Ameresco Inc (AMRC) 2021 Q1 法說會逐字稿

Thank you for standing by, and welcome to the First Quarter 2021 Ameresco, Inc. Earnings Conference Call.

(Operator Instructions)

As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Leila Dillon, vice-president, marketing and communications. Please go ahead.

Thank you, Jonathan, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; Doran Hole, Senior Vice President and Chief Financial Officer; and Mark Chiplock, Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward looking remarks.

This call contains forward-looking information regarding future events and the future financial performance of the company. We caution you that such statements are predictions based on management's current expectations or beliefs. Actual results may differ materially as a result of risks and uncertainties that pertain to our business. We refer you to the company's press release, issued this afternoon, and to our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call.

In addition, we 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 and in the appendix of the slides, which can be downloaded from our website. I will now turn the call over to George. George?

Thank you, Leila, and good afternoon. I hope everyone is staying healthy and safe. The first quarter marked another excellent quarter for Ameresco, as we posted great financial results and completed our first equity raise since our initial public offering over 10 years ago. Where our first quarter began slowly, with inclement weather in some of our project sites and operated plants, our focus on execution, coupled with the improving weather positions, led to improved performance throughout the period. The results far exceeded our expectations, with revenues increasing 19%, net income increasing 80%, and adjusted EBITDA up 40%.

With this strong start, we are raising our annual guidance. And now, I also want to take this opportunity to thank our employees for their tremendous dedication and hard work, despite these challenging times. Our project business had another strong quarter, while our energy assets, again, posted solid results. And we continue to focus on project execution.

We were very pleased to see a meaningful pickup in awards during the quarter, which will lead to future growth in our contracted backlog. We were also very pleased to have successfully executed an equity offering, bringing in over $120 million in proceeds to the company. While we historically have founded our long-term growth primarily through internally generated cash flows and non-recourse project financing, we decided the timing was right to accelerate our growth by raising additional outside capital. For many years, we have been growing our energy asset portfolio to provide highly profitable, recurring revenue that increases our long-term visibility and profitability. Over the last few years, our team has been so successful that our assets in development and construction are now greater than our current operating asset base. In particular, we will accelerate the development of a number of financially compelling renewable natural gas, RNG assets.

With this new capital, we now anticipate building 3 RNG plants for commissioning during 2022, and then another 4 during 2023. Over the last few years, we've seen a dramatic increase in interest in using RNG from a number of [our] customers, including large transportation and logistic companies, natural gas utilities, and distributed energy resource owners. Just the other day, Washington State announced the low carbon fuel standard, joining Oregon, California, and British Columbia. Back in 2010, Ameresco became one of the first companies in the country to commission an RNG plan. Currently, RNG is the most natural path to reaching a reduced or zero carbon footprint for many of these companies. With our current operating RNG assets and those that we will be adding over the next few years, Ameresco will remain a leader in these environmentally important and possible technology. Many of the early policies, actions, and statements from the new administration in Washington support this increased interest in RNG.

Additionally, we believe that Ameresco is in an excellent position to benefit from the new administration's focus on a low carbon future. Already, we have seen the US rejoin the Paris Climate Accord, and most recently, they announced goal to cut US greenhouse gas emissions by up to 52% from 2005 levels by the year 2030. Also, the administration plans to directly fund and invest in the country's low carbon future through another bill currently working through the legislative process.

A good example of this target in investment is the approximately $1 trillion, or the $2.3 trillion infrastructure package, which will target projects designed to mitigate climate change. This includes expansion of solar and wind power, charging stations for electric vehicles, technologies to capture and store carbon pollution, and equipment to make infrastructure more resilient against severe weather and other contingencies. This new government priorities are beginning to filter through the economy. We're already seeing traction with state and local governments and in commercial and industrial markets where we are filled in a number of requests from companies looking to report and demonstrate progress on ESG initiatives to reach carbon reduction targets.

