Ameresco Inc (AMRC) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ameresco Third Quarter 2011 Earnings Conference Call. My name is Stephanie, and I will be your coordinator for today. At this time, all participants are in 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.

Thank you, Stephanie; and good morning, everyone. Thank you for joining us today for Ameresco's Third Quarter 2011 Earnings Conference Call. I'm joined this morning by George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer; and Andrew Spence, the Company's Chief Financial Officer.

This morning, Ameresco reported its third-quarter financial results for fiscal year 2011. The press release, as well as our prepared remarks, are available at www.ameresco.com. These 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 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 10Q, 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 measured 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.

Thank you, Suzanne; and good morning, everyone. This morning, I will start with highlights from the third quarter; then Andrew, our Chief Financial Officer, will bring you through a detailed review of our third-quarter financial results. After that, I will provide some additional insight about the quarter, as well as our outlook for the full year 2011. And finally, we will open it up for questions and answers.

A lot of exciting things happened in the third quarter. We made two accretive acquisitions -- Applied Energy Group, or AEG, as we call it; and APS Energy Services, which is now referred to as Ameresco Southwest. AEG expands our service offerings to utilities, while Ameresco Southwest strengthens our presence in the Southwest region. In addition, we produced solid third-quarter financial results driven primarily by strong organic growth from energy efficiency and, I might add, we were ahead of plan.

And even though we saw some lumpiness during the quarter for one-time charges which Andrew will cover in more detail, we have achieved a very healthy year-to-date gross margin of 18.5%. As we have pointed out before, to take advantage of strong demand for our budget neutral solutions, we have made substantial investments in future growth, as can be seen in our higher operating expenditures. All in all, though, we are very encouraged by the current pipeline activity and believe it will translate into continued future growth.

Our achievements in the quarter include the following -- third-quarter revenues of $228 million, an increase of 19%; year-to-date revenues of $540 million, an increase of 23%; net income of $12.4 million, an increase of 2.6% despite those one-time charges that I mentioned earlier; year to date, net income of $26 million, an increase of 26%; also a 9% year-over-year increase in total construction backlog driven by a 48% increase in awarded projects.

Further, third-quarter gross additions to total construction backlog were approximately $257 million, an increase of 65% year over year. These represent a book-to-bill ratio of 1.34 for the third quarter. Further, we are very happy to report that the Savannah River project is now in the commissioning stage and ahead of schedule. Assuming it continues to run smoothly, we should have project acceptance by the end of the year.

As we have discussed on our last call, federal activity continues to pick up. As expected, we converted a federal-awarded project into an executed contract for an additional phase with an existing federal customer. We expect to see the pace of conversions to increase as we head into 2012.

And now I do like to turn the call over to Andrew, our Chief Financial Officer, who can provide more details about our third-quarter financial results.

Thank you very much, George; and good morning, everyone. I will take you through a detailed review of our third-quarter financials using year-over-year comparisons to the third quarter of 2010, and then we'll -- first, we'll review the income statement and then we'll review the statement of cash flows.

As George already mentioned, third-quarter revenue increased 19% to $228 million. Revenue, excluding the contribution from our two recent acquisitions, or what we refer to as organic revenue, would have been $212 million for an increase of 10%. The revenue mix for energy efficiency and renewable energy was 83% and 17% respectively. The acquisitions had very little impact on that overall revenue mix.

Year-to-date revenue grew 23% to $540 million. Organic year-to-date revenue grew 19% to $524 million. Revenue from our energy-efficiency line increased 28% to $189 million for the third quarter. Excluding the two recent acquisitions, organic revenue would have been $178 million for an increase of 20%. This reflects continued growth in our installation activity.

Year-to-date revenue from energy efficiency grew 29% to $419 million. The year-to-date organic revenue from energy efficiency grew 26% to $408 million.

