Ameresco Inc (AMRC) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ameresco fourth-quarter 2016 earnings conference call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Gary Dvorchak. Sir, please go ahead.

Thank you, Liz, and good morning, everyone. Thank you for joining us for Ameresco's fourth-quarter 2016 earnings conference call. I am joined by George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer, and John Granara, the Company's Chief Financial Officer.

On the call, management will review the operating and financial highlights of the fourth quarter as well as discuss full-year 2016 results. Following the highlights, we will take questions from the audience.

Before I turn the call over to George and John, I would like to make a brief statement regarding forward-looking remarks. The 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 uncertainty that pertain to our business. Ameresco refers you to the Company's press release issued this morning, its annual report on Form 10-K filed with the SEC which will be filed on March 4, 2016 (sic), and in our quarterly report for the quarter that ends in March 31.

These will discuss 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 the 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. George?

Thank you, Gary, and good morning, everyone. At this time last year, we offered you an optimistic outlook for 2016. Today, we are happy to report that we delivered. We offered guidance in revenue, gross margin, expenses, net income, and adjusted EBITDA. And we are now reporting results in line with that guidance.

Most importantly, net income and adjusted EBITDA grew double digits, much faster than revenue, which is always our goal. Our marketing performance in 2016 was outstanding as well.

Total product backlog is $1.5 billion, which is 11% higher than a year ago. Project backlog consists of $0.5 billion in contracted backlog, which is 37% higher than this time last year. New awards grew 12%, bringing awarded backlog up to nearly $1 billion. As you can see, we already have good visibility into 2017 and beyond.

On top of that visibility in projects, Ameresco continues to build energy sales and operational maintenance, both of which very stable and higher margin. Those revenue streams contributed 20% of our 2016 revenue and over 50% to EBITDA, and should continue to grow in the years ahead.

Notably, our operational maintenance contracts and power purchase agreements generally expand out 20 years, providing long-range visibility to a profitable line of business. We believe there are few companies in our sector that can match our combination of profitability, growth, and visibility.

Our solid execution was not limited to the financials. We laid out four strategic initiatives that will drive our results both in 2016 and the years ahead. We executed on plan this past year and continue to focus on these goals for 2017.

Our first strategy was to aggressively but prudently invest in project development with a goal of building our pipeline. The result is a growing backlog. As I mentioned, our total backlog is now up to $1.5 billion give us great visibility and momentum heading into 2017. We will continue to invest aggressively but wisely in project development in the coming year.

Our second strategy was to increase our geographic penetration. We noted that our business was underrepresented in certain regions of the country. We stepped up hiring, enhanced marketing efforts, and opened offices around the US. We are seeing positive results. Backlog and revenue are growing meaningfully in our target regions.

Our third strategy was to continue to build our portfolio of distributed generation assets. This market has been driven by the desire for greater energy security, reliability, and resiliency. Customers are aiming to build a robust energy infrastructure with backup power solutions, renewable energy, and a wide variety of power sources like solar, combined heat and power, storage, landfill gas, biogas, and more.

In 2016, we grew our project assets by a third, driving 18% growth in energy sales. Naturally we expect to continue to grow this portfolio in 2017.

Our final strategic initiative was to restructure and optimize certain lagging operations, specifically Canada and our software business. In Canada, the restructuring is essentially complete and we are seeing positive results. Our management team is driving success in our core project business and we swung to profit. We expect Canada to again be a contributor to profit and growth in 2017 and beyond.

Meanwhile, our energy management software tools are now an integral part of our project sales process. Further, we reinvested the savings from these efforts into initiatives I mentioned before. In 2017, we will move our focus to more broad-based optimization to achieve operational excellence.

I can characterize our performance as exceptional. But there is always room for improvement. For instance, growth in our core US project business was behind the double-digit growth we anticipated at the start of the year.