Ameresco is well positioned to thrive in this new environment. We were recently ranked the number one energy-as-a-service provider in the Guidehouse Insights Leaderboard Report. This highlighted our ambitious energy-as-a-service vision, expertise in technology solutions, track record of success across customer segments, and our ability to provide financing for energy-as-a-service projects. The strong Ameresco brand and our reputation as the industry's leading provider of distributed energy resources should enable us to benefit from the very attractive growth opportunities in our clean technology markets. I will now turn the call over to Doran to provide some comments on our financial performance and our increased guidance. Doran?

Thank you, George, and good afternoon, everyone. I'll ask you to please refer to our press release and supplemental slides that have been posted on our website for additional financial information. Clearly demonstrated our momentum in the first quarter, showing strong growth in revenue, net income, and EBITDA. As you may recall, we were somewhat cautious at the beginning of the quarter, given the poor weather in key markets around the country. While the weather did have some impact, it was more than offset by strong execution and better business conditions in general, leading to progressive improvement throughout the quarter. Revenue increased 19% year-on-year, again, led by the excellent performance of our federal group. We also had strong results in our energy asset business due to several factors, namely the increase in the number of operating assets, favorable production levels, and an increase in RIN pricing in our renewable natural gas operations.

This better than expected revenue performance, along with tight expense controls and increased operating leverage, drove an impressive 80% growth in our net income to approximately $11.2 million and 40% growth in our adjusted EBITDA to approximately $30 million. As George mentioned, we were very pleased with the more than 35% year-over-year growth and 15% sequential growth in our awarded backlog, which now stands at $1.5 billion. The uptick in origination activity and customer engagement we're experiencing now not only helps build the awarded backlog, but also provides a more normal cadence for converting awards to contracts. As a result, we're confident that our lower contracted backlog, which was attributable in large part to strong execution over the past several quarters, will be more than replenished over the next several quarters.

Our assets in development had another quarter of impressive growth, ending the quarter at 386 megawatts, represented by multiple technologies and geographies. Our 287 megawatts of operating assets have approximately $940 million in long-term contracted revenue and incentives. Together with our $1.1 billion O&M backlog, we are continuing to grow our higher margin, recurring revenue businesses, providing us great long-term visibility.

Ameresco's liquidity has never been stronger, and we have ready access to the resources needed to execute our aggressive growth strategy. We have significant cash balance of $81 million, and over $100 million of capacity on our revolver. Additionally, we have broad access to non-recourse project financing and tax equity, as well as the ability to monetize development assets. For example, during the quarter we expanded one of our committed sale leaseback facilities from $150 million to $350 million.

On the back of our outperformance in the first quarter and the noticeable improvement in business conditions, we are raising our 2021 guidance. Our new revenue range is $1.11 billion to $1.16 billion. EPS is now expected to be between $1.22 and $1.30. And we are forecasting EBITDA of $140 million to $150 million. Now, I'd like to turn the call back over to George for closing comments.

Thank you, Doran. In closing, I want to, again, take a moment to thank our employees, partners, and customers for their continued commitment and cooperation. Together, we have been able to show tremendous resilience in the face of challenges. With favorable federal policy momentum and now our enhanced financial position, Ameresco is uniquely positioned for accelerating longterm growth as our customers continue to prioritize core savings and resiliency, as well as lower their carbon footprint.

Operator, I would now like to open the call to questions.

(Operator Instructions)

Our first question comes from the line of Noah Kaye from Oppenheimer. Your question, please?

The first one on the project side of the business, I think it was really nice execution in the quarter. Can you give us some color on what enabled you to capture some of the project revenues in the quarter a bit higher than previously thought? What was just -- logistics getting easier? Was there any sort of pull forward? Is there any kind of evidence here of prioritization being given to these projects just given sustainability considerations? And then how does that impact your thinking for the remainder of the year?

Yes, it's a very good question, Noah. I would say we pulled in in March and add some more color to it, about $30 million from the balance over the year. Otherwise, for quarters two, three and four. And the primary reason for it, even though we had some weather delays in the central region, in the federal group, we were able to, especially one of the large projects, the Norfolk Naval Shipyard, we're able to get the permit about two and a half months ahead of schedule. And in addition to that, some of the approvals associated with that particular project, they came in a little bit faster.

