Ameresco Inc (AMRC) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ameresco second quarter 2011 earnings conference call. My name is Keesha, 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 Miss Suzanne Messere, Director of Investor Relations for Ameresco. Please proceed, Miss Messere.

Thank you, Keesha, and good morning, everyone. Thank you for joining us today for Ameresco's second quarter and first half 2011 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 second quarter financial 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 today's call. 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 about 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, annual report filed on form 10-K 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 now 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 the Ameresco second quarter 2011 earnings conference call. This morning I will start with highlights from the second quarter, then Andrew, our Chief Financial Officer, will bring you through a detailed review of our second quarter financial results. After that, I will provide some additional insight about the quarter, as well as our 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 to deliver strong second quarter results, and very strong results for the first half of the year. The key drivers for the quarter were higher installation activity for energy efficiency project, and a very favorable revenue mix that shifted to our higher margin offerings within the renewable energy sector. We expect these trends to continue for the remainder of the year. And therefore, due to the strong performance during the first half of the year and current trends we are maintaining our full year guidance.

Our achievements include the following; second quarter revenue of $165.5 million, an increase of 17%. Second quarter EBITDA of $17 million, an increase of 16%. Second quarter net income of $8.8 million, an increase of 15%. Also, we saw a 2% increase in total construction backlog versus last year driven primarily by a 39% increase in awarded projects. Revenue from backlog for the projects that we build out during the quarter was $137 million, an increase of 19%. And further, second quarter gross additions to total construction backlog were approximately $126 million, an increase of 135% year over year, and this is a very favorable trend. And now, I do like to turn the call over to Andrew, our Chief Financial Officer, who can provide more details about our second quarter financial results. Andrew?

Thank you very much, George, and good morning, everyone. I will take you through a detailed review of our second quarter 2011 financial statements using year-over-year comparisons to the second quarter of 2010. First we will review the income statement, followed by the statement of cash flows.

As George has already stated, second quarter revenue increased 17%, to $165 million. The revenue mix for energy and efficiency and renewable energy was 75% and 25%, respectively. Year-to-date revenue grew 26%, to $312 million. Through the first half of this year total revenue is at 45% of the midpoint of the range for our 2011 revenue guidance, which is in line with our expectations. Revenue from energy efficiency increased 23%, to $124 million, as installation activity continued to grow. Year-to-date revenue from energy efficiency grew 31%, to $230 million.

Total revenue from renewable energy products increased 3%, to $42 million. Revenue from non-installation renewable energy offerings increased 18%. This includes strong contributions from integrated PV, small scale infrastructure, and operations and maintenance. Installation activity within renewable energy declined as anticipated. We expect this trend to continue through the second half of this year, and possibly into the first quarter of next year, as some of our renewable installation projects begin nearing completion. Year-to-date revenue from renewable energy increased 15%, to $82 million.

Total gross profit for the second quarter was $32 million, an increase of 23%. Gross margin for the quarter increased to 19.4% from 18.5%. Year-to-date gross margin increased to 19.3% from 18% a year ago. Gross margin for energy efficiency and renewable energy was 17.4% and 25.5%, respectively. Gross margin for energy efficiency was in line with our expectations. Gross margin for renewable energy increased 480 basis points due to a higher margin contribution from small scale infrastructure integrated PV, and operations and maintenance. We expect continued margin expansion within renewable energy products, as revenue from our higher margin offerings continues to grow and become a larger portion of the overall mix.

As a percentage of revenue, operating expense increased to 11.4% versus 10% a year ago. We experienced increases in salary and benefit expense, and project development cost as we continue to make investments for anticipated future growth. As a percentage of revenue, salary and benefit expenses increased from 3.8% last year to 4.9% this year. We added key staff to support our development activity and growth plans, including expansions in the Northwest and Southeast United States. Project development costs reflect our efforts to increase proposal activities, and finalize awarded contracts.

As a percentage of revenue, project development costs increased from 1.4% to 3.2%. In a few minutes, George will provide additional comments about the current trends we are seeing in the marketplace. As a percent of revenue, general administrative and other expenses were 3.2%, compared to 4.8% last year. However, during the second quarter of 2010 we experienced an unexpected customer prepayment of a long term receivable that resulted in a $2.1 million charge to G&A expenses.