However, revenue still increased, mainly due to the outstanding growth in our federal business of nearly 40%. Along these lines, we also anticipated more challenges in our off-grid PV sales. And in fact, they were down by 27%.

On top of the existing strategies, we will continue to use innovative technologies and implement complex designs to differentiate our results in the market. Our value-add comes from the engineering that integrates multiple technologies across very large and complex projects.

One example is our recently announced project at the Marine Corps Recruit Depot at Parris Island, South Carolina. This is a $91 million project to design and build a sitewide state-of-the-art micro-grid. It integrates 10 megawatts of new on-site generation and battery storage.

Ameresco will engineer, construct, and operate the energy-generating assets through a self-funding energy savings performance contract. This will provide energy infrastructure upgrades to the more than 8,000-acre military installation.

The project will provide a reliable source of heat and power combined with advanced controls and energy storage technology. This will allow the site to operate in island mode during the loss of utility connection, thus ensuring the operation of mission-critical systems. Overall, the project will revitalize Parris Island's existing energy infrastructure.

We are also seeing resiliency as a priority for other customers. Ameresco recently announced a project at a 1,200-acre urban business campus known as the Navy Yard in Philadelphia. We are working with the Philadelphia Industrial Development Corp on the energy infrastructure for the development, which encompasses one of the largest micro-grids in the US.

Ameresco is designing, engineering, and building a 6-megawatt natural gas pickup plant and providing long-term operational maintenance. The project reduces energy costs, but also increases resiliency since the plant can operate reliably during any outages.

These types of projects, which are becoming more frequent for us, require a high level of design and engineering expertise. We believe Ameresco has a more advanced in-house capability than many of our competitors.

We also believe we benefit from being technology-agnostic. We are free to create the best design using the best technology available today to meet our customers' needs. Our customers appreciate our nonbiased independence.

Ameresco's expertise and innovative approach extends beyond energy to total resource efficiency. For instance, water efficiency now is a critical aspect of many of our bids. And sometimes, the dollar savings on water can be greater than the dollar savings from power. In the Parris Island project, for example, we are integrating water conservation designs which are expected to reduce usage by 27%.

We have announced several other large projects that include water savings. At the Buckner, North Carolina, prison project, our work will reduce water consumption by 40%. Similarly, our work at four agency buildings in DC under the GSA deep retrofit program will also result in water consumption savings of 54%.

We believe that our Company's focus on innovation and total resource usage has resulted in winning larger, more complex projects. We see this trend growing in upcoming projects that we are pursuing. Our average project size is expanding. And some of the RFPs we are starting to see are exceptionally large. This gives us confidence in the growth outlook of our industry in general as well as our ability to compete and hold or even gain market share.

Now let me address one final issue before I turn the call over to John. With Ameresco's federal business so strong, we are naturally getting the question of what the new administration may mean to our momentum in this sector.

Frankly, it is too early to tell how the landscape might change, but we remain optimistic about this market segment. The key reason is that our federal projects are driven by economics. The projects are self-funded and subsidized and positively impact the federal budget. They create new jobs, improve infrastructure, and do not require appropriations.

As one of the largest lenders in the world, the federal government has a perennial need for energy infrastructure, energy resiliency, and improvements that are cost-effective. Our business model allows the federal government to invest in its vast portfolio with no upfront capital and to the private sector.

These investments reduce energy costs and overhead expenses address deferred maintenance and repair aged and inefficient buildings. Each of the last four administrations has leveraged energy savings performance contracts and built upon past successes.

We believe an emphasis by the current administration on public-private partnerships could increase the use of energy savings performance contracts as a cost-neutral complementary tool to support the president's infrastructure plans.

We do acknowledge that there could be a bit of slowdown as new leadership and management teams take over the various agencies. However, we are not aware of any immediate impact to our federal business or backlog at this time. We continue to work diligently with our federal partners.

Now I will turn the call over to John for the financials. John?