As a matter of fact, we're about $25 million ahead of our advanced scheduling in payments coming out from that project. And then we had a couple of delays at New York on the approvals, the New York housing, that is. But primarily with the federal group, they had the ability to pulled in some additional revenues, about $30 million, which of course it came off the other quarters.

That's great color. Let me ask one about regulation and decarbonization. It strikes me that one good way to decarbonize is actually to regulate carbon. And just a couple of weeks ago it was announced that the EU is going to be introducing a package in June that adds buildings to the sectors where there is an emissions trading system, where pricing on carbon is actually being captured here. And there's even some movement afoot in some states in the US to do that as well. So I guess are you perhaps more incrementally bullish on the EU market opportunity just given that dynamic? And then do you see actual regulation of carbon and carbon emissions of buildings becoming a tailwind for the company in the future?

Yeah, I will comment a little bit and then Doran may add. Look, I think what's going on in the EU, there's no question about it, it's great, great tailwind for our business. And I wouldn't be surprised, or don't be surprised, we might accelerate the business there in the EU community, use the UK as a base and then move from that. But, more importantly than that, what we are hearing from Washington D.C. and what's happening in this country, we have a great tailwind on the regulation and especially on some of the states that's coming out of the United States, and especially Canada, too.

And that's why in my commentary, I feel very, very good about this business, where we are right now. Otherwise, the stars aligning up to our benefit. There's no question about it. And for us is to be cautiously optimistic, but diligent in growing the business in a ways better. But the opportunities are there. And I wouldn't be surprised that you would see us expanding in Europe in the near term.

Well, great, thank you George. Looking forward to that. And I'll turn it back over.

Thanks, Noah.

Our next question comes from the lien of Julien Smith from Bank of America. Your question please.

Excellent. Thank you and congratulations to the team here. Nicely done at the start of the year.

Thanks, Julien.

If I can, if you permit me, several things here if I can. First off, you note the additional RNG facilities now in '22 and '23, how are you thinking about this reconciling in terms of the total contribution of EBITDA growth and commensurately? Certainly your target of double digit EBITDA growth, if you will, certainly seems fairly well founded on these almost alone. But I'm curious how you could characterize that piece of it, if you don't mind.

Well so, Julien-

Good question.

Yeah, Julien, [I'll start]. I mean, as you know, we don't give guidance beyond the current year, right? So we kind of have to start with that. The EBITDA contributions, I think we've talked about before with a reference to megawatts and with this question I'll take the opportunity to talk a little bit about that. So we had talked about $750,000 to $1.5 million of EBITDA per megawatt equivalent. Translating that into MMBtu that's about $8.50 to $16.50 per MMBtu. That's of course dependent upon RIN prices, it depends on LCFS participation, right? And midpoint representing around 50% margins. So in revenue terms, that's $1.5 million to $3 million in revenue per megawatt or $17 to $33 per MMBtu.

When I look at the cadence of the 2022 plants and the 2023 plants, I think 2022, those three plants total probably around 36 megawatts-ish. Or 3 million MMBtus, which by the end of 2022, that's 2.5x what we have now, right? So I think it's an important point when you're looking at the cadence. So, I think based on all of that, we continued to take a conservative approach towards the company's medium term growth, right? We look at that, now we're into the low double digits on revenue growth, little bit over $20 million on the EBITDA growth and of course, that we're hoping to see that cadence continue. But clearly our investment in these RNG assets is hopefully going to give us a boost.

Excellent. Since you bring up some of the metrics here, can you talk about your hedge position right now on RINs, et cetera? Obviously RINs has seen a nice uptick, I think earlier you guys hadn't been fully hedged. Can you talk about how that contributes here to your higher guidance and as well as relative to the math you just described on future projects?

