Ameresco Inc (AMRC) 2012 Q3 法說會逐字稿

A very good morning to you ladies and gentlemen. Welcome to the Third Quarter 2012 Ameresco Earnings Conference Call. My name is Nancy and I am your operator for today. At this time, all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the call over to Suzanne Messere, Director of Investor Relations. Please go ahead.

Thank you, Nancy, and good morning, everyone. Thank you for joining us today for Ameresco's Third Quarter 2012 Earnings Conference Call. I'm joined today by George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer; and Andrew Spence, the Company's Chief Financial Officer.

On today's call, management will share brief highlights from the prepared remarks we published this morning, and then take questions from the audience. Before I turn the call over to George and Andrew, I would like to make a brief statement regarding forward-looking remarks. Today's call contains forward-looking information regarding future events and the future financial performance of the Company.

Ameresco cautions you that such statements are just predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business. Ameresco refers you to the Company's press release issued this morning and its annual report on Form 10-K filed with the SEC on March 15, 2012, which discusses important factors that could cause actual results to differ materially from those contained in the Company's projections, or forward-looking statements.

Ameresco assumes no obligation to revise any forward-looking statements made on today's call. In addition, the Company will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A GAAP to non-GAAP reconciliation, as well as an explanation behind the use of non-GAAP financial measures is available in our press release, as well as our prepared remarks.

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

Thank you, Suzanne, and good morning, everyone. We had expected the third quarter 2012 financial results to be less than last year. However, we did not anticipate that market conditions would deteriorate further. We believe that uncertainty regarding the political environments in which our customers operate, the pending financial cliff, and the perceptions towards debt has caused our customers to behave more cautiously.

There is also added pressure from their respective committees or boards that are responsible for approving energy efficiency projects. The result is that our customers have been proceeding with greater care and diligence, which further extended conversion times from awarded projects to signed contracts during the quarter.

However, we continued to execute well on projects in construction and revenue from all other offerings increased by 20%, helped by annuity-based revenues. Further, awarded projects increased 46% year-over-year to $1.1 billion, a new record. As gross additions to backlog was $281 million for the quarter, also a new record. This more than offset a 27% decline in fully contracted backlog.

In addition, total construction backlog reached a new record at nearly $1.5 billion. Project delays persisted to an extent that is unprecedented in our experience. In response, we have reevaluated and updated our project timing conversion estimates. Based upon these updated estimates, we are revising our revenue and net income guidance for fiscal 2012. We remain confident about the long-term fundamentals of our business as well as the demand for energy efficiency.

In addition, the trend in our pipeline and backlog growth, along with the strength within our other offerings continued to be encouraging. We believe that as customers gain greater clarity going forward; and as market uncertainties, including the elections and the fiscal cliff are resolved, awarded projects will begin to convert at a pace more consistent with historical trends.

In the meantime, we continue to focus on achieving our long-term strategic plan, improving our competitive position, and offering innovative budget neutral energy services for customers looking to cut operating costs while addressing their aging infrastructure needs. And now, I would 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. The financial highlights from the quarter are as follows. Third quarter revenue was down 28%. While we had expected 2012 third quarter revenues to decline year-over-year, we observed even more cautious customer behavior when committing to performance contracting solutions, which more than offset revenue performance from our annuity based revenue offerings.

Year-to-date revenue was down 12.1%. Revenue from energy efficiency decreased 42.5% and decreased 18.4% year-to-date. Declines in Canada, Federal, Central and other US regions during the third quarter, driven by a lengthening of project conversion times, offset an increase from organic and inorganic growth related to AIS.

Revenue from renewable energy increased 42% and increased 9.9% year-to-date. Strong contributions during the quarter came from renewable projects being developed for customers, small-scale infrastructure, and O&M.