Revenue from our renewable-energy products decreased 11% to $39 million for the third quarter. Organic revenue from renewable energy decreased 22% to $34 million for the quarter. This was due to the construction phase of the Savannah River project winding down, as we expected. Year-to-date revenue from renewable energy increased 5% to $121 million. Organic year-to-date revenue from renewable energy decreased less than 1% to $116 million.

The total gross profit for the third quarter was $40 million, an increase of 14%. Gross margin for the quarter decreased to 17.5% from 18.2% a year ago. The gross margin was impacted by approximately $650,000 in one-time charges through direct expenses related to customer payments to an energy-efficiency and a renewable-energy customer.

Year-to-date gross margin increased to 18.5% from 18.1% a year ago. The gross margin for energy efficiency and renewable energy for the third quarter was 17.4% and 18% respectively. The energy-efficiency mix included lower-margin projects and the one-time charge that was partially offset by positive margin contribution from AEG and Ameresco Southwest.

The gross profit margin for energy efficiency for the quarter decreased 230 basis points due, in part, to the one-time charge already mentioned. We also experienced unscheduled maintenance for four renewable plants, which led to downtime.

We have said in the past that we expect renewable-energy gross margin to expand as our higher-margin, renewable-energy offerings such as small-scale infrastructure, grow and become a larger percentage of the overall mix. Ameresco Southwest has a number of solar installations that are being designed and built for customers and for which gross margins are lower than the rest of our renewable-energy portfolio. This could have an impact on the overall revenue mix within renewable energy and also on gross margins.

As a percentage of revenue, operating expense increased to 10.3% versus 8.3% a year ago. We experienced increases in operating expenses as we continue to make investments for anticipated future growth. As a percentage of revenue, salary and benefits increased from 4.4% last year to 4.8% this year. We have added key staff to support our development activity and growth plans throughout the year, including the expansions in the Northwest and Southeast. We also increased the number of employees through the two acquisitions made during the quarter.

Project-development costs reflect our efforts to increase proposal activities and finalize awarded projects. As a percentage of revenue, project-development costs increased from 1.4% to 2.3%. In a few minutes, George will discuss how longer lead times for executed contracts impact salary and benefits, as well as project-development expenses.

As a percent of revenue, general, administrative and other expenses were 3.2%, compared to 2.5% last year. G&A expense was also impacted by approximately $550,000 in one-time charges related to closing the acquisitions. We also recorded $500,000 in amortization of an intangible asset related to the third-quarter acquisitions.

Third-quarter operating income decreased 13% to $16.4 million. Operating income was impacted by a total of $1.2 million in one-time charges during the quarter. Our income-tax provision for the third quarter was 17.9% versus 28.8% last year. We recorded a one-time non-recurring tax benefit related to reserves taken on certain tax positions that we resolved during the quarter. We now expect an effective tax rate of approximately 25% for the full year 2011. For next year, we expect the effective tax rate to normalize to a rate in the high 20s, but less than 30%.

For the third quarter of 2011, net income increased 3% to $12.4 million. And year-to-date net income increased 26% to $26 million. Our net income per diluted share was $0.27 compared to $0.28 per share in the third quarter of 2010. Our comparable share count was higher this year due in part to the IPO last July. Year-to-date net income per diluted share was $0.58 compared to $0.53 a year ago.

Adjusted EBITDA, which is operating income plus depreciation and non-cash stock-based compensation, totaled almost $21 million for the third quarter, versus $24 million last year, a decrease of 14%. EBITDA as a percentage of revenue was 9.2%. The year-to-date EBITDA increased 13% to $50 million. EBITDA as a percent of revenue was 9.2% year to date, compared to 10% for the same period last year.

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

Now, moving on to cash flows -- we generated $10.3 million in operating cash flow during the third quarter, a 14% improvement over the same period last year. Our cash flows are seasonal, typically turning positive in the second half of the year. It is important to note that we have a sizeable amount of retainage invested in the Savannah River project, which has been accumulating over the past two years. We expect to realize that in the coming months, as the project is accepted.

