Good day, ladies and gentlemen, and welcome to the Q1 2002 (sic)[ 2012 ] Ameresco Inc. Earnings Conference Call. My name is Sonia, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Suzanne Messere, Director, Investor Relations. Please proceed.

Thank you, Sonia, and good morning, everyone. Thank you for joining us today for Ameresco's First 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. Ameresco's flat first quarter revenues were in line with our expectations at $146.6 million. We expected a seasonally slow first quarter for 2012 when compared to the unseasonably strong first quarter of 2011. Gross margin increased to 19.9% compared to 19.1% a year ago. The increase was driven by project closeouts and the improved mix of higher margin offerings. The investments that we made in solidifying our market position, as well as expanding our geographic footprint and service offerings during 2011 have increased salaries and benefits expense. In addition, salaries and benefits expenses during the first quarter were slightly higher than expected due to lower-than-anticipated employee utilization rates. As a result, net income was below our expectations at $1.5 million. However, these investments continued to strengthen an already solid market position during the first quarter, as evidenced by an improvement in pipeline activity. During the first quarter, total construction backlog increased 10%, driven by a 51% increase in awarded projects. Further, the amount of new proposals in our pipeline increased 14%. Revenue from all other offerings increased 54%. Year-over-year increases within the operation and maintenance, integrated PV and small-scale infrastructure, combined with our investments to expand our service offerings, offset the effects of the first quarter seasonal slowdown in installation activity. Based upon our growth expectations and positive trends within the marketplace, we are optimistic about our future prospects. We believe that we are well positioned to meet our growth expectations, as well as our long-term growth targets. Therefore, we are not changing our guidance. And now I'd 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. The financial highlights from the quarter are as follows. Revenue from energy efficiency increased 6.8%. Strong contributions from installation activity in our other U.S. region segment and recurring revenue from acquisitions more than offset declines in our U.S. federal, central U.S. region and Canadian segments. Revenue from renewable energy decreased 17.5%. Strong contributions from integrated PV, small-scale infrastructure and O&M only partially offset a decline in installation activity driven primarily by the completion of the Savannah River project during the fourth quarter of 2011. Gross margin during the first quarter of 2012 was 19.9% compared to 19.1% in 2011. Strong energy efficiency gross margins due to project closeouts and improved mix of higher margin offerings more than offset downward margin pressure within renewable energy, as well as nearly $1 million in amortization costs related to acquisitions. Downward margin pressure within renewable energy was primarily impacted by the continued transition to the O&M phase at Savannah River. We expect this trend to wind down and eventually reverse as the year progresses. Operating expenses in the first quarter increased from $19.7 million in 2011 to $25.8 million in 2012, an increase of 31.1%. In addition to the investments we've made, which George mentioned earlier, operating expenses during the first quarter were slightly above our expectations due to an increase in salaries and benefits expense arising from the lower-than-expected employee utilization rates. We expect that as a percentage of revenue, operating expenses should decline as revenue increases in line with historical seasonality trends through the remainder of the year. We expect operating expenses as a percentage of revenue for full year 2012 to be in line with where it was for full year 2011. Both project development costs and general, administrative and other expenses for…

Thank you, Andrew. Our pipeline increased by 12.6% year-over-year to $2.4 billion at the end of the first quarter. An increase in activity in all regions contributed to the year-over-year improvements. In addition, our U.S. federal segment contributed to new contracts and experienced an 82% year-over-year increase in active proposals. Our total construction backlog as of March 31 increased 10% year-over-year to $1.28 billion, driven by a 51% increase in awarded projects. The book-to-bill ratio for the first quarter of 2012 was 1.6. Activity thus far in 2012 is in line with seasonality, and we expect to see a more meaningful improvement in full year contracted backlog during the second half of 2012. Revenue from our other offerings such as small-scale infrastructure, integrated PV and O&M and Other increased 54% year-over-year to $43 million. Moving on to our guidance. As I mentioned, we are not changing our guidance for the fiscal year ending December 31, 2012. We continue to expect the following: total revenue in the range of $800,000 -- I mean, $800 million to $825 million, and net income in the range of $39.5 million to $42.5 million. Our guidance assumes continued improvement in the environment for converting awarded projects to signed contracts for the balance of the year. And as Andrew mentioned, we expect to see seasonality similar to what we have seen historical for the remainder of 2012. More specifically, the first quarter tends to be approximately 17% of total revenue for the year. The first half tends to be in the range of 38% to 40%, and the second half of the year tends to be in the range of 60% to 62% of total revenue for the year. We currently believe that the first half of 2012 will be at the bottom end of the typical range, and that the second half of the year will be at the higher end of the typical range. For the balance of the year, we anticipate operating expenses as a percentage of revenue to be lower as we approach the seasonally strong second half of the year, a gradual decline in the second quarter and a noticeable decline in the second half of 2012 with the overall level for the full year in line with 2011 as a percentage of revenue. In closing, we are very pleased that the favorable trends within our pipeline continued into the first quarter. We are optimistic about the future as well. And the keys to driving future growth are executing effectively and a sharp focus on addressing customer needs for comprehensive energy efficiency and budget-neutral solutions. Based upon our growth expectations and assuming that the positive trends within the marketplace continue, we believe that we are well positioned to meet our growth expectations, as well as our long-term growth targets. Now we would like to answer your questions, and I will turn the call back to our coordinator, Sonia.