Gross margin was 21.2% compared to 17.5% a year ago. The lower gross margin in the third quarter of 2011 reflected approximately $650,000.00 in onetime charges to direct expenses related to payments made to an energy efficiency customer and a renewable energy customer. Year-to-date gross margin increased to 20.1% compared to 18.5% last year. Energy efficiency gross margin improved from 17.4% in 2011 to 18.9% this year.

The margin improvement was driven by higher margin projects across a number of US regions, project closeouts, and contributions from our higher gross margin offerings at AEG and AIS. Energy efficiency gross margin year-to-date was 19.4% compared to 17.7% a year ago. The improvement was driven by the reasons stated for the third quarter, as well as project closeouts during the first quarter of 2012.

Renewable energy gross margin increased from 18% last year to 25% --- 27% this year. The improvement was driven by Savannah River O&M as well as contributions from small-scale infrastructure and integrated PV. Year-to-date renewable energy gross margin was 21.8%, compared to 21.3% a year ago for the reasons mentioned; which was partially offset by weaker renewable energy gross margin during the first half of 2012 as Savannah River was transitioning from implementation to O&M.

Operating expenses in the third quarter increased 2.8%. The operating expenses were in line with our expectations for the quarter. We believe reflect the infrastructure that can support further volume growth without additional investment. Salary and benefit expenses increased 13.3%. The increase reflects the strategic investments made during 2011. Project development costs decreased $900,000.00, reflecting our ability to capitalize more development cost as more of our proposals have transitioned to awarded projects.

General, administrative, and other expenses for the quarter increased 1%. We believe general administrative expenses have reached the level that is consistent with the additional expenses of being a public company.

The third quarter tax rate was 28.4% compared to 17.9% last year. The effective tax rate was lower during the third quarter of 2011 because we recorded a tax benefit specific to that period.

In addition, we recorded an unfavorable tax adjustment during the third quarter of 2012. Both of these adjustments were required to be treated as discrete items during the quarter in which they occurred. We expect that the annual 2012 tax rate will be slightly higher than the fiscal year 2011 tax rate, which was approximately 24%. We generated $3.1 million in operating cash flows compared to $10.3 million last year.

The third quarter operating cash flow declined due to lower net income. Year-to-date operating cash flow has improved from an $11.8 million use of cash last year to positive operating cash flow of $42.6 million this year.

We generated $33.2 million in positive operating cash flow during the first quarter of 2012, which benefited from receipt of the remaining retainage related to the Savannah River project in the amount of $20 million. We invested $11.6 million in renewable energy project assets during the third quarter. Cash provided by our financing activities totaled $11.1 million due primarily to proceeds of $13.5 million from the revolving portion of our credit facility.

I am pleased to note that on October 19th, an Ameresco holding company for 18 renewable project companies entered into a credit agreement with a bank group. The subsidiaries of the holding company own 22 small-scale renewable energy projects, which consist of 6 LFG facilities, 2 wastewater to energy facilities, and 14 solar PV facilities; 16 of the facilities are in operation and 6 in various stages of construction. The new credit agreement provides for a $47.2 million construction to term loan of which $33.5 million was drawn down at closing.

The loan will be non-recourse to Ameresco when construction has been completed. We used a portion of the proceeds drawn down from the renewable project portfolio financing to pay down the revolving portion of our senior secured credit facility.

As a result, there is now a zero balance on the revolving portion of that facility. This leaves the term proportion of our credit facility as the only senior debt to the Company, which amounted to $32.9 million at the end of the quarter. With that, I will turn the discussion back to George.

Thank you, Andrew. Revenue from other offerings increased approximately 20% to $43 million.

Revenue from small scale infrastructure also increased by approximately 20%, due primarily to a new LFG plant going into operation. We expect another LFG plant to be going into operation in the fourth quarter. Renewable Energy Certificates, or RESC, associated with renewable energy facility that we own added revenue to small scale infrastructure as well.