When adjusting for this one time, noncash expense, general, administrative, and other expenses as a percent of revenue for the second quarter of 2010 would have been 3.3%. Second quarter operating income increased 11% to $13 million. Year-to-date operating income increased 49%, to $22 million. And second quarter income before taxes increased 15%, to $12.4 million.

Our income tax provision was consistent with last year with an effective tax rate of 28.6%. We continue to expect a full year tax rate of less than 30%, due to the benefits from renewable energy and energy efficiency tax preferences. For the second quarter of 2011 a net income increased 15%, to $8.8 million. Year-to-date net income increased 57%, to $14 million. Our net income per diluted share was $0.19, compared to $0.21 per diluted share for the second quarter of 2010. The 15% increase in net income was offset by a 19.5% increase in weighted average shares outstanding, the result of our initial public offering one year ago. Weighted average diluted shares increased from 32.4 million to 45.9 million. Year-to-date net income per diluted share was $0.31, compared to $0.24 a year ago.

Adjusted EBITDA, which is operating income plus depreciation and noncash stock-based compensation totaled $17 million for the second quarter, an increase of 16%. EBITDA as a percentage of revenue was 10.2%. Year-to-date EBITDA increased 46%, to $29 million. EBITDA as a percentage of revenue was 9.2% for the first half of 2011, as compared to 8% for the same period a year ago. We refer you to this morning's press release, as well as to our prepared remarks, for a discussion of adjusted 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 generated $1.6 million in operating cash flow during the second quarter. It is worth noting, however, that the operating cash flow includes an adjustment required under GAAP in the amount of $3.5 million for excess tax benefits from stock-based compensation, which is also reflected below as a source of cash from financing activities. When taking this into consideration, operating cash flow would have been higher in the second quarter of 2011 year over year.

It is important to comment that the first half of the year is typically an investment period for us. However, we have now generated positive cash flow during the second quarter of both this year and last year. We believe our business has reached a scale where the investment period has become less noticeable. As usual, second half operating cash flow is expected to be positive. In the second quarter we invested $8 million in renewable projects that we will own and operate. Year to date we have invested approximately $15 million, and continue to work towards our goal of investing $25 million to $30 million in renewable energy projects this year.

Separately, we renewed and increased our corporate credit facility, including the addition of a term loan component. The new credit facility includes a $60 million revolver, which is up from $50 million, plus a $40 million term loan. The credit facility may also be increased by an additional $25 million. Cash flows from financing activities reflect having received the $40 million term loan during the second quarter. This facility is the only senior secured debt on the Ameresco corporate balance sheet.

And finally, with respect to the statement of cash flows, we define free cash flow as the cash used or provided from operating activities minus purchases of property and equipment. This is the cash flow required to maintain our ongoing business. We do not include purchases of project assets in our calculation, as that represents an investment in an asset that will generate a future recurring revenue stream or proceeds from the possible sale of that asset.

Overall, we executed very well across all of our offerings during the second quarter of 2011, delivering strong results driven by installation activity from energy efficiency projects and increased recurring revenue from our higher margin offerings. And with that, I will turn the discussion back to George.

Thank you, Andrew. And now, some more insight into our second quarter results. As I indicated earlier, revenue generated from backlog increased 19%. Several regions made healthy contributions, such as Canada, Northwest, Northeast, and Southeast, as installation activity continued to grow. Revenue generated from backlog represents projects that they are built out, and amounted to $137 million during the second quarter. Gross additions to backlog were approximately $126 million during the second quarter, an increase, as I indicated earlier, of 135%.

Total gross additions to backlog were mainly driven by awarded project activity within the institutional market, as well as three new awarded federal projects. In short, we are executing contracts at the rate that is 19% higher than last year, while we are adding new projects at the pace that is 135% higher than last year. Our year-to-date book to build remains health of 1.5, versus last year, which was substantially less than 1. Our total production backlog increased 2%, to [$1.16 billion] during the quarter, driven by a 39% increase in awarded projects. Total construction backlog remains strong, and reflects approximately 18 to 24 months of future installation activity.

