Ameresco Inc (AMRC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Ameresco Inc. Earnings Conference Call. My name is Lacey, and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will facilitate a question and answer session towards the end of the presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the presentation over to your house for today's call, Ms. Suzanne Messere, Director of Investor Relations. Please proceed.

Thank you, Lacey, and good morning, everyone. Thank you for joining us today for Ameresco's Fourth Quarter and Full Year 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 fourth-quarter and full-year financial results for fiscal year 2011. The press release and our prepared remarks are available at www.ameresco.com. The prepared remarks provide an additional level of insight and detail as will be discussed on today's call. For your convenience, a replay of this call will be available on our Website for one year. 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 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 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. George?

Thank you, Suzanne, and good morning, everyone. 2011 was a transitional year and a year of developments that we believe further enhance our position as the leading independent service provider within the escrow industry while also investing in future potential growth opportunities that we expect to help us in continuing to achieve our long-term goal of 15% to 20% revenue and earnings growth per year, on average.

The developments for the year included the following -- we made three acquaintances that broadened our geographic footprint and service offerings. We opened six new offices to take advantage of specific market opportunities. Further, we expanded our capabilities for built-in small-scale energy projects for our customers.

In addition, our marquee Savannah River project was completed and accepted by the customer ahead of schedule. Our pipeline continues to grow, and we continue to strengthen our balance sheet.

There were -- also were some challenges during the year. We experienced what appears to have been a temporary market disruption in the MUSH market due to budgetary concerns and a reluctance by our customers to take on additional debt.

The Federal market continued its gradual improvement. And, of course, there was some lumpiness from quarter to quarter related to the time in the projects, completion of those projects, seasonality and acquisition [and discretion] issues.

As we have mentioned previously, we believe our full-year results are more representative of our overall performance. But, for the year, what we are most excited about is that, despite some of these challenges, Ameresco delivered another record year for revenue and profitability.

Our financial achievements for the year were -- full-year revenue of $728 million, an increase of 18% year over year; full-year adjusted EBITDA of $67 million, an increase of 12% year over year; full-year net income of $35 million, an increase of 21% year over year; and 2011 net income per diluted share of $0.78, compared to $0.69 in 2010.

I am also very happy to report that following our 2011 results, we are currently above our long-term goal of 15% to 20% revenue and any area's growth per year, on average. Our revenue (inaudible) over the past five years is 22% -- and, for organic alone, is 19%; while, for our earnings, our annual growth is 25% per year.

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

Thank you very much, George, and good morning, everyone. As George mentioned already, 2011 was a year of development that helped solidify our market position. We also faced a few challenges and some charges. I will review how this impacted our financial results for the quarter and the year. But please refer to our prepared remarks for additional detail.

Total revenue for the fourth quarter of 2011 was $188 million, compared to $179 million in the same period of 2010, an increase of 5% year over year. Operating income for the fourth quarter of 2011 was $12.1 million, compared to $12.5 million for the fourth quarter of 2010, a decrease of 3% year over year.

Operating income for the fourth quarter reflects approximately $3.5 million in charges taken during the quarter related to the Savannah River O&M startup costs; an inventory write-down; acquisition costs; and restructuring charge.

Fourth quarter 2011 adjusted EBITDA, a non-GAAP number, was $17.4 million, compared to $15.8 million for the same period in 2010, an increase of 10% year over year. We refer you to this morning's press release or our prepared remarks for a discussion and reconciliation of adjusted EBITDA.

Net income for the fourth quarter of 2011 was $8.2 million, compared to $7.7 million for the same period of 2010, an increase of 7% year over year. Fourth quarter net income per diluted share was $0.18 in 2011, compared to $0.17 in 2010.

For the full-year 2011 results, we reported record revenue of $728 million, compared to $618 million for 2010, an increase of 18%. Full year 2011 operating income was $50 million, compared to $46 million for 2010, an increase of 9% year over year.

Operating income for the full year reflects approximately $4.7 million in charges taken in the third and fourth quarters related to acquisition costs, customer payments, Savannah River O&M startup costs and the inventory write-down.

Full year 2011 adjusted EBITDA was $67 million, compared to $60 million for 2010, an increase of 12% year over year.