Revenue from integrated PV increased approximately 3%. While we were expecting integrated PV to grow in excess of 20% in 2012, we are now expecting growth of approximately 10% in 2012. The market has become more challenging over the past few months due to fiscal and election uncertainty. We would expect a gradual return to the growth rates we have experienced in the past once the uncertainties have diminished.

Revenue from O&M offerings increased approximately 32%. The increase is primarily related to federal O&M revenue associated with the Savannah River project.

In addition to the new records we've seen in gross additions to backlog, awarded backlog, and total construction backlog; our pipeline also increased by 8.5% to $2.9 billion. The three largest contributors to the increase in new awarded projects represented more than 60%. Those are the US Federal, the Northeast, and the Southwest regions.

While longer term trends remain encouraging for pipeline activity, awarded projects are converting at a much slower pace than we have seen before. This resulted in a revenue shortfall of $15 million during the third quarter. Please refer to our prepared remarks for additional detail.

For the fourth quarter, we expect an additional revenue shortfall of approximately $16 million to $36 million, compared to the current consensus estimate of $201 million, primarily due to project conversion timing adjustments. Again, please refer to our prepared remarks for additional details.

The US federal segment continues its gradual improvement, demonstrating some positive longer term trends during the third quarter. Proposal volume is up 44% year-over-year. We also received five new awarded projects during the quarter, representing more than 25% of our new awarded projects for the quarter.

However, there are continued challenges when converting awarded projects to signed contracts. As a result, the revenue shortfall for the fourth quarter and the delayed revenue identified last quarter is now expected to be partially recognized in 2013.

Although we do not anticipate further revenue shortfalls within the Northeast, we are experiencing further delays in the Southeast. As a result, we continue to expect that the portion of the delayed revenue discussed last quarter for the Northeast will be recognized in 2013. However, the revenue shortfall for the fourth quarter and the portion of delayed revenue identified last quarter for the Southeast is now expected to be partially recognized in 2013.

Although Canada's government sponsored programs are no longer on hold, there is debate over how this program should be implemented. We now believe that these programs will not begin to see movement until 2013. As a result, only a portion of the delayed revenue identified last quarter is expected to be recognized in 2013. We do not anticipate any additional shortfalls in the fourth quarter for the Canadian segment.

As a result of the third and fourth quarter revenue shortfalls identified above, Ameresco is revising its guidance for the fiscal year 2012. The Company now expects total revenues to be in the range of $640 million to $660 million; net income in the range of $22 million to $26 million.

Last quarter, we had promised our investors that we would provide the preliminary indication of what we are expecting for 2013.

Looking ahead, based upon the preliminary results of our 2013 budgeting process, we currently believe that double-digit top-line growth is possible, assuming that we return to normal market conditions. We expect to be able to provide more clarity when we issue 2013 guidance along with our year-end results early next year.

In closing, the long-term fundamentals for energy efficiency remains solid. Further, we believe that the strategic investment that we made during 2011 have allowed us to further cultivate our pipeline during this time of uncertainty.

We also believe that as the current market uncertainty is resolved, that we will be well positioned to take advantage of once again growing energy efficiency industry. Further, energy efficiency continues to be the most cost effective source of energy. The need of our customers to upgrade their aging infrastructure using budget neutral solutions continues to drive demand.

Now, we would like to answer your questions. With that, I will turn the call over to our coordinator, Nancy.

Thank you very much. (Operator Instructions) We have our first question from the line of Zach Larkin from Stephens. Please go ahead.

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

Good morning, Zach.

Good morning.

First off, George, I wondered if you could give a little bit more color on some of the discussions that you might be having with customers. Obviously, fiscal cliff concerns and other things are making people a lot slower to sign on the dotted line.

But as you look at some of the customers and regions that are being particularly slower, are they giving any indications that once the issues with the fiscal cliff get resolved that they'll be coming back fairly strong? I am just kind of trying to gauge how quickly you expect demand to potentially pick up once the issues are resolved?