While we are achieving great success in securing awarded projects from our proposal pipeline, we have seen some projects stretch out in the time it takes to convert them into fully contracted backlog. And this is not overly surprising given today's heightened [fans] of fiscal awareness. We would like to emphasize a few points, however. One, despite the fiscal restraints in certain states or regions, the pipeline is still very strong and growing, up 40.3% from the first quarter. Second, we continue to win awarded projects as shown by a strong year-over-year increase during the quarter, and that trend is continuing into the third quarter. And third) historically Ameresco has been able to convert over 90% of our awarded projects into fully contracted backlog, and we believe that trend will continue.

Andrew has already indicated that during the quarter we increased project development costs. These costs relate specifically to really more new projects, and converting awarded projects into fully contracted backlog. So, we -- clearly we are working diligently to achieve our strategic goals. We continue to expand and expect an improvement in fully contracted backlogs during the second half of the year.

One of the segments where we expect to see an improvement during the second half is the federal group. As we have mentioned before, changes related to enhanced competition for federal energy savings performance contracts were released to all federal agencies in April of this year. This had caused a delay in converting federal projects into awarded projects, and fully contracted backlog. The good news, however, is we are starting to see an increase in the level of activity having received three new awarded projects since April, and have made proposals for several more sites. We continue to expect that our development efforts will start to translate into signed contracts during the second half of this year. While we do not expect to sign a large number of federal projects during the second half, we do expect that additional contracts from existing sites will move first.

While on the topic of federal energy savings performance contract, we believe that the demand will continue to grow. Energy savings performance contracts allow federal agencies to accomplish energy savings projects, and much needed infrastructure upgrades without up front capital costing without special Congressional appropriations. Due to this budget neutral match up, it is not considered additional federal debt. As such, we believe the program will continue to grow in popularity, especially during time of a heightened fiscal awareness.

Next, I'd like to discuss revenue from our higher margin offerings, such as small scale infrastructure, integrated PV, and O&M and others. Revenues from the group increased to $39 million in the second quarter, an increase of 18%. As a result of the increase, we experienced a very favorable revenue mix that shifted to what I call our higher margin offerings, primarily within the renewable energy space. We expect continued margin expansion as revenue from all of our higher margin offerings continues to grow and becomes a larger portion of the overall mix of our business. Annuity base revenue from renewable assets that we own or small scale infrastructure, was up more than 30%.

We placed three renewable energy projects into operation last year, and are in the process of designing, permitting, and constructing seven more. And we are currently developing potential opportunities for several more sites. Integrated PV grew approximately 20%, and made a very good contribution to operating income. The demand for off grid integrated solid PV solutions in remote locations continues to be strong.

The OEM offering was up 13%. The growth was driven primarily by increase within O&M for renewable energy. Again, we continue to anticipate OEM momentum to continue to build as projects, such as McGuire Air Force Base, Savannah River, and others move to the operational and maintenance phase.

In addition to the organic growth discussed early, we have recently opened offices in Helena, Montana, Raleigh, North Carolina, and Orlando, Florida. Year to date we have opened six offices, and as you can see, our guided growth remains the focus for Ameresco as we plan to continue increasing market penetration, and expanding our footprint. To further supplement our guided growth we will continue to use strategic acquisitions to either expand geographically or offer additional services. One such acquisition was the Applied Energy Group, which was announced last month.

AEG is a premier consultant company offering energy efficiency, and demand side management services for utility. This is a large and growing market within the American utilities sector. They spent over $5.4 billion in 2010. The market is expected to exceed $12 billion by 2020. We feel that AEG's position at the forefront of this large and growing market and opportunity strengthens Ameresco's leadership position within energy efficiency for utility.

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

In closing, we are very happy with our second quarter and first half of the year results. Energy efficiency remains the most cost effective source of energy, and while we believe the heightened sense of fiscal awareness posed by recent events may pose a temporary delay in executing contracts, the need for budget neutral solutions will continue to grow irregardless. Energy infrastructure upgrades are not about discretionary spending, but about finding ways to satisfy a large and growing need for updating aging infrastructure. We believe budget neutral solutions make the most economic sense, and especially in today's environment. And as always, we will take advantage of subsidies and incentives that exist, however, our business model is not relying upon them.