Net income for the full year 2011 was $35 million, compared to $29 million for 2010, an increase of 21%. Net income per diluted share was $0.78 for the full year 2011, compared to $0.69 for 2010.

While fourth-quarter revenue grew 5%, organic revenue in the quarter was $167 million, a decrease of 7%. The decrease in organic revenue was driven by an 11% decrease from energy-efficiency revenue related to the federal groups, the central region, and Canada.

Organic revenue from renewable energy increased 3% year over year, driven by developing renewable-energy plants for our customers; Integrated PV; Small-scale Infrastructure; and O&M.

Full-year revenue growth was driven by organic revenue of $690 million, or 12% organic growth, as well as acquisitions. Organic growth reflects an increase of 15% in energy-efficiency revenue from select regions and new offices. Despite the Savannah River project winding down, organic revenue from renewable energy increased 1.3% year over year. The driver behind the improvement in full-year renewable-energy revenue were the same as those already mentioned for the fourth quarter.

Gross margin for the fourth quarter was 18.6%, compared to 17.4% in 2010. Strong gross margin within energy-efficiency related to project closeouts, together with contributions from AEG and Ameresco Southwest more than offset downward margin pressure from renewable energy, where we experienced $2.6 million in unexpected costs.

We incurred $1.8 million in startup costs for Savannah River O&M during the fourth quarter, although we will not have meaningful revenue recognition for the O&M phase of this project until the first quarter of 2012.

Integrated PV experienced an inventory write-down of $750,000 due mainly to decreasing solar prices. In addition, several of our renewable-energy plants experienced maintenance-related downtime during the quarter.

Full-year gross margin increased from 17.9% in 2010 to 18.5% in 2011. The improvement was driven by strong gross margins and energy efficiency during the first quarter; project closeouts during the fourth quarter; and acquisitions -- which more than offset the third-quarter charge within energy efficiency and the downward margin pressure from renewable energy.

In addition, full-year gross margin reflects $1.3 million in non-cash amortization of intangible assets related to our recent acquisitions.

Full-year renewable-energy gross margin decreased from 20.5% in 2010 to 17.3% in 2011. In addition to gross-margin pressure from maintenance from Small-scale Infrastructure, we also experienced charges already mentioned in the fourth quarter related to the Savannah River O&M, as well as a customer charge for noise-reduction improvements to an LFG plant during the third quarter, a total of $2.8 million for the year.

Operating expenses in the fourth quarter increased from $19 million in 2010 to $23 million in 2011, an increase of 22%. Operating expenses for the full year increased from $65 million to $85 million in 2011, an increase of 31%.

Salary-and-benefit expenses during the fourth quarter increased from $8.8 million to $11.5 million in 2011, an increase of 30%.

As George has already pointed out, 2011 was a year of developments that we believe have improved Ameresco's position in the marketplace. In addition to adding key personnel, we opened six new offices and made three acquisitions. We also took a $500,000 restructuring charge to reduce costs and eliminate redundancies in Canada during the fourth quarter.

Salary-and-benefit expenses for the full year increased from $31 million to $41 million in 2011, an increase of 33%. Salary and benefits increased during the year for the same reasons discussed for the fourth quarter, with approximately half the dollar increase being attributable to acquisitions.

Project-development costs during the fourth quarter decreased from $5.8 million to $3.4 million in 2011, a 41% reduction. This reflects higher utilization rates and improvements in the so-called MUSH or institutional markets, as already mentioned.

Project-development costs for the full year increased from $14 million in 2010 to $18 million in 2011, an increase of 34%. Even though project-development costs normalized in the fourth quarter, reflecting an improving MUSH market, it did not offset the unusually high project-development costs during the second and third quarter related to MUSH-market disruption.

General, administrative and other expenses during the fourth quarter increased from $4 million to $8 million in 2011, an increase of approximately 93%. We have seen a significant increase in G&A related to public-company expenses such as Sarbanes-Oxley, auditing, compliance and insurance costs, as well as integration expenses. In addition, G&A expense was also impacted by approximately $480,000 in acquisition costs.

We are taking a deeper look at how we can manage G&A expenses more carefully going forward. General-and-administrative expenses increased from $20 million to $26 million in 2011, a 27% increase -- G&A expense during the year for the same reasons discussed in the fourth quarter.