Well, now that the election is over, we will probably wait a little bit to see what happens, especially with the finance --- the fiscal cliff that's coming up. The bottom line is that what we have been seeing in the last couple of months, I will say that is a little bit encouraging from our point of view -- that some of the delays that we have been seeing in the past, they seem to be abating somewhat. But the customers still, they're a little bit reluctant to sign to the bottom line.

And the other thing that we did in order to guide better in the future -- before, we used to assume a range once we get the awarded contract of 6 to 12 month until it gets to the executed portion. Now, because of what was happening in the market, we review that. That is what I meant when I said we basically extended the estimates over the conversion times from awarded to executed contracts between 10 to 18 months. That is why you see these changes in the numbers, basically. So, I am a little bit optimistic about the future, I would say. But a little bit cautious as well, though.

Right. --

-- based what we learned the last couple of years.

Right. Then, if you look at that kind of new 10 to 18 month conversion window, is there a difference between federal and the MUSH markets? Or is it fairly consistent in the conversion between those two buckets?

You see, what has happened, all of our markets were impacted at one time or another during the last couple of years. If you recall, it started out with the Federal markets and their budget issues that they had. Then the federal market pretty much shut down now for almost 18 months. The good thing about the Federal market now, especially on the request proposal is substantially up, and our awards are very good.

It seems our competitive position has held up very well in the federal markets -- we're winning our share of the project. This is what the -- and going forward we have done in basically determining when projects get executed. The local markets, what we call it right now, let's say the Midwest, the Southeast, and the Northeast, and with the Canadian markets. Each and every one of them have been impacted one way or another.

If you recall, the Midwest started first. Then it went last year to Northeast and now more impacted in the Southeast. In the Canadian markets, it seems like it has stabilized; the same with the Northeast, it seems it's stabilized. The Midwest, it's stabilized. That's why I say I am a little bit cautiously optimistic that we are coming back from what I call a perfect storm that we have seen in the last couple of years.

All right, thanks very much. One final question if I may. Andrew, just on the operating expense comments. It seems like you have indicated that they feel fairly mature. Should we look at the levels that we saw in 3Q kind of as a reasonable run rate, give or take, going forward then on kind of all the lines on the OpEx? Is that an appropriate way to think about things?

Yes, I think that is, yes. I think we'll see some good consistency there over the next several quarters.

Okay, thank you very much.

Thank you.

Thanks for your question, Zach. (Operator Instructions). We have our next question in the queue from the line of Dale Pfau from Cantor Fitzgerald. Please go ahead.

Yes. Good morning. Thanks for taking my question.

Good morning, Dale.

Good morning. I see proposal activity continues to be strong. You say the biggest issue is conversion. This is kind of across-the-board. Is there any issue here with funding allocations? Or, is this all just concern about the general trend out there? Could you give us any kind of any indication about how much of your awarded is pending actual funding?

It's because we don't rely on funding. The financing, we finance the projects through the third parties, like the banks. That is very good.

The issue is on the customer side, taking those extra, what I will call, much more cautious than what they have been in the past. Taking that extra step. Many of them, they hire consultants in order to evaluate the various proposals. Then some of those people, they are not very familiar with this kind of business. Then, once they do that, right away you added at least three months.

This is what actually tripped us a lot on the last guidance. We assumed three months and many of them, they get delayed by as much as 6 months. It's a customer concern with what's going on in the industry, especially on their budgets.

As I mentioned from the last call, some of them, they were concerned about the perception. They were trying to -- they were laying off people in some communities. They say how can we sign a $15 million contract when we have this particular announcement to make? Why don't we wait for the Fall or later on this year to sign that particular contract?

Again, I can go -- look, why I said the unprecedented. We have, just this last quarter alone, I cannot mention the contracts -- over 33 projects that they moved. We thought that all these projects would be signed this last third quarter, they all moved to one customer concern to another. Each and every one of them is some customer issue, but not that they don't want the project to go ahead in the long-term. They do want to go ahead in the long-term, but it is just more time to get there.

