelines to the various facilities in April. So, we expect to see pickup -- so we didn't have any major additions in our pipeline coming from the federal government in the first quarter at all. And that's why I thought adding the $143 million, as we did from the other market segments, was a tremendous achievement and very, very good trend for our business.

So -- but I do expect the federal government to pick up substantially over the next -- I would say, the later half of 2011 and beyond. And some of you might have seen some of the literature out -- coming from the Bloomberg News that the Army -- finally, the federal government is coming to the point and realizing that they have budgetary constraints now, and in order to implement what they call the zero neutral requirement that the President has set, that they will have to use private funds.

And the way to get the private funds is through the Energy Savings Performance Contract, and actually, they identified 20 projects that they want to go ahead, and we are working very hard to get all other agencies, besides the Army, such as the Navy, the Air Force to move in that direction. So I'm -- we are confident that, in the long-term, it's going to be a tremendous opportunity -- the federal government -- for us.

Great. Thanks. That's very helpful. And so, kind of transitioning with that, on the weakness in the federal, is that causing the pricing or the aggressiveness in bids in the mush markets to be at a more heightened level, as people are not counting on -- or haven't counted on that. What -- could you talk about the pricing in your other markets in the March profile (inaudible)?

No -- and actually -- thank you. Actually, the pricing and the margins and that's why I said it in my last call, and I said it again. We've been -- we focused a lot to drive the prices ourselves and improve the margins that we get on the various projects, and so far, so good. We have done very well. And otherwise, we have not seen any kind of deterioration in the margins in the mush markets.

Right. Wonderful. Thanks for that color.

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

Thank you. George, could you talk a bit more about the backlog? Clearly, the contracted backlog is relatively low this quarter. I don't think that's an issue for the balance of this year, but as you kind of get out toward year end, look at that fourth quarter number, do you expect to see some pretty good year over year growth? Can the federal business work its way through awarded to contracted backlog fairly quickly?

Yes, especially in the other markets. The federal government is probably the -- one of the slowest to convert from the awarded to executed contracts, where the other markets -- each additional market, like a school system and so on -- they converted from the awarded to the contracted backlog much faster. So we are -- that's why I made the comment. We are anticipating that by the end of the year, we'll be in a very good position for next year.

And -- but the thing that was great about this particular quarter, though, was the fact that we [built out $116 million] out of the contracted backlog, and we're in a total backlog, $143 million versus last year, the total backlog for the first quarter went down by $50 million or so.

Got you.

So, it's a very good trend, and what just happened, basically, I think, is that even though the federal government -- and we knew that was going to be slow. We made some adjustments as to where we put our resources, and it just paid off.

You mentioned something about the competitive requirements coming out for IDIQ. Were there any surprises? Are they requiring more competitors than you expected or anything in the terms that's different?

No. Actually, the new requirements are much simpler, much better, and in the long term, they will be less expensive to us to do business with the federal government.

So, it's just merely the timing that it came out in April.

That is correct. And that's the beauty about our business. In the -- it's that -- and I have said before, I think, in the road show and some of the calls, we always -- and that's why I call it lumpy. Many of the contracts you will say you expect them to be executed this quarter, and they get executed two quarters later. We don't lose them. The same with the federal government. The business is there. It hasn't happened, but we know it will happen. It's just a matter of time. So, what you do in between, though, from a management perspective -- you put your resources in some other places that -- so they can bear fruit in the short-term.

And then, could you just comment on a few metrics -- RFP activity, in terms of year over year change, win rate percentage, and [gill] size?

The size has increased. It has gone up every year. We see higher -- and maybe it (inaudible) a little bit, but from us, that -- we don't chase as many small projects as we would, let's say, five or six years ago. We target larger projects and more focused sales efforts, so our success rate then tends to go up, and thereby, you control the development expenses, and that's why, as you saw, the metrics in our numbers looks very, very good.

Anything on win rate, RFP activity?

The RFP is going up, and especially, the -- and if you recall -- I forget which call we had said that the RFP activity had slowed down, I would say, couple quarters to three quarters ago, because of the [RO] money. Many of their potential customers were waiting to see how much money they will get from the stimulus package, and that, of course, has dried up now, and we see considerably more RFP activity, and that was reflected in the first quarter number there.

Thank you.