Yes. As we pointed out last time, we had about 40% what I would call forward sale. Actually we actually do this on contracts as they go out, it's 5 years. And as we grow, you will see us executing contracts in the short range, although because I think that the RIN prices in the market overall is developing now. We are in the early stages. So we don't want to sign long term contracts because we'll be sacrifice too many economics. But hedging about or having short term contracts for about 5 years or so for about 50% of the output of our plant, has give us very good project financing, and we think the economics are there.

However, there's all these new markets, whether it's the gas utilities, or with the universities or hospitals where they have combined heat and power plants and they want to reduce their carbon footprint, they are ideal candidates for longer term contracts. And I know some people in the industry, they call it in long term contracts. And some of them we have looked at them and we negotiated for some time, but we passed because we thought that we are in early stages of this market developing, so we're going be watch it very carefully.

But however, from the month -- because we already, like Doran said, 12 megawatts next year and about that much, about 30 megawatts the following year on the plants that we had here. We will hedge about 50% of the output of those plants. But for sure [the period total], but if we say 6 months from now, we have a good deal, and goes out 10 years or 15 years, we will do it.

And the other thing I want to add, by raising the equity we have little bit more flexibility now that we had before and that's why we felt more comfortable in going ahead and accelerating and developing of these assets because we have a tremendous backlog on that. We building 6 assets, now on the RNG, and we have another 6 in a development pipeline. And forget what we have in the actual pipeline.

Yeah, that's right. Right. Julien, and sorry just because it was part of your question, so I think the impact on RINs for the quarter, probably a couple of million dollars higher. I think we -- RNG overall probably contributed $3 million to, we'll call it over-performance. But $1 million of that was just pure output, I mean the plants just had improved production. Higher production. And then a couple of million from the higher RIN prices.

And then, if you'll permit me just in brief if I can, how are you guys thinking about your disclosure package as you think about the disparate businesses involved, you talked about Europe, you talk about RNG? How are you thinking about updating and providing perhaps more specific disclosures on different parts of the business here? And by the way, Doran, thank you for the heuristics just now on the RINs and the RNG side. But obviously do you get yourself involved in different sides of the business here? Have you given much thought to that?

Yeah, and Julien I think we are continuing to give thought to that. At this point in time, we're staying the course, you'll see the supplemental slides, the way we present the material graphically. I think we felt very good about providing additional color during the Q&A like I've just given you. But beyond that, I think we're just going to take it one step at a time.

Excellent. Well again, I emphasize congratulations and best of luck.

Thanks, Julien.

Thank you Julien.

Our next question comes from the line of Craig Irwin from ROTH Capital. Your question, please?

Hi, good evening, thanks for taking my questions. So, George, can you remind us the half dozen plants that you have that confirmed into your pipeline on the RNG side? What is the schedule of those build outs? Where and when do you expect to build these and how should we expect those to come on over the next couple years?

Yeah, Craig, why don't I take that. So, just I mean as we talked about, we got the one plant this year, right? Which is 12 megawatts or about a million MMBtu. In 2022, we're now scheduling 3 plants, total of 36 megawatts or equivalent to 3 million MMBtu. Right? And those are the three California plants we've talked about before. Right? The 2021, we're expecting that to be fully commissioned before the end of Q2 this year. In 2023, we've got 4 more. They're a little bit smaller. So 29 megawatts total. 2.5 million MMBtu.

And then we've got in our asset and development pipeline, 6 more plants with signed gas and land rights to them. And as you can imagine, there's quite a lot more in the development and negotiation stage behind that. But that's the cadence. We're not ready to talk specifics about the timing within the year 2022 or 2023 as far as those plants are concerned, but we do feel pretty comfortable with that cadence in those years.

Thank you for that. So, there's been a little bit of controversy out there over the last couple months about the cash flow off the assets, right? So, Ameresco has greatly improved the disclosure around the assets, and helped us understand these quite a lot over the last few years. But can you maybe describe for us what you expect as far as cash generation off these assets over the next couple of years, this year, 2022 and beyond. I'm not asking for specific numbers, but maybe hurdles that you looked at internally and then how much of the capital budget, and if you have specific numbers for us in '21 and '22, is going to go towards the asset build-out for these projects.