Okay. Andrew, should we expect fewer projects closeouts in your fourth quarter this year than we have historically seen? Could we see some of those moved to first quarter with this change in conversion?

No. Those project closeouts relate to projects that are in construction. We do anticipate strong typically seasonal activity in Q4, which will have a positive effect on the overall gross margins. I think what we have been referring to here as conversion of awarded projects into construction projects, but the project closeouts relate to those that are wrapping up construction. We should see some good activity, some strong activity in Q4.

You haven't seen any impact on the contracts that are fully funded and moving forward? The only issue is the conversion. Is that correct?

That's correct. I think we've actually been able to accelerate the projects in construction somewhat. Our issue with revenue forecast has been on getting the conversions from awarded into the construction period.

One final question. Last quarter, George, you mentioned that in some cases people threw in an additional step. You just mentioned the outside consultants and so on. Is that the biggest issue or is there is just a general sort of concern? A delaying tactic until people see how the tea leaves are going here in the economy?

Yes, because they are concerned about getting additional debt, especially since a year and a half ago now when the Washington issues surface. But they know that they have to do this work anyway. Now, they have to do more due diligence, I will say, because now they had to go up to their Boards or wherever or the school committees, whatever the case may be, or the Board of Trustees, let's say, on the university.

The projects are getting larger and larger. Before they get there, they want to make sure they have lined up all their ducks. I can tell you couple of contracts that were delayed this last quarter in Midwest, very large contracts. They ended up being bigger size than what the customer had originally anticipated. They said, listen guys. We got to do a little bit more homework before I take it up to the Board of Trustees.

They approved it before, but they approved it as a lower level. Now it's a bigger project, we got to line up more ducks before we get there. That's happening. What, in the short run why (inaudible). Some of the people around the organization described it as, is that people are doing more due diligence or the projects because the concern about taking additional debt.

Okay, great. That is all for me, thanks.

Thank you. You're welcome.

Thanks for your questions, Dale. We have our next question in the queue from the line of Craig Irwin from Wedbush Securities. Please go ahead.

Hi, good morning, George; good morning, Andrew; good morning, Suzanne. It's David in for Craig.

Good morning, David.

(Inaudible).

Good morning, David.

I'd like to get a little sense of when these projects slip is it simply another quarter? Or does it turn into one of those perpetual slips? Then the second question is, if you could talk to us a little bit more about the opportunities you see in the renewables, particularly for your own book? Thanks.

Okay. Internally we will say it will take a couple of quarters before we see more smoothing. The fact now that we have $1.5 billion of backlog, our --- there are many more projects that they have been delayed for so long that they are much more mature now. I will say they have aged. They will be moving into the execution stage.

I will say most likely we are a couple of quarters. But, on the other hand, you never know what might happen in the future. We cannot predict the future. But basically where we are right now, we see that we should be able to get pretty good growth. What we indicated on my preliminary indication of a 10% growth for next year.

As far as the renewables are concerned, we still see opportunities even if the 1603, which is going away. We are not counting on it. But there are not as many on the landfill gas to energy projects opportunities as in the past. Because the electric rates have come down on the buyouts by the utilities or buybacks of their power. They have come down substantially.

But the applications, as you know, we use quite a few renewables where we sell and convert to clean gas, you may say. That is very -- and we burn it directly on the boiler installation of a particular customer. Those applications, we see some more opportunities.

In some other projects like the one we did in San Antonio, or Dallas, or Philadelphia. The wastewater sewage treatment plants to energy. The biogas, again, we see some good opportunities there. The one that has gotten impacted the most in the short-term was the integrated PV renewable portion of our business. That I think is based on the general economic conditions in the marketplace right now.

Okay. Just a follow-up for that, could you please remind everybody about the timing for the Federal 1603s that you mentioned going away?