Thank you, George, and good morning, everyone. As we get started, please note that unless otherwise stated, all the amounts I reference relate either Q4 or the full year of 2016. And unless I say otherwise, all the comparisons are for the year-over-year changes.

In reviewing our results, the prepared remarks in our website offer both our lines of business and our traditional segment reporting. This will keep the time series comparable for you.

So let's look at the results, starting with income statement. Q4 revenue of $174 million met our expectations. Project revenue was essentially flat, while energy sales were up 23% and operations and maintenance was up 4%. As we expected, all other revenue was down 16%. The all other category is mainly off-grid solar.

For the full year, revenue increased 3.2% to $651 million. Growth was primarily driven by strength in the federal and small-scale infrastructure segments, which were up 40% and 23%, respectively. The growth in both federal and small-scale infrastructure segments was partially offset by the revenue decline in the US regions and all other segments.

Breaking out the year by lines of business, project revenues of $454 million were up 4.6%. Revenue generated by our operating assets grew 18% as we recognized the full-year benefit from assets that we placed in service in 2015.

O&M also delivered positive results, with revenue up 6.7% year over year, driven by the addition of new contracts. The project, energy, and O&M revenue growth was partially offset by a 16% decline in our other lines of business, which again was mostly off-grid PV sales.

Now let's look at gross margin and operating expenses for Q4. Gross margin was 20.7%, up from 19.4% a year ago, which excludes the SRO loss in Canada. The gross margin upside was primarily driven by better revenue mix.

Operating expenses before restructuring were $28.5 million compared to $27.3 million last year. For the full year, gross margin was 20.6% compared to 19.6% last year, which again excludes the SRO loss.

Operating expenses before charges were $104 million compared to $103 million. Operating expenses as a percent of revenue and before charges was 16%, down from 16.4% last year. The charges include restructuring and the SunEdison bankruptcy.

Looking at taxes, we had a $4.4 million tax provision in 2016 versus $5 million last year. Our effective tax rate for the year was 27%. Net income for the fourth quarter was $3.3 million versus a loss last year of $1.1 million. Non-GAAP net income in the quarter was $3.6 million or $0.08 per share, down from $4.2 million or $0.09 percent.

Net income for the full year was $12 million or $0.26 per share versus net income of $0.8 million or $0.02 per share last year. Non-GAAP net income for 2016 was $16.8 million or $0.36 per share, which is up from $9.6 million or $0.20 per share.

Adjusted EBITDA for the fourth quarter was $14.4 million compared to $13.1 million. Importantly, as George highlighted, we achieved one of our primary goals this year, which was to grow adjusted EBITDA faster than revenue. The full-year adjusted EBITDA increased 22.5% to $56 million.

Turning to our balance sheet, here, all the comparisons I make are sequential from the start of the quarter to the end. Cash and equivalents including restricted cash was $33 million, up $2 million. Accounts receivable including retainage was $103 million, up slightly. Project assets were up $41 million, bringing the total to $320 million.

Consolidated debt of $160 million was up $31 million. Around 70% of our debt is nonrecourse. Lastly, to prepare for more growth, we increased our corporate debt facility by $20 million.

Our adjusted cash flow from operations for the quarter was $14 million. For the year, we generated $32 million. Capital expenditures for the year were $76 million; nearly all of that was for operating assets. Our maintenance CapEx for the year was $2.8 million.

Turning to project backlog, our contracted backlog increased 37% and now stands at $534 million. The growth was driven by 167% increase in federal. As important, we performed quite well in new awards. They grew 12% for the year, with 25% growth in federal driving that performance. Our total project backlog of $1.5 billion is 11% higher than this time last year.

As we stand now, of our total backlog, 48% is federal, 47% US regions, and 5% Canada. This is important, as we are maintaining a good balance across all of our segments. Also related to backlog, our assets under development were $228 million, an increase of 35%.