In the third quarter, we invested over $16 million in renewable projects that we will own and operate. Year to date, we have invested over $31 million. Currently, we are working on closing a project-finance facility to fund these projects as they move into operations. Furthermore, where applicable, we will be applying for the Section 1603 rebate. And, finally, we invested almost $61 million for the two acquisitions during the quarter.

Cash flows from financing activities also reflect net draws on our revolver, totaling $41.6 million. This is in addition to the proceeds received from the term-loan portion of our credit facility at the end of last quarter.

And with that, I will turn the discussion back over to George.

Thank you, Andrew. And now some more insight into third-quarter results -- revenue generated from backlog increased 16% to $192 million. Organic revenue generated from backlog increased by 10%. Installation activity continued to grow in Northwest, Southeast and Northwest. In addition, to backlog, as we mentioned earlier, we earned $257 million during the third quarter, an increase of 65%.

Total gross additions to backlog were mainly driven by awarded-project activity within the institutional market. The book-to-bill ratio during the quarter was very strong at 1.34 versus 0.94 a year ago. Excluding the Quantum and Ameresco Southwest acquisitions, the book-to-bill ratio would have been 0.66 in the third quarter last year, and 1.08 in the same period this year.

The year-to-date book-to-bill ratio is 1.19 compared to 0.5 a year ago. Last year's book-to-bill ratio reflected our focus on execution. This year's book-to-bill ratio reflects our focus on development, which we expect will drive future revenue growth. Our total construction backlog increased by 9% to $1.2 billion during the quarter; again, driven by a 48% increase in awarded projects.

The improvements in backlog were driven primarily by organic activity. Total construction backlog remains very strong and reflects approximately 18 to 24 months of future installation activity, which is our ongoing objective.

And now I do like to talk about what we are seeing in terms of pipeline activity. The year-to-date pipeline has increased by 9% year over year, to $2.7 billion. Proposal activity and awarded projects are driving this increase. And outstanding proposals as of September 30 increased by 40% year over year to $1.3 billion.

Let's point out that even though we are experiencing some lengthening of the sales process related to the signing of contracts, we have not seen any unusual cancellations or reductions of scope of those projects. This lengthening of the sales process, however, has impacted our development expenses such as salary-and-benefit expense and project-development expense, as Andrew pointed out earlier. None of this is surprising, however. And clearly we are working diligently to achieve our strategic objectives.

We continue to expect an improvement in fully contracted backlog over the next few quarters. And, as I have indicated previously, we currently have enough backlog for the next 18 to 24 months of revenue growth, which provides a foundation -- and I will say a solid foundation -- for achieving our growth objectives.

As expected, one of the segments we are experiencing an improvement is the federal government. During the quarter, we received an additional awarded project. We also signed a contract for an additional phase for an existing project we are -- and we are working on finalizing several more. We are very encouraged by the activity we are seeing in the federal sector, especially from the non-defense agencies.

Next, I do like to discuss revenue from our higher-margin offerings such as small-scale infrastructure, integrated PV and O&M/other. The revenues from the group increased to $36 million in the third quarter, an increase of 34%. Annuity-based revenue from renewable assets that we own, or small-scale infrastructure increased by 23%. We are in the process, as we have mentioned before, of designing, permitting and constructing seven more plants.

Integrated PV grew 4% in the quarter. However, it's up over 20% year to date and is on-target for 20% year-over-year growth in 2011. We also -- we recently announced an agreement with BP Solar to provide the small-area module -- what's called SAM -- line of solar panels, previously offered by BP Solar.

When BP Solar decided to exit this line of business, Ameresco Solar decided to continue to ensure that service and availability is not interrupted to our already-established customer base. The SAM modules range from 5 watts to 180 watts, and are now sold under the Ameresco Solar brand. And by eliminating this middleman, it's an opportunity to increase our gross margin for these projects.