[Operator Instructions] The first question comes from the line of Amir Rozwadowski.

George, I was wondering it seems as though costs have come in a bit higher than you originally anticipated during the first quarter. We've had a couple of quarters where that seems to be the case, but you folks seem to be pretty comfortable with being able to sort of ratchet back costs through the course of the year. I was wondering if you could give...

You still there? [Technical Difficulty]

George, I don't know where I got cut off there, but the primary question was really the costs seem to have come in ahead of expectations here for the first quarter, but you folks seem to be comfortable with being able to ratchet them back through the course of the year. I was wondering what really gives you the comfort that you can sort of execute on that front.

Yes, that's a very good question. As the volume picks up, Amir, then the costs, the SG&A and everything else, they come in line because what happens, for example, you have 17% of the revenues in the first quarter. But basically, you have 25% of the annual expenses, and that's what messes up your metrics. So as the volume picks up, then the ratio of the labor costs comes down as a percent of revenue. And we've constantly fine-tuned the organization based on the amount of work that we have. I mean, it would have been very easy for us to take $3 million off our SG&A, but we would pay the price most likely not this year but next year because you will not have seen the activity in the pipeline pick up the way it did. And that's why we feel very comfortable that once we see that 51% improvement in the awarded contracts, that's why I say our investments are paying off. And as we move those contracts from the awarded category to the executed contract, then the metrics come back in line. And this, by the way, this first quarter, it's not atypical to what we saw in '08 and '09 and a little bit 2010. But 2011, last year, it was a very unusual year because we had a couple of huge contracts that we were executing during the winter months. And that's Savannah -- one of them is, of course, Savannah River, and the other one is Maguire Air Force.

Great. And then if I may, if we look at sort of your total backlog, both awarded and fully contracted, on a year-over-year basis, we continue to see sort of a pickup in total growth. How should we think about sort of the progression of that going into the back half of this year? It sounds like federal activity has picked up pretty noticeably. And what type of trends do you expect to see as we progress through the course of this year?

We are very, very, very pleased that the federal market, as you know, that was totally shut down last year and almost the year before. The activity there is very, very high. We're having a hard time keeping up, responding to proposals with the federal government right now. So the awarded, I think, category will continue to pick up, but we wouldn't put a good amount on emphasis to convert a good amount of the awarded category contracts to executed contracts so we can build them out. And as we roll out, you will see, for example, the awarded contracts, I would say the increase that we have, probably half of that, we've been working on those contracts last year and so on. So you will see those contracts coming in at the second half of this year being executed and then starting to build them out.

The next question comes from the line of Zach Larkin.

George, I wondered if, first off, could you maybe talk about with the increase in the federal projects, also as the ESPC model is getting more visibility and understanding, are you seeing any changes in the size, scope or complexity of the projects that are coming in for potential awards?

Once in a while, there would be one big elephant here and there like we had the Savannah River and you're likely to take advantage of that. But the average size of the project, and we're looking at them yesterday, is about $5 million to $6 million. So it's -- that's why I said earlier, answering Amir's question, that we're having a hard time responding to many government RFPs. And the government has published at least 2, because many of the agencies they've identified like, for example, the agriculture, the commerce department and so on, defense, homeland security, and you will see that they're projects there, anywhere from $5 million to $50 million. There are some a little bit higher than that, but the overall is what I will say the bread and butter type of the business. We like those kind of size of projects even though the other ones, once you get them, they make you look good, but you pay the price eventually.

And then also, I wondered, you talked a little bit in your prepared remarks regionally, but can you talk about where you're seeing the most activity and kind of what your expectations are maybe regionally across the country as we move through the year?

We are very, very happy. The Midwest, the one that, if you recall last year, had one of the slowest -- it slowed down considerably. This year, it has picked up dramatically. The Southeast has picked up very good. Canadians, they're still a little bit slower than the other regions. The Northwest is picking up. So we -- the Southwest, we have -- getting some very good traction. So generally, we see a very good pickup across United States. And then, of course, the Northeast, like last year, was one of the best-performing regions. This year again, it seems like it's going to have a good year.

The next question comes from the line of Dale Pfau.

A question here on your margin profile. We talked a little bit about it last quarter. Are you beginning to see the margin profile in your backlog improve? Could you talk a little bit about that and some of the trends you're seeing?

Especially in some of the regions like the Midwest, we see it improving. And then the overall business though, I don't -- I wouldn't bet this is going -- we're going to see much difference other than though as the mix of the business change as, for example -- that's why I said higher margin offerings. For example, the AEG group that we acquired last year, their margins are 50% to 60%. Some of the other software business that we acquired like the APS group, again they have substantial higher margin. So as you see, the mixture of the assets where we own all the renewable assets, they have a considerably higher margin. So as the mix of the O&M, as the mix of the business change a little bad, then you will see the overall gross profit margin of the company picking up a little bit. And that's why I think on our roadshow, we said that the long term, our weighted gross profit margin might approach around 20%.