Finally, Ameresco provides a necessary solution for financing, operating, and maintaining these budget neutral projects. Now, we would like to answer your questions, and I will turn the call back to our coordinator. Thank you.

(Operator Instructions)

And our first question comes from the line of Chris Wiggins, representing Oppenheimer. Please proceed.

Hi, thanks. Good morning, everyone.

Good morning, Chris.

Good morning, Chris.

Could you just provide an update on when you're expecting to complete the construction on the Savannah River site?

The project is right on schedule, and we plan to have the project completed by the end of this year.

And if that completes in the fourth quarter, would you expect any -- are there any related closeout fees or awards that you could get that could boost the margins on that project?

Well, I wouldn't refer to closeout fees. We will look at the total cost of the project, and to the extent that we are under budget, then we would recognize the additional revenue and the margin pick up in the fourth quarter.

Okay, great. And then, you noted three federal awards that you've won since April, and it looks like some of your competition's also won some nice awards for the federal government in the second quarter. And I'm just saying, outside of any delays that you're seeing there, could you just kind of comment broadly on the trends you're seeing around your win rate, and kind of where that stands?

Our win rate is better than what we had anticipated in our plan. Third quarter we had said that we were in the mid 30%, and in the federal sector it's considerably higher than that. And what makes us very, very encouraged is the fact that the federal government activity has increased considerably over the last three to four months. And we see that that trend continue. We had the three awards that we talked about it, and they are substantial projects, and we have made several, several other proposals for other government facilities. And if you were to compare it to what was happening this time last year, if you recall, we had basically making no proposals in the federal government. So, that's a very positive trend.

Great. And then just one more follow up on that. But it looks like there was some headlines last week pointing to kind of the evaporation of Pelosi's green the capital program. Does that impact any of your thoughts on the federal side? And do you see any other risks to maybe some other federal programs down the line in a similar fashion?

I don't know what headlines you are referring to; I have not seen them. But I will say this much, we shall talk to both sides of the House, as well as the Senate, in the federal level, and I can tell you that both sides, they love the energy savings performance contract they modeled, because it makes good -- what they said -- good economic sense. They do not have to come up with their fund capital projects, capital cost.

Some of the greening that you hear is the subsidies that they were providing for the various energy efficiency projects. What I give the give aways -- where I talk about the give aways. And to the extent that these programs go away, it helps us rather than hinders our offering. And that's why I said in the past, that the stimulus package in the $4 billion that they have allocated for energy efficiency projects under their GSA, I lobbied against them. I said, I'd rather use that money to buy down energy efficiency performance contracts. So, our case as we move forward becomes stronger rather than weaker, but [confusions] does happen out there, and it takes some time to work through those issues out, and that's what's happening in the marketplace a little bit what you saw last week, and the last couple weeks or so.

Great. Thanks for your time.

You're very welcome.

Thanks.

And our next question comes from the line of Zach Larkin representing Stephens. Please proceed.

Hi, good morning, everyone. Thanks for taking my call.

Good morning, Zach.

First question, in recent quarters you've noted that the average RFP size has been increasing. Just wondered if you're still seeing that same trend? And also, if you could talk a little bit about the competitive landscape on the proposals, and everything that's going on currently?

No question about it, Zach, the project size is increasing considerably, and we do have some good sized projects that we have won over the last few months.

As far as the competitive landscape, we like where we are. We still winning a good 10% of the projects. We have very good traction in the marketplace, and as you see, we continue to expand our footprint, and that's why the development expenses they are considerably high, because this year we have opened so far six offices, and every time you open another office it's costing you some money, but on the other hand, though, it bring us in some states that we did not have strong presence, and it gives us more market opportunities within the United States and Canada.

And then a follow up question. Wondered if we could touch on kind of the PV side of the market. There's a lot of expectations that domestically that market's going to be very strong in the second half as developers look to start getting stuff installed prior to some tax incentives that go away at the end of the year. Are you seeing increased activity for Ameresco? Or is there --

(inaudible - multiple speakers)

-- and more on that?