O&M offering increased 79%. This includes approximately $6 million in revenue from the AEG acquisition; excluding AEG, O&M and others, would have increased by 7%.

As we said before, to further supplement our organic growth, we will also continue to use strategic acquisitions to either expand geographically or offer additional services. As an example, Ameresco Southwest is a great addition to the Ameresco team. It's a natural expansion of our footprint in the Southwest and brings tremendous depth. I hope we can find more opportunities like that as we explore further expansion of our talent and geographic reach.

Now, let's move onto the 2011 outlook. As a result of our solid organic year-to-date performance, along with the two acquisitions, we are raising our full-year 2011 revenue guidance. We now expect 2011 revenue to be in the range of $722 million to $727 million. And we continue to expect the following -- EBITDA in the range of $67 million to $70 million; net income between $35 million to $37 million; and net income per diluted share of $0.75 to $0.79.

In closing, we are very happy with our third-quarter and year-to-date results. We are also very encouraged by increasing demand as seen in our pipeline activity. Our primary service offering, energy efficiency, remains the most cost-effective solution for our customers to update their aging infrastructure. Our budget-neutral approach for performance contracting enables those customers to address their needs for reallocating existing utility and operating expenses towards an energy-efficiency project while generating savings at the same time.

With today's environment of budgetary constraints, performance contracting may be the best option available to our customers. As a result, we believe their need for energy efficiency will continue to grow. And Ameresco is well positioned to take advantage of that need.

Now, I do like to answer your questions, and I will turn the call back to our coordinator, Stephanie.

Thank you. (Operator Instructions). Your first question comes from the line of Dale Pfau with Cantor Fitzgerald. Please proceed.

Good morning, gentlemen, and Suzanne -- good results, particularly on the backlog increase.

Could you help us go through what you expect to be the accounting treatment at Savannah River as that project moves into commissioning -- what you expect to see -- and then give us another briefing on what you expect on the recurring revenues on that project?

Okay. We're wrapping up the construction phase of Savannah River. And we're looking forward to acceptance -- so, hopefully, before the end of the year, it's scheduled to happen. At that time, when acceptance takes place, we will be able to close out the revenue and accounting for the construction phase. The debt and the receivable will come off of our balance sheet. And then we will begin the -- what we call the operations-and-maintenance phase of that project. And that should begin in the fourth quarter of this year.

So the -- as we said before, the annual revenues are -- from O&M are somewhere in the neighborhood, in the first year, between $15 million and $18 million. And then we expect that to grow up to $20 million and higher in outlying years.

I mentioned during my remarks that we also have a retainage outstanding with respect to Savannah River. And we expect that to be recovered perhaps as early as late in the fourth quarter of this year, and certainly by the first quarter of 2012.

Great. And now, with the uptick in your backlog and the activity remaining high, could we see some flush here at the end of the year at -- I know that doesn't equate to the end of the fiscal government year. Or are we going to see the backlog dip a little bit and then pick up again in the first quarter?

It's very hard to say. And we had a very, very good quarter. The only thing I can say is that the trends are very, very good. But the customers -- and you saw the outstanding proposals -- over $1 billion -- which is over 40% increase from last year. That means that the customers are waiting a little bit longer to make the awards. And once they get awarded, maybe they wait a little bit longer to execute the contract.

And as we have learned in the past, this is a lumpy business. And I won't say that I will expect to see it pick up next quarter in the backlog. But, on the other hand, I'm pretty confident that over the next few quarters you will see that pick up, otherwise the activity will translate to pickup. But is it next quarter or the quarter after? That, we don't know.

Okay, great. And just one housekeeping question -- Andrew, could you -- you detailed a number of charges. Could you please just enumerate those and tell us where they appeared on the income statement? Thanks.

Okay. We talked about the $1.2 million of non-recurring charges. About half of that is in direct cost and the other half would be in operating expenses -- general, administrative and other.