The full-year tax rate was 23.7% in 2011 versus 29.8% in 2010. You may recall we recorded a one-time, non-recurring tax benefit related to reserves taken on certain tax positions that we resolved during the third quarter. We expect the effective tax rate to normalize to a rate in the high 20s, but less than 30% in 2012.

Now, moving on to cash flows -- we generated $44 million in operating cash flow during the fourth quarter, a 61% improvement over the same period in 2010. In addition to solid operating results, we received partial payment of the retainage related to the Savannah River project in the amount of $16 million. This is reflected as restricted cash and operating cash flow. We have also received the balance of the remaining retainage in the first quarter of 2012.

In the fourth quarter, we invested approximately $17 million in renewable projects that we will own and operate. We continue to accelerate renewable-energy projects in order to qualify for the Section 1603 rebates before it expires. We also continue to work on financing projects to third-party lenders.

A solid quarter included the partial cash-retainage payment received from the Savannah River project enabled us to pay down our revolver $39 million during the quarter. This is reflected in our cash flows from financing activities.

As George mentioned, we have been strengthening our balance sheet. Both the federal ESPC receivable asset and the federal ESPC financing liability that is part of long-term debt have decreased to reflect completion and acceptance of the Savannah River project, as well as other federal projects.

The federal ESPC financing liability decreased from $206 million in the third quarter to $109 million as of yearend. Long-term debt decreased from $326 million as of September 30, to $196 million as of December 31, 2011.

Total corporate debt on our balance sheet not related to projects was approximately $42 million as of yearend, and reflected approximately $37 million for the term loan and $5 million under the revolver. The revolver has been paid down to zero since year end; however, the full $60 million facility remains available to us.

From a cash-flow and balance-sheet perspective, we finished the year in a strong position. We generated $32 million in operating cash flow for the full year, a 54% improvement over 2010. And even though we accelerated our investment in Small-scale Infrastructure to over $45 million and we paid down a large percentage of our credit facility, we still ended the year with a solid cash position at $19 million.

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

Thank you, Andrew. Now, I will provide a bit more detail about our 2011 highlights and what's in store for us in 2012.

As we mentioned before, we made three acquisitions in 2011 -- AEG, located in Long Island, NY; APS Energy Services, now referred to as Ameresco Southwest in Tempe, Arizona; and two business units -- xChange Point and energy projects -- from Energy and Power Solutions, located in Costa Mesa, California.

With these acquisitions, we have solidified our footprint in the Southwest while also enhancing our service offerings to utilities in the private sector, commercial and industrial customers.

In addition, we opened six new offices. And even though the expense of these investments appears high initially, we view them as a great long-term investment that further enhance our market-leading position. We expect to continue using strategic positions to solidify our strong foundation as we pursue our long-term goal of achieving 15% to 20% revenue-and-earnings growth per year.

We have expanded our capabilities for developing small-scale energy plants for our customers such as the contract we signed with Philadelphia Water Department in the fourth quarter. We expect that these projects will provide a meaningful contribution to revenue growth in 2012.

In December, our marquee biomass project at the Savannah River site was completed and accepted ahead of schedule, which generated a positive impact on our cash flow and balance sheet in the fourth quarter. We are currently operating and maintaining the facility and looking forward to highlighting the success of this project to future customers who can benefit from our expertise.

Further, I am happy to report that the MUSH market appears to be recovering from last year's sluggishness. And all of our reasons throughout the United States now seem to be experiencing market -- normal market conditions.

The federal market continues its gradual improvement. Our awarded backlog is up very nicely year over year. The RFB is up significantly since the White House announced its Better Buildings Initiative last December.

We believe the current pipeline activity should translate into a backlog improvement during the second half of 2012, and in 2013. The pipeline as of December 31, 2011 increased by 11% year over year, to $2.7 billion. Proposal activity and awarded projects are driving this increase. Our extended proposals increased by over 49% year over year to $1.2 billion. Our total construction backlog as of December 31, 2011 increased by 7.5% year over year to $1.2 billion, driven primarily by a 54% increase in awarded projects.

Again, the book-to-bill ratio for the fourth quarter of 2011 was .99 and 1.14 for the year. Activity, as far as 2012, is in line with our plan, and we expect to see an increase in fully contracted backlog as the year progresses, especially now that the MUSH market is recovering. We expect our backlog to translate into an increasing installation activity of more than 10% in 2012.