So, sorry, starting with the very end of your question, which is these projects. I think that we dropped some numbers in the press release about our expectations for the rest of the year in terms of CapEx on energy assets, overall. RNG, plus solar, plus micro grids, plus whatever else energy as a service. So that range is $165 million to $215 million remaining for the year. As far as the cashflow question, Craig, I don't think we're in a position today to start formerly disclosing cashflow or net income kind of on an energy asset category, by energy asset category basis. It's something that we are looking at to try to provide a little bit more clarity, but as you know, unlike yield cos or other dividend paying stocks, we are investing all this cashflow that we're pulling in off of these assets.

Furthermore, as we grow the portfolio like we're doing and increasing our plans for the next few years, much of that cashflow information will largely be driven by ultimately the revenue mix associated with the off-take and the type of project financing or non-recourse financing, we apply to these assets. So more to come, I appreciate the question. I understand its importance and we're going to work on that.

Okay. And then last question, if I may. With the successful IPO of Montauk and the obvious success at Ameresco with your green gas portfolio, it seems like there's dozens of these green gas companies out of the woodwork -- coming out of the woodwork. Many of them don't have much as far as an experience-based, but are trying to raise cash to acquire projects in development, in different stages of development. I do know that there are projects that are being shopped, but most of these are items that people actually have to go out and find themselves and develop the way Ameresco has. Can you maybe give a little color on how challenging it is to get a project up and running beyond the initial paperwork of just maybe filing some permits or initial agreements? Can you maybe just handicap for us what these new entrants are really looking at as far as longer-term execution challenges?

And that's why some of these companies, sometimes when they forecasting some numbers, it's very challenging to -- especially in California and quite a few other states to permit the sites, as well as get the pipelines in order to interconnection with the utility -- the gas companies and so on. And that's a great differentiator that we have in the marketplace. Not only we have the development capability, because we have the relationships with various landfill owners. We've been doing this for the last 21 years. In addition to that, we've been designing, building them, operating them and maintaining them. And from the time that you get started, let's say you identify the customer, and sign a letter of intent, and then negotiate the agreement. Let's say, whether the gas agreement and so on, by the time you get the plant up and running I will say it's a 3-year cycle.

And I can tell you in California, a couple of our earlier projects, it was even longer than that, the permitting. So, but as a regulatory and the environment changes a little bit, things might change, shorten that cycle a little bit, and that's why we feel very, very good. You know, we see a lot of money going to the RNG and a lot of funds and so on, but we think we have a competitive advantage because we've been there. We have the relationships, we have the development backlog. I mean, even if we didn't sell another project, we are good until 2024. I was speaking the other day '25. And I know in our pipeline, we have quite a few more and we have not only build them, but we operate and maintain them. And they are pretty complicated.

I give you an example and why we're a little bit cautious on this quarter numbers. When we made the annual report, we had 3 of our plants out. The San Antonio because of the freeze up, down there. We were estimating it's going to be about 3 to 4 weeks out. Our guys, they got it back within 10 days. We had the Woodland plant out estimated for 2 weeks. We got it back within less than a week. Then the other plant, the McCarty Road that's in construction, we had to demobilize because of the freeze up and so on. And we thought you might be out a couple of weeks, we lost 4 days. So we have that capability and that's very, very important to build these assets, they are very complicated. They are not like solar, they are much easier, and we feel very good about this. But on the other hand, you probably read the book by Andrew Grove, the paranoid survive, with all this money coming into this market, I am paranoid and I always try to stay ahead of the competition.

Great. Well, we have no doubt you're going to stay ahead of the competition. Congratulations on the really impressive performance here, George, and the whole team at Ameresco. This is impressive execution.

Great, thanks Craig.

Thanks you, Craig.

(Operator Instructions)

Our next question comes from the line of Ben Kallo from Baird. Your question, please?

Hi, thank you. Good evening. My partner, George, wanted me to say happy name day to you, George, for yesterday. And I guess my question is--

Thank you.