Great. Thank you very much. Keep up the good work.

Thank you. Thank you.

Your next question comes from the line of Zach Larkin with Stephens Inc. Please proceed.

Hey, good morning, gentlemen. Thanks for taking my call.

Good morning.

Good morning.

Hey, first off -- just wondered if we could talk a little bit on the OpEx, which was obviously up, as you guys were working hard on business. Do you expect the levels, particularly on the salary and benefits and G&A lines to remain at the levels that we saw this quarter, or should they trend back down closer to what we've seen historically in 4Q and going forward? How should we think about that?

I think, in the long term, they will trend down. And what happens -- we expense all development expenses. And if we work on particular projects like the ones -- you see them in the queue right now -- the outstanding proposals -- all those dollars associated with them -- they are expensed.

And those projects -- they move into the awarded category and, then, from the awarded to the contracted. Once they move into the contracted, we recover some of those expenditures. Because last year, we increased, if you recall, the number of sales people; we opened six offices. It was intentional to increase the operating expenditures in order to start driving the market, especially in areas that we were not there already.

But going forward, I will say that it will trend back to our normal levels. But it might take a couple quarters to get there.

So kind of safe to say, then, going into 4Q, what we may see is that it's going to be somewhere in between what we saw 3Q and what we've maybe seen historically if you guys work --?

That's why I (inaudible) -- they will take a couple quarters. I don't know if we will see it -- it's still too close to tell for this quarter.

Okay.

But in the long-term, over six months or so, you will see them trend back to the normal.

Okay. Well, then, and kind of taking that into perspective, if -- as we look at maybe a little bit higher OpEx, that's going to assume -- to hit the guidance I think we're going to need to see a nice little pickup on the gross line. Is that a reasonable way to think about it, knowing we've had a couple of discrete charges, but then also just some improvement going into 4Q?

I think that's a reasonable expectation for the fourth quarter. And, again, I think that's typical of our history as well -- that we'll see improvements in the gross margin as a result of project closeouts and projects winding down, yes.

Okay. Thanks. And then, just one final question -- you guys mentioned that you'll be applying for some of the 1603 cash grants. Have you seen also, in addition to that, a pickup in PV business? And is there anything in particular we should think of for the fourth quarter, as we near the end of that program, and its impact on results?

We have seen an acceleration of projects that were in the queue -- to get them started and make sure you qualify because that ends at the end of this year. But as far as new business -- I haven't seen any.

Okay.

A good portion of our PV business is through the integrated PV group. And that's -- the rebates are not as -- they don't seem to have as much of an impact on the sales for that. So I don't expect to see any kind of issue there.

Okay. All right, thank you very much for that color.

Your next question comes from the line of Craig Irwin with Wedbush Securities. Please proceed.

Good morning. Thank you for taking my questions.

Morning, Craig.

So the revenue from -- that was not generated from backlog -- was up pretty nicely both sequentially and year-over-year -- right around $36 million -- saw a pretty substantial step-up sequentially -- and, by my model, is marking all-time highs.

Can you give us a little bit of color on what's driving the sequential growth there, and whether or not we should look for a similar trajectory going forward, or if we should factor in a little bit more seasonality for the fourth quarter?

As you know, Craig, we have some large projects that, during the summer months, the construction picked up. And that's why -- it was even primarily some of the larger projects like Boston housing and some other ones -- McGuire Air Force and US Capitol. And so in all those projects, you see good activity during the summer months. And some of those other projects -- they are winding down. And so I wouldn't expect that you will see that kind of a pickup for the next quarter and (inaudible).

And I think, with respect to the other income, there was an impact from the acquisition in Q3 that -- I don't expect that we would see that kind of growth recur, but we would continue to see that income. I think we stated in the results that while the quarter-over-quarter increase and other was 33%. If you normalize that -- get back to the organic growth, it's more like 10%.