Next, I do like to discuss revenue from our other offerings such as Small-scale Infrastructure, Integrated PV and O&M. Revenues from the group were $130 million for 2011, an 18% increase. Revenues from Small-scale Infrastructure increased by more than 20% for the year. We are in the process of designing, permitting, and constructing six more renewable-energy plants which we expect to begin generating meaningful revenue in 2013. We expect the Small-scale Infrastructure revenue to increase by more than 10% for 2012.

Revenues from Integrated PV increased by more than 20% for the year; and we expect a similar increase for 2012. Revenue from our O&M offering increased more than 15% for the year; however, we expect O&M revenue to grow more than 40% in 2012, primarily due to our Savannah River operation-and-maintenance contract.

Now, let's move on to our 2012 outlook. Again, we are expecting the following -- revenue to be in the range of $800 million to $825 million and our net income to be in the range of $39.5 million to $42.5 million. As you can see, we reduced the number of guidance metrics. We are now providing guidance metrics that -- they are consistent with our long-term goal of achieving revenue and earnings growth of 15% to 20% per year on the average.

We will also continue to target -- what we talked before -- the 10% EBITDA margin over the long-term and expect that, in 2012, we should be in the range of 9.6% to 9.8%.

In closing, we are very happy that we were able to deliver record results for 2011. And, also, we took advantage of some good market opportunities to position ourselves for good future growth.

The keys to driving future growth are executing well on our plan and a sharp focus on addressing customer needs for comprehensive energy services and budget-neutral solutions.

We believe the addressable escrow market today is approximately $5 billion -- and this number is confirmed by the various studies in the market -- and is expected to grow at 12% to 14% per year through 2020.

And as we have mentioned before, if the commercial and industrial market were to truly open up, then the addressable market will more than double. Under either scenario, we believe the need for energy efficiency will continue to grow, and that Ameresco is well positioned to take advantage of that potential future growth.

Now, we do like to answer your questions. And I will turn the call over to our coordinator, Lacey. Lacey? Thank you.

Thank you. (Operator Instructions). And our first question will come from the line of Zach Larkin with Stephens Inc. Please proceed.

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

Good morning, Zach.

Hey, first off, I wondered if you could give us a sense for the magnitude of the ESPC contracts that were associated with the MAPC announcement that you had a little bit earlier on; and also maybe frame what the future opportunities might look like with that specific announcement?

That particular contract -- it could be anywhere from -- because we have several communities that it involves -- it could be anywhere from $50-plus million, but it will be over various communities.

Okay. And what does the activity look like with that? Is that giving an acceleration to --

It looks very good.

And then, also -- wondering if you could talk about -- give a little bit more color on the bid activity. It's good to see the improvement in MUSH markets, but based upon the commentary, are you expecting total backlog to remain about flat until we get through -- into second half 2012?

The activity, I will say -- it's very good. I could say it's excellent for the last few months -- much, much better than it was for -- at least for two years we haven't seen this kind of activity.

But, again, whether it's the federal government or whether it's the municipalities or colleges or universities -- they do take their time to decide. That's the fact of our business -- to take from the (inaudible) stage to actually getting the contract and building it out -- it's, like we said before -- it goes through a 24-month process.

Okay.

But the business -- what makes us feel good about our business is the fact -- the activity is a great indicator of what's to happen down the road.

Right.

And the other thing -- the way we've been managing the Company is -- we talked about that [good or bad] in the past -- is that we try to maintain 18-to-24-month backlog. And that's what drives our numbers for this year.

Right.

But so, kind of -- if we're looking for expectations, we should see that total backlog awarded, plus contracted, be a little bit flat for the next couple of quarters, with an increase as we start moving more into the second half of the year. Is that --?

That would be a very reasonable assumption, yes.

And then one final question, if I could -- could you give us a little bit more color on the additional costs that you incurred in the Renewables segment? Was it specific projects? Or how should we interpret those costs that you hit in the quarter?

Well, the bulk of that really related to the Savannah River. And it was really more of a timing issue. The certain costs that we were incurring as we got the project ready for the O&M phase we incurred in 2011. Meanwhile, revenue -- the period payments that we were going to start receiving really didn't kick in until 2012.