Moving on to guidance, before I give you the numbers, I do want to address some changes we are implementing this year. But I want to emphasize the changes do not conflict with our commitment to full and open dialogue with our investors and are designed to encourage you to look at our business the same way we do internally.

First, we are going to limit our guidance to annual numbers only. The reality is we look at the economics of our business on an annual basis. Earlier, George emphasized the visibility of our business, which is absolutely true on a longer-term basis.

But in the short term, any number of factors can throw off the quarterly results in a way that is not economically meaningful. Since we -- internally, we concentrate on the annual plan, we want to encourage our investors to do likewise.

Second, we are going to limit our guidance to top line and bottom line. The nature of our business is that many fixed personnel costs can vary in utilization. Salary can sometimes be charged to a project, sometimes to project development costs, sometimes to corporate overhead.

This means that our gross margin and operating expenses can move around in odd but not economically meaningful ways. Since the top line and bottom line are what matter most and are most predictable, we are going to limit our guidance to revenue, net income, and adjusted EBITDA.

So let me give you the numbers. As George noted, we are optimistic about our outlook and confident we can achieve accelerating revenue growth and even faster profit growth in the coming year. We expect 2017 consolidated revenue to be in the range of $665 million to $700 million. This outlook reflects the resurgence in our nonfederal US business, which should be back to double-digit growth.

Our federal business should take a pause after the great growth of the past couple years. It should range from flat to upper single digits. Energy sales should again achieve a midteens growth rate based on the assets in development now. Also, we are anticipating stabilization in our off-grid PV business due to the pickup in oil field activity.

We expect EPS in the range of $0.37 to $0.43, which is based on a fully diluted share count of 46 million. Adjusted EBITDA should be in the range of $60 million to $65 million.

This guidance reflects the stability in our gross margin and our usual tight expense control. To help your modeling, we expect the quarterly pattern during the year to look similar to the 2016 pattern. Please keep in mind the guidance we've provided excludes the impact of any noncontrolling interest or any restructuring or other unusual charges.

With that, we would like to open the line for your questions. I will turn the call back over to our coordinator, Liz, to run the Q&A session.

(Operator Instructions) Craig Irwin, ROTH Capital.

Thank you for taking my question. So George, I understand the complexities of giving guidance. And how you look at the big picture as your business develops, you have really good visibility on what you're going to implement over the course of a year.

Can you maybe talk a little bit about the gross margins in backlog? How this has been trending over the last year. And whether or not some of the margin volatility that you might encounter might be related to pass-through revenue or other items in mix that could make it more challenging for a sell side analyst that's trying to put a model out with quarterly expectation.

That's a good question. But John does a great analysis of the numbers. I will let him answer it.

So look, I think that in our prepared remarks, we did say that we expect the gross margins to stabilize. So we are -- I do believe given where the backlog currently is, I would say that -- I expect them to be pretty consistent, which is currently 20.5%, somewhere in that range.

That being said, I should clarify that that is based on what we have in contracted now. We do have some projects that may come into awarded backlog from our pipeline that could swing the gross margins. And if that were the case, we certainly would update you on a quarterly basis. But where we sit right now, we're not expecting the gross margin to materially change on an annual basis.

In terms of operating expenses, that would be the same. So similar to the way we are now, 16%. So we are not trying to reduce the amount of guidance we are giving. We are really just trying to -- we want the investors to really see the business the way we do. And that is just more over a longer-term annual basis.

And so in terms of shaping the year, I think if you go back and look at the last three to five years, you're going to be able to see that in Q1, typically it's our lowest quarter seasonally, which is typically 15% to 20% of revenue. Q2 is typically 20% to 25%. And then the second half of the year, which -- at this point of the game, we wouldn't know, other than it's probably going to be flat, the 60%. So 30%, 30%, somewhere in that.