And then, the number that we said, excuse me, to add to the 22% on the pipeline growth that we saw, it's because the RFP activity is out there.

And our next question comes from the line of Dale Pfau, representing Cantor Fitzgerald. Please proceed.

Good morning, gentlemen. Congratulations on a very nice quarter.

Thanks, Dale. Good morning.

Thank you, Dale. Good morning.

Couple comments. You mentioned that your total pipeline backlog stands at about $2.2 billion. Was that the correct number? Did I hear that correctly?

It's -- no. It's total pipeline activity -- yes. Not the backlog, because that includes proposals as well.

But it does include the backlog as well as proposals, correct?

No. This is why I made the statement there. What we do -- all contracts that we executed last year, we take them out at the end of the year, and we start with a brand new, fresh pipeline, because basically, I monitor the activity for this year. So, what that number includes -- proposals that were made out, as well as awards and any contracts that we signed this year.

So the number you gave last quarter of $2.4 billion, is there a comparison to this quarter's $2.2 billion?

No. The $2.4 billion would be compared to the number that was given at the last quarter of last year, because what we did on that $2.4 billion, we took all the contracts we executed out, and let's say, if that was $0.5 billion, that went down to $1.9 million, [otherwise], the new number. And then, we built onto that $1.9 million number.

Okay. Could you talk a little bit about where you think this number is going to go, once the federal government gets on track here in the second half? Is this number going to go up substantially, or are those proposals already included in this --?

No. No proposals -- you will see that number growing.

Great.

And by the end of the year -- what we've got through the end of the year, that's when you will compare it to the $2.4 billion that we had for last year.

Okay. And could you talk a little bit about where you're seeing the strength? Regionally, or are you seeing it in all areas, or is there any particular area that is stronger than another?

We -- I will say that, for the last quarter, we have seen the business pick up across all areas where we are operating, and we show strength. I mean, the Southeast is very good. Midwest, very good, even though they did not contribute as much for this particular quarter, because of some snow -- weather related issues that we had on that particular region. That's why that region did not contribute as much to the top line this quarter as it does some other quarters, because of the weather.

But, as far as the activity, though, it's very good. Canada, as you saw, it performed very, very well. Then, of course, the Northwest, where we made the acquisition, performed very well, and that's why we expanded there. We opened another office.

And some of you might have seen it. Various states across the country -- they're beginning to, what they call, reintroduce Energy Savings Performance Contracts, because they say it's what we've been preaching for a long time. It's budget neutral, and now that they do not have the capital funds, they looked at the Energy Savings Performance Contracts to provide the energy savings and create new opportunities in their region.

Like when you saw Minnesota governor signs and executes an order for energy efficiency contracting -- Energy Savings Performance Contract. The state of Virginia increases the Energy Savings Performance Contracts' budget, and then, Wyoming relaunching the Energy Savings Performance Contract. So it's -- I would say that it -- the trend is very good.

And one final question. Have you seen any pickup at all in the demand on the commercial side, relative to the institutional side?

We see some, but it's more driven now on a slightly different product. I don't want to talk too much about it, but we are doing some work in that market. It has picked up a little bit.

Great. Thank you very much.

Welcome.

And our next question comes from the line of Asit Sen, representing Madison Williams. Please proceed.

Thank you. Good morning.

Good morning.

Good morning, Asit.

A couple of unrelated questions. First, on -- looks like we've some impressive growth in O&M revenues, and they're becoming a lot more meaningful. Trying to get a quantification, either in absolute terms or the percent of revenue.

Out of that $28 million on the other revenues that you saw, and we have said before, and the metrics still hold, is that pretty much, one-third, one-third, one-third.

Got it. Okay. And on guidance on operating expenses -- operating expenses as a percent revenues -- looks like it increased a little bit, and, Andrew, you mentioned about seasonality in the business, so it's probably (inaudible). It's not relevant for the full year. Any guidance for, sort of, full year operating expense as a percent of revenue?

We haven't provided any guidance as to what -- where it's going to be, but certainly, the first quarter is always the weakest in that regard. The efficiency ratio, operating expenses as a percent of total revenue was -- is always the highest because of lower volume and a little lower utilization. So I would expect to see that ratio improve, as we go forward, throughout the year, as revenues increase each quarter.

And would it be consistent -- I think, last year, you were at 10.5%, as a percent of revenue. Would it be kind of in line with that or slightly higher?