Overall, the project on the installation side ran below what our budgeted costs were going to be. And we expect the same thing on the O&M side as well.

The project, when we initially -- the initial plan had us getting this project accepted in May of 2012. And a lot of that -- a lot of those O&M preparation costs that we incurred in 2011 would have been actually incurred the following year, and you would have seen a better matching of revenues and expenses. But it's all under one contract. And so we had to incur those costs in 2011. And then the revenue is going to be coming later.

Okay. Thank you very much for the color.

And our next question will come from the line of Steve Milunovich with Merrill Lynch.

Great. Thank you.

Could you give a little more color on the disruption in the MUSH market that you experienced -- why you think that occurred and why it seems to be better; and your confidence level in it staying better?

It had to do primarily for the budgetary -- if you remember when, in Washington, they were having the fights about the budget and so on -- that's when it started. And then everybody was very concerned; and I would say more of an anxiety as to whether they should go ahead with the projects or not. And then some of the customers, they were afraid or reluctant to take on additional debt.

But like what we had said before -- the need of this product, otherwise -- it's not a discretionary expense that they have to make -- it's an infrastructure upgrade that they need to make. So ultimately they all come around and they say, "Well, the only way we can do this upgrade is through these energy-efficiency projects, through the third-party financing," so they can become -- the activity level -- that what makes us feel confident.

But right now we have a hard time keeping up with responding to the RFPs. When that happens, it translates to very good activity. Now, will it happen again down the road? If it keeps going like this for another year, we'll develop enough of a backlog that's going to take us through the next couple years.

Does that largely explain the 11% decline in energy-efficiency revenue in the fourth quarter, which -- you mentioned the Central region, where I would guess this was a factor. You also mentioned federal --?

That is correct.

In some of the regions, they were impacted much more than others, especially the West -- I mean the Central region (inaudible) -- and the Canadian region was impacted a substantial amount. And the Canadian region was primarily because of the elections last year, and some of the budgetary concerns that they had up in Canada.

But now, for example, the Central region -- we see more activity in that region than any other region. So that's why we feel optimistic that the business is coming back.

Okay. That's great.

Andrew, in retrospect, can you size for us what the EPS dilution was from acquisitions last year? And are you expecting that to swing to accretion in 2012?

There was no dilution. The -- each one of the acquisitions was profitable, even when you factor in the amortization of the intangibles. And there were no shares issued. These were cash transactions, so the acquisitions were positive.

And your next question will come from the line of Craig Irwin with Wedbush Securities. Please proceed.

Good morning, everybody.

Morning, Craig.

First question I wanted to ask was about the strong cash flow in the quarter. $43 million in free-cash flow seems pretty impressive considering your disclosure that that included only a partial release of the Savannah River holdbacks.

Can you maybe give us a little bit more visibility on how much of the total holdbacks came off for Savannah River, and if there were any specific items in there that contributed to the strong cash flow?

Well, the cash flow -- our cash flow tends to be very cyclical, with the first quarters -- first half of the year tending to be very slow; second half being much stronger. And oftentimes we carry accumulative operating cash flow -- negative cash flow through the first three quarters, and then make it all up in the fourth quarter.

So, traditionally, just given our construction cycle and the fact that -- our construction cycles -- and given the fact that a lot of our business is this installation business -- we do see this kind of seasonality in cash flows. And it was particularly strong this year, but then when you take that plus the Savannah River payment, it made for a particularly strong quarter.

We received, in the fourth quarter, I think we said, about $16 million. That was actually a portion of the retainage and a portion of the final draws under our financing facility. And then we had another $22 million that was released in the first quarter of 2012.

So we've -- for as far as the installation of the Savannah River project, we've been paid in full. But only a portion of that retainage payment was a contributing factor to Q4. We'll see -- I would expect to see a much stronger Q1 than what we've historically seen because of the payment that we've received this -- in the first couple of months of the year.

Excellent. Then, just staying with the theme of the cash flows -- over the last several quarters, you've discussed your small-infrastructure projects -- that you want to use your balance sheet to build these projects because they're so profitable for Ameresco; but then you could potentially have an opportunity to finance these -- maybe something like a lease or maybe some other financing structure -- to bring the cash back onto the Company's balance sheet.