So that will give you an idea of how to shape the year, where we stand now. And if that were to materially change, we obviously would update everybody. But again, we are trying to put the focus more on the long term and the annual basis and not on a quarterly basis. We are trying to do that not only for the investors, but also internally.

Great, thank you for that. So then if we could talk a little bit about the off-grid PV business. I understand that being weak. I think anyone that follows the solar market even superficially will understand the challenges there.

But can you discuss the overhead associated with this business, whether or not it is a positive economic contribution. And how you look about the future of this business, whether or not it is something that is core to what Ameresco's broader mission is over the next number of years.

Sure. Thanks, Craig. I can take that one as well. So I can say that at about $30 million, it's a breakeven business. So it's not hurting us, but it's not materially helping us. And so just a reminder, a few years ago, that business was in the $50 million range. So where it was a contributor at that point in time.

Looking at the business, if we can get it -- if you are looking at what's happening now in terms of infrastructure upgrades and things of that nature, we do see a need for off-grid solar and specifically off-grid solar projects to support the spending that is going to occur in infrastructure. So remember, the off grid solar business will have the standalone solar signs along highways. So for transportation and any work that is being done along highways, certainly they are going to need those types of products.

And so given that the products are usually bought or purchased by our core base of public and institutional, we do think there is some overlap there. And also integrating that within our core business as we are doing more and more work with universities and higher education, you will see a lot of off-grid solar panels standing independently as well.

So we are looking for that business to -- we are not expecting immediate growth this upcoming year, flat to moderate. Maybe up 10%, but again, that's off a very low $30 million base. But we do see a scenario where they can get back to the historical levels in the next three to five years.

Great, that's good to hear. Then my last question is really a little bit more macro. So your backlog -- committed construction backlog pipeline, these are metrics that I know you watch very, very closely.

And when we look at them today, they are all fantastic. They are showing us that things are sort of up and to the right, and it's a place where Ameresco hasn't been for a number of years.

For those of us that are cautious on the continuation of this pipeline progression with the change of administration in Washington, DC, the hiring freezes imposed on a number of agencies, reversal of the prior presidential orders mandating efficiency levels, or something like this could be a real speed bump.

And I was curious if you had any thoughts or feelings about the overall momentum of the market, whether or not we are likely to see similar momentum to what we saw in the back half of last year or maybe even the first half. And if you believe that Trump is likely to maybe take a different tack on his priority for building infrastructure, and how Ameresco could participate there over the next number of years.

That's a good question. I will try to handle the most parts of that and then let John add some color to it. It's hard to tell what the new administration will do, but I think the bottom line is that because of what they want to do on the public-private partnerships of the infrastructure program, it is possible that they could use the energy savings performance contracts to expand -- otherwise the federal market to expand from what we are doing right now.

But at the end of the day, we do not know. The other thing that I will say, though, we've been working with all the agencies, and so far, they continue to ask for new requests for proposals. We have a substantial amount of [extracite] contracts, which makes us feel pretty good where we are with the federal market right now. Again, on the awarded contracts we have in that particular group, we are in pretty good shape.

So in the short term, like I said, because it might have some management -- as new management leadership comes into the various agencies, you might see some slowdown until they get educated about the various programs. But because the economics are driving this effort, I see sustainability of a good market for us in the federal sector.

As far as the other markets from the macro point of view, last year -- the year before, the central and northwest, they had the best year in the Company. And last year, they were very adversely impacted. And that's -- because a couple projects actually executed projects and they were put on hold. They couldn't build them out. So that hurt us a little bit.

But around the country, and that's why we are optimistic about the future, we feel that we are getting better traction than we were, let's say, 18 or 2 years ago -- 18 months or 2 years ago. So I am, Craig, optimistic about our business.

John might want to add something to that.

Yes, Craig, just add a little bit more color on the numbers. I can tell you that we have proportionally a higher number -- a higher proportion of federal backlog contracted. And I mentioned the 167% increase year over year. It's about $250 million of our backlog is in contracted for federal. And that is up significant.