So, just as a clarification, right -- you gave us $192.1 million in revenue generated from backlog in the quarter. If we subtract that from your total revenue, it gives us $35.8 million in non-construction revenue. So are you saying that there were projects with the Air Force and different housing authorities driving that $35.8 million?

No.

No, no, no.

What was driving it was -- it was revenue from the acquisitions.

I was explaining the revenues coming from the backlog.

Great; great. So, no, I'm very interested in the revenue that's not coming from backlog -- the step-up --

Okay. Yes, the -- the revenue from all other -- to take the -- again, take the acquisition out of that all other line, it's between $29 million and $30 million.

Okay. Okay, excellent. So then there's the heavy weighting of non-construction revenue in the recent acquisitions. Is that fair?

On one of them.

One of them --

One of the acquisitions, yes.

Okay.

The AEG group -- that's the one that I mentioned. We had $6 million of revenues for the two months that we owned that company.

Okay. Okay, excellent. Then, if we look at the acceleration in gross additions to backlog the $257 million -- again, a very impressive number -- can you give us some color on maybe different contracts or maybe a little bit of color on the mix that drove this acceleration, and whether or not federal -- the re-acceleration that maybe has been slow to materialize in the past -- whether or not that that's happening already and --?

The most of the $257 million was the typical institutional customers like colleges, universities, school systems, municipalities. And we did have one Federal government contract that was awarded for that -- for the quarter, as I mentioned in my script.

And the range of the projects, which I like -- it's not any one project that is that large, but there are several projects that are a very good size.

Excellent. And just another question --?

And the other thing -- you know the region -- and I think I did mention it a little bit on my comments -- the Northeast has been the strongest and, to some extent, the Southeast -- we have a couple good wins.

Great. So another question is -- at the recent National Association of ESCOs conference, a couple of the major federal customers are saying that they are starting to favor -- to greatly favor deep, retrofit projects, -instead of more simple ESCO projects, where they would look for the most competitive projects to procure funding from as many different sources as possible, as well as subsidy funding, utility funding, et cetera -- and to include things like power-purchase agreements and demand-response.

Can you comment on how you think this is likely to impact the market over the next few quarters, and whether or not the relative larger size of these contracts means that a company like Ameresco will be more competitive than smaller competitors out there, or if this means that there might be a different type of contract that you would be executing?

If you go back to what we have said before, the more complicated the project is, the better it is for Ameresco because that's what we've been selling -- technical expertise, financial structuring -- how we finance the various projects that they are out there.

And if you look at the past -- who has done one of the most complicated federal projects is the Savannah River, where we took an old coal-fired power plant -- co-generation plant -- and we made a brand-new plant -- renewable -- using biomass -- wood -- and it all gets paid out of the savings generated from the old plant.

And if they get into the purchase-power agreements -- the fact that we have 28 assets -- that we have executed long-term purchase-power contracts with just -- with many utilities across the country -- again, it helps us. It plays to our strength. And, actually, we are lobbying hard to see more and more complicated projects coming out of the federal sector because that's where they get the most value.

For example -- and I have said this before -- if you go into a particular facility and you cherry-pick it -- you do what I call the light and retrofit and just the EMS systems -- the controls -- you don't address the big issue associated with energy efficiency in that particular facility -- even though the payback on the lights and retrofits and the controls might be quick, the energy infrastructure needs the customer have -- because they have to replace them sooner or later -- it can be funded through third party, otherwise it takes some -- or you wait -- all the savings. It makes much more sense for the client to have a comprehensive retrofit package.

And I will tell you we have made several proposals where they do involve all the items that you mentioned in some of our facilities. It's not only federal, but more municipalities and other institutional markets -- they're getting to be more and more -- the projects more and more complicated. And they want more of the comprehensive approach rather than -- what I call the cherry-picking retrofits.

That's a long way. I hope I answered your question.