The Ameresco business on the PV side, we have what we call the integrated PV solutions, and where pretty much we package a small scale power plant, you might say, that various gas companies or oil companies or the federal government, they use for remote locations, and that's what -- that group has grown by over 20%, and with very, very good margins, and we see the trend continuing. Very strong demand. Regarding the other PV business, I -- we see some heightened awareness of the fact that people want to take advantage of the 1603, and so on, and try to get those projects started this year. But other than that, I haven't seen any more activity.

Okay. Thank you very much.

Yes.

And our next question comes from the line of Steven Milunovich. Please proceed.

Thank you. To follow up on that, the renewable energy gross margin was 25.5%, and I think, Andrew, you suggested that because of a mix shift that could continue? Do you expect that margin to actually continue moving up from these levels as kind of a new base level?

I wouldn't describe it as a new base level, but we had a very good quarter. But we will see higher margins in renewable energy as long as these other services, operations, and maintenance, and the integrated solar group, as well as the infrastructure, becomes a bigger part of the overall product mix. The margins are stronger over there than our installation activity has been. Yes.

Okay. And then, you eluded to a 39% increase, I think, year over year in the awarded backlog. Unless I'm looking at the wrong numbers, I've got your awarded backlog in dollars up 9%, contracted down 6%. Where does the 39% come from?

If you look at last year, the award for the quarter, I think it was $50 million, $54 million. I'm digging up the information.

This year it looks like [507], wasn't it? And last year I have [465]?

Right here, [54].

Yes, yes. [54] is the -- we're talking about additions to backlog. Not the total amount of awarded backlogs, the amount of the additions to backlog year over year.

Okay, okay. And then the federal business, I think, George, in the past you mentioned coming into the year there was as much as something like $200 million, I think you used, in terms of potential backlog that you might be able to pick up as the year went on. It sounds like that's going to be a stretch given the environment currently, but can you put kind of a number on how much business you think you can pick up on the federal side later this year versus your original expectations?

The $200 million so far as awarded contracts by the end of the year in the federal government, well, it's very conceivable that we will still make that number, because so far, we have done pretty good.

So, because sometimes you talk about it's lower --

And if all does not come through by the end of the year, I wouldn't be surprised that they will come in within the first quarter of next year. But the trend is very good that some of those projects, they coming through.

Alright, sir. Sometimes you talk about things being a little slower given the environment, but on the other hand you sound pretty optimistic that federal's going to be pretty strong?

Yes, especially in the awarded category. And why I hedge a little bit on the execution, even though you get awarded a contract, they do take some time that go from the awarded to executing the contract, and that's where we have seen the delay, even though some of the states and some of the cities and towns, because of what's going on in the marketplace. Not in the awards, but in the execution of projects. And the federal government, since they started the programs, and we know that it does take them a long time once the projects, especially the new ones, get awarded by the time we execute the contracts, it takes some time.

Okay.

But the trend is very, very good, especially in the federal market sector.

Okay. And then one final clarification. You mentioned the pipeline is up 14% sequentially. Could you first of all define pipeline? And do you have a year-over-year change number?

I don't have the year over year.

I don't -- might as well get back to him on that.

Yes.

I have that number.

Yes?

It's actually, $2.5 billion is the total, and that includes --

Right.

It includes proposals awarded and new, new resigned contracts, and it's flat year over year.

Great, thanks, Suzanne.

Yes. Okay.

(Operator Instructions)

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

Good morning, everyone.

Good morning.

Morning, Dale.

Talk a little bit about the expiration of the 1603 grant money, which has made it fairly attractive for a lot of people to come in and finance some projects. Is that going to play in your favor here, since you have your own --

In the long term, yes, there is. Because we, as long as the production tax credit stays into effect it does take out some of the smaller players that they rely exclusively on their 1603, no question about it. Because we were developing these projects before it came to effect, and we will continue to develop them after it goes. But to the extent -- that's why I made my comment -- to the extent that those preferences are available, we will take advantage of them.

And when you, again, look to all of the different agencies, and so on, are you still seeing your biggest strength from the institutional side, George?

No question about it, that's where we are the strongest, and in some federal, as well as the other [mush] markets. But, we are beginning, like I think I mentioned it in some previous calls, to try to do something about the commercial and the industrial. I wouldn't say that we are weaker than any other player out there in the marketplace. It's the fact that we feel that there are opportunities in the other market segments with less development expenses, rather than chasing the commercial or industrial sector. Taking the long term, when that market matures, it offers tremendous opportunities that we could take advantage of.