We could say that it's in line with that. Yes.

Okay. Okay.

And these metrics -- they become very important at the end of the year, because, quarter to quarter, it's very hard to determine what the real number is, actually -- is, because we have the organizational structure to deliver more business than what we did the first quarter. So, should always try to focus at the end of the year numbers.

Thank you.

And avoid some of the quarter lumpiness, as we have.

Understood. And just moving on to kind of the debt situation, Andrew. Net debt rose, sequentially, by about -- looks like $50 million. Is that also consistent with the seasonality issue?

Well, the -- most of our debt is -- relates to the federal projects, so you see most of the increase in the federal ESPC financing. When we file our 10-Q next week, we'll have it broken out, but that, between the end of December and the end of March, increased from $160 million to $186 million. So -- and, actually, during that time, we had -- we were able to retire, if you will, about $14 million of debt related to projects that had been completed and accepted.

So most of the growth is there -- is in that category, and as most of you should -- as we've talked about before, we carry the liability for the debt and an offsetting asset, and then, when the project is accepted by the federal government, it comes off the balance sheet in a noncash transaction.

We did close on a subsidiary level project financing in March, about $5.5 million, so that increase is also included in that total, but most of the increase that you're seeing relates to the federal business.

Thanks. And finally, on integrated PV business -- it was mentioned a couple of times. Seems like it's becoming a much more important piece [of the business makes]. Question is on, again, quantification of how big that is, and is it predominantly focused on Canada at this point?

No. It's predominantly focused -- that -- if you recall -- I forget how many years back -- five, six years back, we bought the Southwest PV. They're based in -- outside Houston, Texas, and primarily, what we do -- we develop [off weight] little power plants that they use either for the gas pipelines, offshore platforms. The Army uses them in many, many of their bases, remote vehicles, and so on.

And that business has picked up -- and as the quality picks up, if you -- a year ago, or couple years ago, we had the slowdown in that business, but the last six months, and especially, the last three months it picked up considerably. And we see -- we believe that the trend will continue.

Okay. Thanks a lot, gentlemen.

And our next question comes from the line of Erik Olbeter, representing Pacific Crest Securities. Please proceed.

Hi. Good morning.

Good morning, Erik.

I was wondering if you could go back to early comments about increasing that conversion rate and winning higher margin business. Could you clarify your strategy a little bit on that? Is there a specific market, and do you have investments in place, to this end, for this year?

We -- as far as the particular markets we focus, I would rather not discuss it, for competitive reasons, but on the other hand, though, some of the steps that we have taken, in order to increase our success rate, is basically, train and hire substantially more sales force that we have, and we have increased that considerably. And -- as well as, the development engineers that help those sales people close the projects, and we focus them in key markets that we think that it bear fruit the fastest.

And, of course, we always -- the key that we drive -- the RFP process. And everybody does it -- Johnson Controls, Honeywell. They all fight to drive that process. In other words, approach the customer first, and it's always best. The company that understands the customer needs best ends up winning the job, so your sales people and development engineers have to be there and gather as much information as possible, before they go out with an RFP.

Thanks. That's helpful. And given the level of competition we're seeing today, have you seen any difficulty in hiring the number of people you need for this year?

We added ten developers the last quarter alone. We -- and I have said this before on the road show, and I've been in this business, not only for the 11 years for this Company, but even for my previous company, NORESCO, that I managed for 20 years. We always have been able to get the talent and train the talent that we want in order to grow our business.

We have not -- and even with the increased competition that, I'm sure, when you're talking about some of the other guys -- the big guys that they signed to come into this business, but they do have the track record. I think employees like to team up with companies that they have the -- or teams -- they have the passion for this business.

And I think that's a great differentiator for Ameresco, because this is our bread and butter. This is our only business, and we have the -- a broad technical expertise. Otherwise, not only energy efficiency, all phases of the renewables, whether it's supply management, (inaudible), everything, and that brings some young people aboard, because they want to be able to challenged -- to be challenged.

Okay. Thank you.

(Operator Instructions). With no further questions in the queue, I would now like to turn the call back over to George Sakellaris. Please proceed with closing remarks.

Thank you very much, Keisha. And again, I'd like to thank you, everybody, and looking -- for joining us today and looking forward to our next conference call. Thank -- again, thank you very much, and have a nice day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect, and have a great day.