No, I think you did. I think you did. So my last question is really just a housekeeping question. Can you share with us what your ESPC receivables financing was at the end of the quarter? We'd like to back that out so we can understand what your actual debt position is instead of the distorted number from the -- holding the federal contracts on your balance sheet.

$205.8 million.

Thank you very much, Andrew, and congratulations, again, on a strong quarter.

Thank you very much.

Thanks, Craig.

(Operator Instructions). Your next question comes from the line of Steve Milunovich with Merrill Lynch. Please proceed.

Thank you. Could you talk a bit more about that $650,000 charge -- direct expenses related to customer payments to an energy-efficiency customer -- is that a payment to a customer for underperformance?

No. No, it was actually an operation-and-maintenance issue that we had with a particular customer whether it was our fault or their fault. And then we had an agreement and we paid them, but -- about $400,000 to one customer. And the other one was an asset that we own in a facility. And we had again some issues with noise and we had to fix it all -- again, we had to pay the $250,000.

That's right, George -- municipality that we were selling -- or built the plant for.

So it was about an operation-and-maintenance dispute. And the other one is a municipality on an asset we own -- that we had to spend some money in order to reduce the noise levels.

Okay. That's good. So the -- yes, obviously, the awards backlog is terrific. Your contracted backlog, now -- it's always one or the other, it seems like -- contracted backlog now is down quite a bit. And that is what drives revenue over the next 12 to 18 months. Are you still comfortable that you can do double-digit revenue growth next year based on that backlog?

Yes. Yes, and that's why I pretty much -- I alluded to on my -- when I said the 18-to-24 month backlog. And we looked. We analyzed the numbers. We know what contracts -- even though they are in the awarded category -- what we have to do in order to get them to the executed contract category. And it looks pretty good.

That's great.

And the activity looks good, so --

You mentioned toward the end a number for -- pipeline and proposals. Could you define the difference between "pipeline" versus "proposals"?

The pipeline -- it includes everything -- executed contracts plus awarded contracts plus outstanding proposals -- otherwise the proposals that we have not heard yet from the customer whether we won or lost.

And I wanted to show all those numbers -- especially on the outstanding proposals -- which I don't think we showed it before -- to show people the activity level. But in addition to that, one reason why some of these development expenses and other expenses are a little bit higher than normal, because the longer those contracts -- they stay in that category -- the more dollars you expense.

So is it fair to say that even though closing deals may be taking longer, the total number of deals and activity levels -- interest is rising?

That is correct. And that's why I've been trying just to -- in my closing remarks I said that -- we are in the business of servicing a great customer need. And that need is that they need a solution to replace their energy infrastructure.

For example, take the US Capitol that we're doing -- they had old boilers. They had to replace them. We replaced them through an energy-efficiency project.

So that -- and that's what's driving it. And then what is -- more and more become acceptable in the marketplace is the product offering. Otherwise the -- what we call energy-savings performance contracts -- otherwise arrange the money through a third party and then use the savings -- reallocate the expenditures. Rather than paying the operating expenditures, the utility or the gas company or the oil company, you pay the bank.

But now you get brand-new equipment and an energy-efficiency facility. So it is the customer need that's driving our business.

And then, finally, any update on your attempt to move more into the commercial space?

We are doing some. And especially we -- you have heard about the PACE program -- there's a pilot program with Barclays that -- with a municipality down in California and another one in Philadelphia. And the one in Philadelphia -- originate is supposed to be Barclay's and Lockheed Martin. We're going to participate as well.

And we are getting a little bit of traction. But we are working on some things that we think will help us to get more traction into those markets. But, again, it's not something that's going to happen in the next few quarters. I think that's a two-to-five-year strategy that we are developing in order to explore the potential opportunity in those markets.

Understood -- thank you.

Thank you.

Ladies and gentlemen, this concludes the question-and-answer session. I would now like to turn the call over for any closing remarks. Please proceed.

And with that, I would like to thank you for joining us on today's call. And we're look forward to our next call. Thank you very much. Have a nice day.

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