Now with the price for PV coming down pretty strongly, we're seeing a pick up in interest on commercial applications. Are you pursuing a lot of those?

Yes, and that's why you see that our integrated PV group there, we had very good growth, and we are, yes, we are putting more emphasis on getting more and more of that part of the business.

Is there any other section that's particularly strong, whether it's bio-mass? Any particular kind of technology that people are asking for more than something else?

Now, in the federal government, the bio-mass projects have become more of a demand, and that, as you probably know. It give us a pretty good competitive advantage, because we already had built several projects in that sector. But the predominant is even in the federal government is PV, and especially like, you hit the nail on the head, that the prices are coming down, people are more and more aware of that, and they try to take advantage of the opportunity.

Okay, great. Thanks very much.

Very welcome.

And our next question comes from the line of Eric Prouty, representing Canaccord. Please proceed.

Great, thanks. Andrew, a quick question on Savannah River. Could you maybe just go over kind of order magnitude as this contract rolls off the back half of the year? I guess, maybe, just explain how much you spent on the first half of the year, and how much of a decline we should see in the renewable energy revenue as we get into the back half of the year and into next year as this contract wraps up, at least the installation part?

Sure. The revenue that was recognized in the quarter from Savannah River, that's actually been coming down the last couple of quarters, but during Q2 of this year it was about $16 million. And we'll see probably another $20 million plus to be recognized between now and the end of the year. So, we'll see that recognized as the work actually gets completed over the next couple of months. And then, of course, as we've said on past calls, we will move into the operations and maintenance phase, and that's a longer term project -- or longer term contract over 19 years, but it's a higher margin lower amount, somewhere in the neighborhood of around $15 million to $20 million per year, starting at the lower end in 2012, and then growing thereafter.

Great. That's perfect insight into that. And then, George, just a question, and you touched upon this a little bit already with the previous question. Just interested from a very high level standpoint with CNI work. Have you seen more of an appetite with the CNI customer base to maybe extend out pay back periods? I know that they've been kind of sticky that they'll only accept very low pay back periods for projects, A, have you seen that extend out at all, or B, now to a previous point on PV, have you seen prices of any of the renewable or energy efficiency devices come down low enough that you're able to put together larger packages for the CNI customer base?

Some of the commercial customers, like Google, or they like to talk about it. You see more demand or a Wal-Mart, and you see more activity. However, as you said, most of the commercial and industrial sectors they want -- and we've been talking to them -- they want project less than three year pay back, they said, unless you come up with a financial, of course, and then, we will do a ten year pay back. And that's where we're at. Some of the quick pay back items they can do themselves, some within the special and the industrial sector.

And the longer pay back items, and I think, that's where the big dollars eventually will be, that's why all this stress, we are providing a solution for infrastructure upgrades, and sooner or later they're going to have to do that, but we have to come up with the financing, and I know many large banks, they are looking into it. The present administration is looking into it to come up with some kind of financing energy efficiency projects for the commercial industrial sector.

Great. And then --

But, but they're beginning to think about, to talk about, and that's why we are talking to them, and we are making some progress, and we're going to be there when the market develops. I think it will develop some day. But right now, though, I think we have tremendous opportunity within the market segments that we are invested, so.

Definitely. And then finally, George, also, maybe just a little update or insight into what, if anything, is occurring on the international front?

Again, we said it before, and we will say it again, that the international market we will move forward very, very slowly, because there are tremendous opportunities in the United States and Canada, and we did open an office in Madrid behind our projects that we're going for the US med bases in the Mediterranean, and especially in Spain, and we did win a small project for the school of [mines] in Spain, and we will see how that goes before we jump into any other international opportunities.

Right. Thank you very much.

You're welcome.

There's no further questions in the queue. I would now like to turn the call back over to George Sakellaris for closing remarks. You may proceed.

And with that, I do like to thank you for joining us today, today's call. We look forward to speaking with you again on Wednesday, November 9, for our third quarter conference call. Again, thank you very much, and have very nice day.

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