You're welcome. And from me to. You know, with the new capital, and you've mentioned that 10 years, you haven't raised any capital until now. And, and I think that all the questions that -- or a bunch of them focus on the renewable natural gas opportunity. And I just wonder about the different opportunities. You just said, "This is more difficult than solar." And I wonder for the next step of things, or maybe that's not how you look at... batteries, or micro grids, or what have you, if this capital opens up that-

Oh, no question about it. I know we emphasize the RNG probably more than any other ones, but I think somewhere we've made this statement and all other renewable assets or micro grids look -- combine heat and power is here to stay, distributed generation. I think it's the way of the future. And some people they think it's going to be by building more transmission lines for resiliency. At the end of the day, they will find out that it will be micro grids and distributed generation. And that's why we are very excited about energy as a service. And we get some very, very good traction because basically that's another asset class that we will have. We talking to some commercial industrial customers that they're going down that direction. No, this capital -- and that's why when we made the decision, this is what we looked at, where the business is going. Not only on the green gas, well also the solar, that would get accelerated as well, but we had talked that in the past, I thought, and that's why we didn't emphasize as much, but the distributed generation of the energy as a service and the micro grids, I think, is the way of the future. And you're going to see us play more and more role in that particular market. I envision very good traction as well, because we have their capabilities and we--

How are the customer set the same or different? So how do you attack them between those different opportunities? I guess you've been good at what you're good at. And so to open up a new opportunity, how do you pivot or do you not have to because it's the same customer?

Well, we do not. We do not. The energy as a service, we've been doing that for the last 10 years. Basically, it's no different than like what we call energy savings, performance contracts, because on those, it all gets financed through a third party. And that shows the customer's balance sheet, energy as a service. It does not show generally when the customer is off balance sheet financing that, and we guarantee on the savings on the other contracts when the energy -- on those contracts and we get paid out of the same as when the energy-as-a-service contract. By the way, back in 1981, the first contract that I did, it was energy as a service. Down by the Quincy Market, the Mercantile Wharf building that we were getting over 50% of the savings, and we'll make another 40% margin. We have customers that they get pivots when the performance contract to energy-as-a-service contracts.

Yeah. Then I think the asset ownership opportunity will also follow the clean energy goals and the carbon reduction goals that are kind of proliferating across the market. So that's both MUSH market, as well as obviously the federal government, plus the corporate market. And so I think that's going to drive a lot of demand. We're going to continue to offer flexibility in the way these things get financed. So if the customer wants an energy as a service that we put the asset on our balance sheet or a PPA, or what have you, we're going to be standing ready to do that. And I think this equity deal provides us with more fire power to just go after it.

And last one. And thank you guys very much for that. On the balance sheet, anything else that you guys can do or are looking at doing from maybe a debt perspective or anything like that, just continue to expand your reach? Thank you guys very much.

Sure. So Ben, on the debt side -- I'm not going to project forward, but obviously we're continuing to work on non-recourse financings that are meaningful for the company based on the asset portfolio. We'll continue to do that, and certainly if we decide to do more we'll be talking about it in the future.

Our next question comes from the line of Tim Mulrooney from William Blair. Your question, please?

Hey, so I know you're working with a long sales cycle here, but curious if the recent winter freeze in Texas has ticked up more conversations around distributed generation and energy security with your customers or potential customers.

Yes, no question about it. And it started with a Sandy storm way back from, especially at New York and then New Jersey, but more recently now it has become pretty much a way of life I would say. I mean, every base that we are doing a project with right now in the United States, it has some kind of resiliency solution. Take the Norfolk Naval Shipyard. It has a combined heat and power and battery storage. Take the Parris Island, the same thing.

We talking to some clients, commercial and industrial customers. I cannot talk about which particular ones, but they do work with colleges. We have three colleges right now that they are committed to have a resiliency. Because look at it this way, and I think I mentioned this before, I was doing the generation planning for New England Electric all the way till 1979. And back then we were looking at the single contingency. And then we were a double contingency, basically losing 10% of the load at New England, which that will be 2 nuclear units, Seabrook and Millstone. And that will give us a lot of low probability 1 in 100 years. But now, with 30% of the load coming, either wind farms or solar, you get one, almost 30% of the load going out to a single contingency. There is no way transmission lines is going to recover that or anything. It's going to be distributed generation.