I think that we're starting to -- the program for new projects, it's wrapping up this year. There is a period of time that will run through 2013. But the time it is pretty much up for new projects that want to apply under the new -- for any new grants. We have some projects that are already grandfathered. We'll be able to apply for the grants when they're in commercial operation.

Then they would --- apply that 30% of the qualifying investment that you made in the project, you get it back, cash from the government.

It's cash in lieu of the ITC, yes.

Right.

Great, thank you very much.

Thank you for your question. We have our next question from the line of Amir Rozwadowski from Barclays. Please go ahead.

Thank you very much, and good morning, folks.

Good morning, Amir. How are you?

Good morning.

Good. George, just trying to understand sort of this timing issue. I know you've addressed it in some of the prior questions, but perhaps taking in another way. Obviously, if we look at your total backlog, it continues to grow on a year-over-year basis.

From an awarded perspective, we're continuing to see pretty healthy year-over-year growth and even sequential growth. What is the risk of that the awarded backlog ultimately doesn't get converted. We start to have sort of a pullback in some of these contracts. Is there some sort of risk there?

(Inaudible). That's a great question. No. I tell you why I say that. We got together with all of our people. We identify only about $5 million to $10 million projects that over the last couple of years that they went away. They were in the backlog and went away. On the other hand, many of the awarded projects, we say that they might be $20 million projects.

Then after we do the detailed energy work, and so on, the projects grow. Like the one I indicated in the central region, it just doubled from what we had originally as an awarded project. That is not, though, my concern that a good chunk of the $1.5 billion might go away.

Okay. Well, that's helpful. Then, in thinking about sort of a pickup in sort of this conversion time cycle. I mean, it does seem like there's some pretty near term concerns with respect to budgeting process, the election, and the federal environment. I was wondering if you could comment? Do you expect a recovery?

It seems like the challenges have been pretty quick to emerge over the last one to two quarters. Could we see a recovery as quick once we move past these types of issues?

We cross our fingers that we will see a quick recovery. That's why I said one to two quarters, which is not that long of a time. Now that the elections they are over, at least we know that the Federal programs will continue the way they were. It will not be a time like that because we were a little bit concerned if new administration came in that you will most likely take at least 6 months before you see any movement again.

At least now in the federal market after 18 months of total delay, it's moving ahead. I did answer a question a little bit in my remarks saying that even though the awards are happening at a very good pace, that until they move to the execution. Even the federal government, they have now a special agency that evaluates all these projects once they get awarded. But, by the time they get signed, they do take some time.

Okay.

I think we are cautiously optimistic and from where the Company is right now. That if you remember we started with what I called, back in 2010, pent-up backlog because of what happened in 2008 and 2009. We worked through that, and now, again, we're growing the backlog. Usually that is what happens. You grow with the awarded projects.

I think you will see over the next couple of quarters that a good chunk of the awarded projects will go to executed contracts. We will be -- the Company will be at a better pace that we were in the past, otherwise, the growth in the backlog, we will pretty much be a good indicator of the growth in the Company.

That's very helpful. Lastly, if I may, we saw earlier this year an anticipation of improving demand. You folks, that they notched up some of your spending internally to build out the resources needed in order to meet that demand.

Obviously, the demand hasn't necessarily played out as expected. It also seems like you guys have been taking an active approach towards managing your costs. In this interim period, how should we think about sort of your focus on cost management? I mean, are you still going to look to spend in order to capture the opportunity when it converts? Or, are you going to take sort of a more wait and see approach in terms of the timing?

No, we are very proactive. We were very proactive even on the cost structure. We did make some fine-tuning over the last couple of quarters, but, on the other hand, we've made sure that we did not go that far. Some of our competitors, as you probably have seen in the marketplace, they did some right sizing as well.

We were able, I would say, to upgrade the fact that we are keeping up a good pace of the award and our percentage of winning contracts. It is a fact that we did not do too many, go too far. As we go forward and we move more contracts from the awarded to the execution, you will not be surprised that you will see us hire more what I call construction managers and some development engineers.