So I think we take comfort in the fact that a good portion of what we are relying on this year is coming from contracted. We are not planning on any significant new awards or contracts to convert this year.

The projects are larger and more complex, so I will say you are not seeing the acceleration of growth in comparison to the backlog because these projects do have longer implementation periods of two to three years. But that gives us visibility into 2018 and 2019, where we didn't have that visibility a year ago.

So all things being considered, we feel like we are in a much better position, and we are not planning on any significant growth in that group this year. So I think which -- from our standpoint, which we didn't have the -- we didn't -- there was some uncertainty in terms of where the administration was going. So I think the message here is that the numbers do not expect or we're not expecting the federal growth to sustain the same amount of growth that we did this past year.

And we want to manage that growth a little bit because we feel that that group grew substantially -- 40% last year. That they are -- they have the capacity to deliver very good product. Otherwise, we don't want this service quality to go down.

This 40% growth in particular group, we have to hire a lot of people, we have to train a lot of people. It is a challenge. But we've been able to do it. And the contracts that they have, like John pointed out, in their books right now, they have a longer implementation schedule: two years. A couple of them, they have three years' implementation schedule.

That is very encouraging. Thank you very much for the update and I will hop back in the queue.

Noah Kaye, Oppenheimer.

Let me start with some question around the guidance as it relates to the fully contracted backlog. I believe -- correct me if I'm wrong -- that that fully contracted backlog is at its highest level exiting the year in at least five or six years. And if I --

Yes.

Oh, great. So first of all, I'm right. But if I kind of look backwards at your history of adding to project revenue versus where you are starting the year off with contracted backlog, it typically could come in above.

And I think combined with your commentary for the growth in energy and maybe stabilization in off-grid PV, I'm just trying to understand, do you have some reduced expectation for incremental business in the project segment this year? If so, what's driving that? And if not, how should we think about how conservative you might be on this guide?

Sure. So a couple things. I will add some color there. So a couple points to keep in mind is that one, we have been burning off a very large project in Canada. It's been a 0% margin project for us. We accrued the loss last year in 2015.

And so if you actually exclude -- and I think we have said we are replacing that revenue with smaller, more profitable projects. And so that was probably about $20 million of backlog last year. And I think it was about $2 million this year.

So if you exclude that project, we are actually planning -- we are planning to grow the business organically closer to 9% than our consolidated revenues and guidance that we provided in our prepared remarks.

So that being said, the lengthening of the implementation periods for the federal projects specifically, and we actually have a large housing project that we signed in Q4 that has a two-year period, our 12-month backlog, which is the amount of backlog we are expecting to burn, is consistent, or maybe about $20 million higher if you exclude the impact of SRO than last year.

So the good news is is I think we are -- from a visibility standpoint, we have longer-term visibility, multiple years, than last year. And that if you look at the proportion of our backlog, a higher proportion isn't contracted. So we are less relying on awarded and pipeline projects. But in terms of being conservative, I would say I don't think it's conservative. But I think it lends to the credibility that the numbers are achievable.

That's extremely helpful color. Thanks, John. I'm sorry, George, did you want to --?

No, the top-line growth, the 9%, when you exclude organically, we think it's pretty good growth. And then if you look at the EBITDA, again, that's where the emphasis is. We are growing double-digit growth. So that's going to be a pretty healthy growth, we anticipate.

And the other thing that makes me feel very good about the business is that at least now, over 50% of our EBITDA comes from what I call annuity-based business with long-term contracts. That takes away some of the lumpiness of the project business.

Indeed, indeed. And just to follow-up on that point, you provided some metrics in the 8-K and in your prepared remarks around the assets -- the renewable energy assets you've currently got deployed. Could you give us a rough expectation of what you need to add next year to get to that midteens growth for energy sales?