Can you update us on what the status is of the projects that you developed last year and the outlook, potentially for any financing of those facilities? And any details there would be helpful for us to understand whether or not this is going to be something that'll be on the balance sheet or potentially off.

We look at a number of financing options for these kinds of projects, but for particularly the LFG plants, we do like to project-finance those. And we've been -- we've worked with several lenders to arrange financing for these projects.

I said in previous calls we've been working on about $30 million of financing for projects that we've currently got in operation that we would like to finance. There's another maybe $30 million of projects that are in development that we also are looking to finance.

We're being very -- we've talked to a number of lenders. We are in the midst of working with a couple lenders right now. And we're just trying to be very, very careful to find the right business partner because these are -- these become long-term relationships that you, frankly, have to live with.

So I think we will be successful this year in finding the right partner. And we're looking to project-finance a pretty sizeable portion of our existing portfolio.

Excellent. And then just sort of a -- more of a macro question -- you've opened a number of offices over the course of the last year. I'm guessing that you're going to be opportunistic about how you do that going forward.

But, George, I was hoping you could maybe share with us your approach to evaluating new geographies for potential expansion, and what you monitor when you open these offices as far as performance metrics; and how you gauge the success of these offices; and if you could give us an update on the six that you opened in 2011?

Right. We look for regions that we do not have coverage, and where we think it's going to be pretty good activity where the market is what I call -- has not been picked over yet. Like, for example, Georgia is a brand-new market that just opened up. And we opened an office down in Georgia because they did not have the enabling legislation until about a year ago or so. So we opened an office there.

Look, we -- everywhere we open an office it might cost us probably up to $500,000 plus or minus before we start seeing contracts being awarded to that particular office, and start making money. And usually -- it's not unusual to see between one to two years before we see a particular office turn in a profit.

Because remember what we said earlier -- if -- let's say they respond to a particular RFP -- in order to win you've got to have a local presence, so you might open an office. And you have a salesperson and then a couple engineers. (Inaudible) it's going to take you six months to a year to develop it and then start -- otherwise sign the contract and start building it out. So it does take some time -- better than a year to two years.

Like, for example, Portland, Oregon. We opened an office almost a year and a half ago. And now that particular office, we signed a couple contracts. I would say that it's beginning to turn a profit. So the metric that I use -- that within two years, the office starts making money.

Excellent. Then, I just wanted to dig through the $3.5 million in charges a little bit more. You've obviously addressed Savannah River pretty thoroughly already -- but the panel impairment on the PV side; the Canadian restructuring; and the acquisition costs?

Can you update us on how much you've written down on the panels, how much you have roughly in inventory; the potential for other geographies and restructuring; and whether or not you see elevated acquisition costs over the next couple quarters, or if that's something that tapers down rapidly, like maybe the roll-off of third-party contractors or legal expenses?

Well, first of all, the acquisition costs are the costs related to doing the acquisition. So if we don't -- if there wasn't another acquisition this year, there wouldn't be any more cost. So this would be non-recurring. This doesn't include trying to eliminate redundancies; finding synergies kind of -- through the -- doing the good transition to lower, overall costs.

So when we're talking about acquisitions, we're talking about the due-diligence cost of actually making the acquisition.

The PV inventory should be a one-time event. It relates to the panels. We've got one inventory or managed -- one group has the inventory; so we're not -- I don't expect to see this again, and we're going to make sure that it doesn't happen again.

As far as restructuring, that's, I think, at this point, difficult to say. But any time we make an investment like that, we certainly look at the cost benefits that go along with it. So we could see something like that, but would be along those lines of reducing operating costs longer term. So we would be very careful if something like that were to happen again.

Okay. So, then, if -- to characterize my own understanding, if you could respond -- it seems like these are very minor one-time events, with a timing issue on Savannah. Is that a fair way to look at this?

Yes.

That's the way we're looking at it. Yes.

Especially with the Savannah River. We will [contemplate into] spend those dollars this year rather than last year. And that's -- and at the same time, of course, we would be getting revenues associated with the operation and maintenance. So you wouldn't have seen it. But because we finished the projects early, we had to spend those dollars last year -- in 2011 -- and no revenues associated with it (technical difficulty) operation. So it was a timing issue.