And battery storage and micro grids that's going to -- people will realize it will be the way to go.

You got it. Thank you.

So, we are getting traction.

Thank you. And then with all the recent headlines around ESG and corporate responsibility, in conjunction with the new administration taking over, curious if you're starting to see an uptick in interest from CNI clients, even relative to say that this time last year and if that's resulting in any incremental traction.

No question about it.

Well, what about for energy-as-a-service offering, for example, George?

Yep. We're getting some pretty good traction associated with energy as a service. And we gained -- I think I mentioned it in the last call, or told somebody that first time that we had call from CNI customer say, "Hey guys, we need help. We got to do something about our carbon foot reduction," and we had the software to tell them where they are, and so on. And that's why I made it in my comments, I had it in my comments that we do get some activity.

Great. Thank you so much.

Our next question comes from the line of Eric Stine from Craig-Hallum. Your question, please.

Hey, maybe just sticking with CNI since that's an area that you're starting to get traction, and obviously as you look out 3 to 5 years, what kind of mix do you think that can be of your overall business? And then, do you expect that to fall more on the project side? Or do you think that that's something that you'd look at more on the energy assets side, as you think about that going forward?

Right now we have more on the project side than we do on the asset. We can talk about this, Wells Fargo the bank, we started out, we were going to own the 30 megawatts of solar. And then at the end of the day, they said, "No, you develop a design and build it for us. We will own it." So we have seen that. But on the other hand, there are a couple of deals that we'll be talking hopefully in the near future, that they're going the other way. So I think it's too early to tell that, but -- I'll reserve judgment until we get a little bit more information on this. Doran wants to add something.

I think that it's going to be driven by what the customer is looking for in terms of their financing capacity. And it will probably differ depending on whether you're talking about a large, strong corporate with a high credit rating and access to low cost of funds, or something that is a little bit more down the credit spectrum. So, it'll depend.

Got it. And then just in terms of mix, do you think 3 to 5 years out, this is a very meaningful part of your mix? Or do you think that the majority of your business will still be more traditional?

I think of the project business, I think it will be meaningful.

I think it'll be meaningful. It will certainly increase. However, I would say that the municipalities and our traditional MUSH market and federal government customers are equally increasing their cadence on proposals and RFPs and carbon reduction goals, et cetera. So, yeah, corporate's certainly going to grow faster than the others, but the others are still growing.

Our next question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your question, please.

Hi, thanks. Congratulations on a strong execution, guys.

Thanks.

Thank you.

I guess first question, just curious, we're seeing inflationary pressures on the materials side of things, and so I'm just wondering how you're thinking about that in terms of a project business. Are you able to, I'm assuming based on structure of contract, you're able to push those prices onto the customer in a cost plus type relationship, but at some point, do you see any negative impact in terms of getting over a certain threshold where the project gets canceled? Or given where you're at--

Not--

Yes?

Not to the point that the project would be canceled, just a payback period changes. But we do see some pressures in the pricing and then some equipment delays, especially on some of the micro grids and some of the sophisticated controls for street lights. We've had some delay in equipment there. And then on the battery storage. But so far it hasn't had a significant impact in the overall business or performance of our company.

And the other thing is, you remember, we manage those risks very, very well because we price the jobs and then we sign the contract. And generally we have bought the equipment and then many times we have actually business the subcontracts. But on the other hand, some of the contracts that take longer periods of time, we do have some exposure there and we are watching it very, very carefully by pre-buying panels, lights, and so on.

The only thing I'll add there is that we don't have any particular components that contribute such a large portion of our supply chain, our needs, our procurement needs, right? So one, inflationary pressures on steel, for example, right? Was there an impact? Sure, there was an impact. Most of our contracts get negotiated, so we've got margin protection. But at the same time, even there, that does not represent a substantial portion of our spend on the cost of execution and our cost of goods sold. So I think we're somewhat protected by the diversity of the types of equipment that we're buying.