Yes, I will let John answer that in more detail. But from the overall point of view, we do have $228 million full of project assets in development, which was 35% up from last year. So it's based -- the growth that we see comes from those particular assets and not [building] all of them, but there's a good chunk of it.

I will let John add a little bit more color.

Yes. So Noah, a couple things. We did at the beginning of the year say that we were planning to add 20 to 30 megawatts in service. Clearly, if you look at where we ended last year and this year, we did not hit that.

So there were some delays related to some of the projects at Massachusetts that were impacted by the lack of clarity around an SREC program in Massachusetts and also the net metering issue. So what had happened was is that changed our focus less on putting the assets in service by the end of December and getting as many of our assets -- what they deemed to be mechanically complete, and I think it was January 7, 2017.

And so I can say that we placed about 8 megawatts in service during the year, which was short of our original goal. But we had more than 20 megawatts -- just over 20 megawatts that met the mechanical completion date, which means we will be eligible for that SREC II program in Massachusetts on January 2017. So that was important for us. So we would expect those 20 megawatts certainly to come online over the next six months.

In addition, we are and we have been saying we are developing a couple of biogas plants that will be brought onto service towards the end of the year. That's not going to be contributing meaningful revenue this year, but more importantly, on an annualized basis going forward, it certainly will. And so we are expecting to put those -- get those assets up and running or closed up and running towards the end of the year.

So we feel good about where we are at in terms of the construction process. We have -- of the $228 million, we have $149 million of -- in construction right now and 57 megawatts. It does include 23 megawatts for the biogas plants and about 34 megawatts for solar. I'm not expecting all of that to be in service by the end of the year, but a good portion of that will be.

Okay, that's again extremely helpful. Thanks, John. And I guess the last one -- and I want to follow up on both your commentary on the federal and the question that Craig raised.

It's clear that the Trump trade thus far has not benefited shares. Perhaps there is a perception that somehow a -- that administration change is bad for energy efficiency. But from our perspective, it seems clear that energy efficiency is nonpartisan and economic.

And moreover, we've been hearing that there is a possibility of actually expanding the ESPC program to include potentially even federal assets other than buildings, particularly given that we seem to be relatively far away from any kind of infrastructure legislation passing Congress. This does seem like a near-term and relatively efficient way to drive investment through the ESPC program's expansion.

And since you mentioned a potential expansion, I guess I would just like to clarify where that possibility of expansion is. Is this something that you've had any kind of preliminary talks with policymakers on? Are they in relatively developed talks? How should we think about that potential catalyst?

Ourselves as well as the industry, we do have preliminary talks with the administration. We have written several letters and so on. And we had the Executive Order by President Obama to do the $4 billion of energy savings performance contracts. And we would like to expand that order to be of larger magnitude because we say it is consistent with their overall goal of public-private partnerships and infrastructure upgrades.

And they need them. There's as much as $50 billion to $70 billion of potential projects associated with energy savings performance contracts in federal buildings. So that's what -- it makes us feel good, I would say, or cautious optimistic because of the economics -- the great economics associated with this particular offering.

And I don't know if John wants to add anything to it, but --.

Yes, I would just say, look. The new administration is not taking any specific action regarding the performance contracting. But the federal agencies are continuing to issue bids for the new opportunities. So we are continuing to see opportunities of designing constructive projects.

And for the most part, everything has been operating business as usual through the transition thus far. So so far, we haven't seen any impact. We are very actively working to educate the new administration on how to further leverage the program to support its infrastructure and jobs plans.

And we have had an ongoing outreach with Department of Energy, for example, and also our defense customers. And the defense customers in particular have been leveraging the private financing. I can say that of our backlog, over 40% of it is coming from the Department of Defense.

Obviously, the project we announced in Q4, Parris Island, was a very important project for the Department of Defense and a top priority for them when you look at the deferred maintenance backlog, and then also for the energy resiliency purposes. So we think that at least right now, and qualify it, up to this point, there's been no significant change.