But the salary of those people, they are pretty much allocated to projects either in construction or in moving them from the awarded to the executed contracts. It's a variable cost associated with the growth, the top-line growth. Then, on the other hand; and that's why the metrics. I'm not quite happy where we are as far as the overall percentage, of course to the EBITDA was the bottom line.

What I call the fixed structure of the Company right now. We probably can do more throughput; and I will say 15% to 20%. I think I indicated that in the last call as well. That's why on my -- Andrew remarks, I said, we feel very good where the -- how we have positioned the Company for the future.

Fantastic. Thanks for the incremental color, George.

Thank you.

Thanks for your questions, Amir. (Operator Instructions). We have one more question in the queue from the line of John Quealy from Canaccord. Please go ahead.

(Technical Difficulty)

Hi, good morning, folks. Can you hear me?

Hello, Suzanne, are you there?

Yes.

One moment, John. (Operator Instructions)

(Technical Difficulty)

(Operator Instructions). It's from John Quealy from Canaccord. Please go ahead, John.

Hi, folks, can you hear me?

Good morning, John.

How are you, John?

Yes.

Sorry about that.

Yes, no worries. It's not your problem. Three questions, please. First, George, the delay? Does financing factor at all into this? Is it more a customer decision process to move forward, or, is it a lack of acceptable financing terms or availability? That's my first question.

My second question is in this period of, sort of sluggish growth, would you accelerate M&A at all, or, is that just a separate issue regardless of underlying business conditions?

Then, my last question is, I know in the last quarter that you had some small exposure to this PV module solar tariff. Now that that's finalized, can you talk about what ultimate exposure or resolution of that would be? Thanks very much.

Andrew will address the third question and I will address the first two. On the delays, they are not finance related. They are not, as I indicated earlier, customer delays. For one reason or another, the financing is still very good out in the marketplace.

That's not a problem unless, if you recall, we're trying to find a financing mechanism for the commercial and industrial sector. We are working. We have couple of things that we're working on some customers on that.

The MUSH market, the other market that we are addressing, the financing is very good. Once in a while you might get some issues. A particular customer wants 20 or 25 year financing. The banks, they are willing to do 17. But so far we've been able to bridge those gaps one way or another. It might add a few months in the process, but at the end of the day, we were able to finance.

It's not the driver of the delay. Maybe it contributes here and there, but it's not a driver. The driver is the customer anxieties taking additional debt and the additional hoops that they have to go through.

As far as the accelerated, the M&A, we took a little breather, because we did a couple of big acquisitions, three big acquisitions last year. But we are actively back out in the market and we are looking to see what we can do. But, I will not accelerate it because we do not have the growth in the other areas. But I will very carefully look at if somebody else gets in bigger trouble than we did.

Then it might be good opportunity for us to buy somebody at a very decent price. We are very active -- our team is very actively looking for new opportunities. But it will not --- we always look at, and make sure that they are accretive, and make strategic sense; and they add value to our company.

Then getting back your question. The ITC announcement was very good news for us in terms of how they were going to look back, the retroactive period. Their decision yesterday effectively reduced the potential exposure that we could have. We didn't believe that it would actually be that high. But our absolute exposure dropped from about $8.8 million down to somewhere a little over $3 million.

However, we still believe that the, ultimately, whatever tariffs apply will be much more modest than that. We have a small reserve set aside. We believe that reserve is adequate to cover any potential liability.

Thank you very much.

Thank you for your questions. (Operator Instructions). Okay, ladies and gentlemen, I would now like to turn the call over to management for our closing remarks. Please go ahead.

Thank you, Nancy. With that, I do like to thank you for joining us at today's call. We will talk to you next time. Thank you very much. Have a good day.

Thank you for your participation in today's conference. Ladies and gentlemen, this concludes the presentation.