Okay, excellent. And then last question, if I may -- the federal market -- obviously it's been very challenging over the last several quarters. Can you update us on whether or not there were any specific bookings from federal in the quarter, or maybe if you've been awarded specific projects after the close of the quarter --?

Yes, we did book one last quarter. And then we also booked two this particular quarter. And both of those contracts -- they were with facilities that we have executed previous contracts; otherwise phase two or phase three. And we will probably see more of those contracts in the short term, coming from a facility that we have already implemented phase one or phase two.

But the activity level, though, on the federal-government side -- it's very, very high. It's the highest we have ever seen it.

Can you share with us the approximate size of the bookings, maybe, collectively or individually, of those three projects?

I don't recall what that number is, and I don't think we can.

Yes, I don't think we can talk about them specifically at this point.

Thank you very much for taking my questions. Congratulations on the strong progress.

Thank you.

Thanks, Craig.

And our next question will come from the line of Dale Pfau with Cantor Fitzgerald. Please proceed.

Good morning. Happy Leap Day.

Thank you. Good morning.

Good morning.

Let's see -- could you talk a little bit about -- you've talked about the activity being high. Could you characterize those RFPs that are out there? Are they more like -- I'm not expecting any huge projects like a Savannah River -- but are we going to see more biogas, or are we seeing more renewables? Are we seeing general just energy-efficiency upgrades? Could you characterize what you're seeing in the trends of the RFPs that are coming in now?

The RFPs, like I said -- they are biogas. We have seen -- that's why we expanded our resources, I said, in developing and building those projects for others. And it's very good. And those projects -- they run -- like the Philadelphia project -- anywhere from $47 million to $50 million. And some of them that we have [early responded] are considerably higher than that particular amount.

But, across the board, the activity is high. And we see several projects in the range of $50 million plus. But when you average them, though, with some of the smaller ones, the average size -- I wouldn't think it's going to go up that much more than what we had previously said -- $5 million to $10 million -- average contract size.

And the reason for that is because you have so many more projects. But on the other hand, though, there are more projects of the larger size.

And is there any trend in what kind of projects they are?

I would say, across the board -- you want to add? It's --

I mean nothing -- I don't think that we've seen a significant change in the trend.

In the mix.

No.

The waste -- sewer -- water and the sewer-treatment plants -- it seems to be a very good niche-opportunity market for us because -- and very good size and a growing market.

And, as you might recall, we are the only ones to do the San Antonio and (inaudible); and that, of course -- given us a pretty good resume. And we're trying to capitalize on that. So you will probably see more and more of that. But across the board, though, the activity level is pretty good.

And how about the competitive landscape? Has there been any significant change other than you buying up a few little guys here and there?

As far as the acquisition of the few guys -- the small guys -- they're still out there. And there's quite a few of them. But as far as the big players -- the same players that we've been competing for the last 10 years -- they're still there. And you might see one of the big organizations -- they go through some restructuring. So what I would say -- you're losing a little bit focus in the market opportunities, but the overall competitive landscape has not changed significantly at all.

And I would say that every RFP that we respond -- when you get down to the short list -- is three of the four usual suspects.

And you highlighted several times the increase in activity -- and I know it picked up in the fourth quarter -- are you continuing to see it into the first quarter?

Yes. Yes. Actually, we saw it more in the first quarter. That's why we're able to talk more about it that the fourth quarter. The activity, otherwise, this quarter, is better than what it was the fourth quarter.

And does that --?

And Suzanne and myself -- we talk to all the key -- the regional managers to take a very good handle of where they are and what they're seeing in the marketplace. And each and every one of them -- they said the activity level is better now than it was in the last quarter.

Is there anything seasonal associated with this, or you think this is the general trend -- that we're finally -- people are understanding the opportunity with the projects, and maybe some thought processes are moving forward?

There is some seasonality as to the RFP activity -- especially the first and the second quarter. And then contracts get executed later one. And then everybody slows down a little bit normally in the previous years in the fourth quarter because then they start thinking about holidays and completing their budgets and so on.

So this is an (inaudible) point of view -- and the other seasonality that we see in our business -- that's why you see some of the lumpiness in our quarter-to-quarter -- is the construction -- because we are building out solutions and you cannot do as much construction during the winter months or -- as much as you can do, especially in the summer or when it's [school] holidays or -- and so on.