Again, very helpful. And just to qualify, you said over 40% of backlog coming from DOD. Is that 40% of the --

Contracted --

Federal portion?

Contracted and awarded. Yes. Sorry, yes, sorry. Of the federal portion.

So 40% of 48%. Yes.

Yes, that's correct. And that number is what we have in contracted and awarded. So that -- as the projects go through the audit, the numbers will change from time to time. But that's where we stand now.

Okay, thanks very much. And good luck in 2017 and beyond.

(Operator Instructions) Carter Driscoll, FBR.

Thanks for taking my question. Just regards to your guidance and in the commentary, you talked about both the project scope and the size of the projects continuing to increase. Is that playing an impact in moving back towards annual guidance?

And then maybe you could talk about the ability to leverage resources if these projects are both expanding the scope and size and tying up some of those specific assets and being able to maneuver quickly to a new opportunity. Just kind of the cadence of how you see that playing out.

And then maybe a third part. Just if you could kind of maybe list in priority the types of -- how the scope is changing. Is the power increasing? Is it the complexity of adding storage? Just some additional color would be helpful try to understand that earlier commentary. Thank you.

Yes, Carter, thanks. And I may need you to jump back and remind me what the questions were. But let me handle the first one, which was -- is the larger projects. The larger, more complex projects moving us more towards the annual.

I'd say to some degree it is -- with the larger projects, if a larger project slips by one month or two months, it can change within the quarter. But again, it doesn't materially impact the health of the business.

And so on an annualized basis, we feel like we have -- we look at our portfolio as a whole. And you can kind of hedge against which ones may start earlier, which may stay late, so as a whole, looking over the horizon for 12 months, we feel pretty good that we are able to accurately forecast that.

But for example, if we have a $91 million project that is supposed to start in the month of April and it doesn't start until the month of June, that can impact the quarterly -- the numbers meaningfully. But again, doesn't really impact the health of the business overall. We still have that in backlog. It's just the pace at which it comes in and out of backlog.

So I think from that standpoint, that's why we are really trying to focus more on the annual numbers than the quarterly. And I think your second question related to the assets?

Just trying to get a sense of the scope of the projects. What in particular is changing? Is it the power requirements? Is it the additional (multiple speakers).

Okay. It is -- the concept -- and this is what makes us feel very good -- has gotten acceptance now where people -- they look at it more for resiliency and backup. That's why you see backup power. In addition to that, they have renewable goals that they want to meet. So you have a combination of installation of renewable power with SPV or whatever else the case might be.

So in addition to that, they want to be able to operate as an island because of any contingencies that they might have in a particular base or building or whatever the case might be. So we see more and more customers requiring us to come up with more comprehensive projects that they address, not just the energy efficiency, but the overall total energy usage and resiliency associated with a particular base or particular building.

And that plays to our strength. Because that's -- we feel Ameresco has the expertise, the engineering expertise, to handle complex technologies.

Perfect. I appreciate it. Thanks for your time.

I am showing no further questions in queue at this time. I would like to turn the call back to Mr. Sakellaris for closing remarks.

Thank you. To conclude, I first want to thank our employees. An outstanding year like the one we just finished would not have been possible without their hard work and dedication. I also want to thank our customers. Meeting their needs is what drives us to innovate and excel in everything we do. I also want to thank our stockholders for their support.

As we move in 2017, we intend to build on our track record of stellar execution of a compelling growth strategy. We believe our guidance is both realistic and pushes us to continue to accelerate our growth and improve our profitability.

We will invest in building our project pipeline. We will drive further penetration around the US, and we will invest in expanding our portfolio of operating assets. We will use our expertise and culture of innovation to pursue larger, more complex projects which will drive growth and help visibility.

We are off to a great start so far for -- in 2017 and look forward to reporting our progress to you throughout the year. Thank you for your interest and support. I will now turn the call back to the operator. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.