Great. And then just as a follow up question, on the CNI in particular, as companies are preparing to go back to the office or some type of structure, I'm wondering, the occupancy of most of the buildings are rather low on the commercial office side and also on the industrial side. I would think that the ERCOT has brought resiliency top of mind. I'm wondering if you could just parse out for me the delta in terms of the driver. Is it more resiliency that's driving some of that project business? Or offering features and functions to in-office, like a charging station in the parking garage or better HVAC system? How are the projects categorized in terms of the driver on the CNI?

I would say primarily getting back to the office is around the charging stations and then maybe some filtering or new HVAC systems to make sure that people get back and they have a safe environment and so on. But now if you're talking to a data center or a bank or something like that, then the driver is resiliency.

Got it.

Because I know we developed in some solar. We won a couple of projects because they wanted solar, but then they realized that we do the micro grids and the battery storage, and then that's how we got selected because we gave them a more comprehensive solution.

That's great. Thanks for the color and congrats again, guys. Nice to see that things work out.

Thank you very much.

And our final question for today comes from the line of Pavel Molchanov from Raymond James. Your question, please.

So we've talked about the infrastructure proposal from Biden, some of the rhetoric as well. I have a specific question in relation to the Department of Defense. Have you noticed any kind of concrete changes in the contracting approach or the willingness to adopt efficiency solutions by the DoD or the Army Corps of Engineers if we just think about the last 100 days?

Yeah. Excellent question. Because I asked Nicole Bulgarino the same question last week when she was here. Give you a perspective, last year for the first 6 months, we had 0 requests for RFPs coming over the federal government. So far this year, we have 5. That's for energy savings performance contracts. We have other ones designed, built many. But specifically, which is the main driver of our business? The energy savings performance contracts this year we had 5, last year for this time, plus another 3 months because the second quarter of last year was pretty much dead anyway because everything was closed down.

But the attitude, which is the driver, and that's why we made it in a comment, it's much, much more positive. And in addition to that, incorporating not only resiliency, but renewables. I think you will see that even the previous administration, they wanted the infrastructure upgrades because this project, they didn't have to come up with any money. But now the new administration not only will want the infrastructure upgrades, the resiliency, but renewable component and the various projects.

And some of the things that we are working on this infrastructure bill will help considerably so that we have the option, whether to do it, let's say a solar farm under the energy saving performance contract, or they can take it out and do it under a PPA, purchase power agreement. Give them more flexibility to achieve their goals.

Yeah, that's an interesting year-over-year comparison and I appreciate the detail on that. One more DoD themed question. The contract that you specifically highlighted in Norfolk, $173 million, I think it's the largest in Ameresco's history, correct me if I'm wrong. What's the sequence of recognizing that revenue between this year and next? The allocation--

By the way, it's not the largest one. It's Savannah River, way, way back that we did. We took an old 25 megawatts coal fire cogeneration plant, demolish it and build a brand new wood chips power plant. And it was done under the energy saving performance contract, about a couple hundred million dollar project. So close enough anyway. And that was a transformative projects for us. The $173 million, we get paid under the percent complete. And actually they have a schedule, it's about 2 years right now.

It's about 2 years, under the percent complete, right. As we deliver that, as we deliver the project, we'll recognize that under -- as we're constructing it, under the percent complete. And then we'll move into the O&M phase once that project's been delivered.

Right. So-

And there is an excellent O&M contract on that particular project once it's completed.

Right. So half and half this year and next?

I don't know if I can--

No, I would say less than half this year.

Probably less than half this year and then more in the next year.

And more next year. And the reason behind it, because we just, like I said, we got the permits early March. We started moving equipment and so on. And--

It takes some time to start to really ramp up. So I think we'll see more of it next year.

Understood. Thank you very much, guys.

Hey, thank you.

Thank you.

This does conclude the question and answer session as well as today's program. Thank you for your participation. Ladies and gentlemen, you may now disconnect. Good day.