And one last question -- on the cost side, as you move through these projects, are you seeing any uptick in the cost of doing business in any of the various areas, be it labor contracts, materials and so on, that you're worried about for the next year?

Not yet, no. We have not seen it. And I don't anticipate it.

But, on the other hand, remember how we perform our business -- we get a very good assessment as to what those costs will be prior to actually executing the contract. So we have a very good handle -- the risks associated -- and then, of course, we work on our margin off that. So we have a very good way of managing that.

Great. Thank you very much. Congratulations.

Thanks, Dale.

(Operator Instructions). And our next question will come from the line of John Quealy with Canaccord Genuity. Please proceed.

Hi. Good morning, folks. I may have missed this. I have a question on integrated PV. How much was that business in 2011, in the total dollar?

We generally don't disclose that separately. We've talked about it being part of our other revenue, which --

$130 million?

Yes.

Yes.

And it's -- represents about a third of that. We talk about O&M being a third.

Yes.

The assets we own.

The assets and the integrated PV.

And can you talk about -- with regards to tax incentives, whether they're at the federal or state level -- is all of that business enabled by that, or are the business cases completely separate so you don't have any exposure to those type of mechanisms?

I don't believe there's any benefit to that particular business. This is not a -- it's not a subsidized business in any way. These are economical projects. They make economic sense. And we're taking the components, integrating them, and coming up with customized solutions for customers. So, no, there's no tax application or anything on our end that drives this business, that we can see.

Okay.

And then going back to Savannah River -- I just want to make sure I understand the accounting -- the extra costs that didn't get allocated to revenue -- those get absorbed once the revenue gets hit? Oh, the revenue comes in in Q1 -- is that right? Is it going to be a sort of step function or is it going to be fairly smooth throughout the year so we can't see the step-up in revenue to cover that -- meaning you're going to have better margins in that quarter when you get the revenue recovery?

That would be -- yes, that would be the concept. We'll see better margins. Because the revenue is a period cost and we just -- we had to incur the expenses when we incurred them.

Okay. And my last question -- more qualitative -- as this RFP activity increases, how is the marketing competition -- number one, new entrants coming into this space now that "energy efficiency" is a buzz word; and then, secondarily, the quality of people and the ability to keep people? I'd like to hear your thoughts on that as we go through the next year or so.

Yes. So far, we have done a very, very good job in keeping or getting the talent that we need in order to execute our plan. And the competitive environment has not changed that much, even though quite a few big companies -- they want to come into this space. They do not have what I call the execution capability or the resources or the footprint across the country that we have.

And the small guys -- and I did talk about it before -- they are more regional and more local. And they can compete, maybe in the $1 million to $10 million projects. But when we get into these larger projects (inaudible) the biggest impact on our numbers -- we don't see them there.

So the competitive landscape here has not changed that much. Now, down the road, could we see some other big entrants again? I think it's unlikely that it will happen. But, on the other hand, I think we can definitely compete with them because we did before.

And, I'm sorry -- one more question. In terms of the M&A pipeline, can you comment on the number of firms that you're looking at? Is it relatively the same number of firms or size that you looked at last year -- whether or not you executed a deal or not? And then, secondly, are valuation metrics changing at all in this environment? Thank you.

Yes. We're taking a little breather a little bit for the first quarter or so to integrate to the companies we have acquired and try to identify any potential synergy that we have, and take advantage of that, and fine-tune the organization. Because one of the things that -- I tried to allude to it in my remarks -- is that we want to focus a lot in executing in our plan.

And by that, what I mean -- not only building out projects and winning projects, but make sure we get good control of our cost structure and make sure that we haven't become inefficient in executing or in doing our business. So we will spend some time doing that.

And then, going forward, I think the opportunity for acquisitions continues to be there. At any given time, we might be looking at one or two or three. But in the short term, I think we're going to focus more on doing better with what we have. Thank you.

Ladies and gentlemen, this concludes our question-and-answer portion for today's call. I would now turn the call over to George Sakellaris for closing remarks.

And with that, I do like to thank each and every one for joining us today. And we will see you -- talk to you next call. Thank you.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.