And then you talked about the federal picking up. Any other segments that you see that are particularly strong or weak right now?

Like I said, the Midwest, Northeast, Southwest and the Southeast regions, they are pretty good. The other thing that we're beginning to see some traction, and I think we have talked about this before, and especially with the pollution on the APS group, a little bit on the commercial and industrial. And of course, the potential there is tremendous. And some of the other projects, I don't want to talk too much about that. Like the Philadelphia waste water and sewer treatment plant that we signed last year, we saw more opportunities in that segment.

And on the renewables, how is the overall outlook on renewables?

We have pretty good -- on the renewables, where we own the assets, again, so far, it's a pretty good market for us. But I think the long term, especially for the PV business, the federal subsidies expire, I think you will see that part of the business slow down.

And one final question. You mentioned the water business. What percentage of your total backlog or of your business right now is water? And do you think that's going to be a growing piece of your business?

Well, I think that's less than 10% right now. There are 2 elements there. One is -- I want to make sure that we clarify it. The plant that we have built in -- for Philadelphia water and sewer department, basically it's a cogeneration. It's a green facility. We do a substantial amount of work on water conservation, and people don't realize that many of the apartments and the housing, it's tremendous. And the federal facilities, tremendous amount of water conservation business that we do. But on the wastewater sewer treatment plants, there's substantial opportunity across the United States that we can pick up.

The next question comes from the line of John Quealy.

It's Chip Moore for John. I was wondering maybe if you could talk a little bit about the integration of some of the recent acquisitions you guys have made and then sort of your current M&A pipeline and thought process there.

Yes. We always continue to fine-tune the organizations and integrate some of the units. We did combine where we saw one of the biggest opportunities so far, combined whatever offices and assets we had, what I will call the Southwest region with the company that we acquired and -- from APS that is on the public service company. So we integrated that group into one unit, managed our Phoenix with Bob Georgeoff, the person that was heading the APS acquisition. So that's working out very, very well. And of course, as I mentioned on the AEG group, for competitive reasons, we're active in that group separate other than integrating their financial with the rest of the company. But we're always looking for constantly fine-tuning the organization and make sure that the expenses do not get out of line with the overall operations. And then as far as where we are with other acquisitions, as you probably know, we don't like to comment on it. But I think it's visible to assume that we will always be working in 2 to 3 potential acquisitions. And this time, it's no different than others.

Yes, that's helpful. And just given your comments on -- I'm having a hard time keeping up with some of the demand on the federal side. Has that accelerated the timeline? Or what's the thought process?

The thing with the federal government, the activity is very high. But you would probably -- you wouldn't see them have an impact till next year because it does take time to -- by the time they select the person from the RFP or the company, and then we have to do the detailed orders and so on. So it takes anywhere from 6 to 18 months to execute the contract with the federal government. But on the other hand though, the trend is good. So we'll see a substantial pick up most likely next year coming out of that group.

The next question comes from the line of Christopher Crom [ph].

Yes. I was wondering if you guys could break out the organic revenue versus acquisitions and also do the same for backlog?

I think Andrew can...

I think for the -- with respect to total revenue in the first quarter, we had $18 million of revenue coming from the acquisition.

Yes.

And I think with respect to backlog, I don't think we...

The backlog growth, I will say, more than -- essentially all of it. It's from the organic growth.

Yes.

Okay, any breakout on the revenue between renewable energy and energy efficiency?

Yes. Energy efficiency is about $17 million, and a little over $1 million for the renewable energy.

There are no further questions in the queue at this stage.

Since there aren't any questions, I want to make a little clarification as we are here and where we're going for the rest of the year. And we took a hard look at the various concessions for the first quarter, and based on where we are right now and the number that I gave you, we know that we are expecting for the next quarter to be, whether consensus and carry, that we will expect our revenues be around 19% to 21% of the total revenue, and thereby, will be below where the consensus are. And then the operating expenditures will be approximately 150 to 200 basis below where it was the first quarter. And then as I mentioned earlier, the revenues for the second half of the year, they will be in the range of 60% to 62%, and that will take us back into our guidance.

[Operator Instructions] We do have further questions. The next question comes from the line of Jim Giannakouros.

Quick question on just your awarded backlog. Could you talk about what end markets were particularly strong or added an outsized portion of that sequential backlog in awarded and then also what end markets, I guess, kind of trailed off your fully contracted?

Well, the biggest awards has been on schools, colleges, universities that we had. Like I mentioned, a couple on the federal government. Nothing outside the ordinary unless...

Yes, you said local.

Yes, local colleges. But some of the bigger ones, there were a couple of large series and school systems and then a couple of big universities that added to our backlog.

And as far as anything incremental from federal given, I guess, everybody's expectation that, that should come on. Is your expectation that there could be some contract awards this year or -- and then we should see some revenue benefit in 2013? Or are you thinking awarded contracts in '13 and beyond?

I mean, on the Q1, we had a couple of good awards coming from the federal government. And last year the whole year, for example, we had only $2 million on awards. And this year, we were already over $20 million for the first quarter from the federal government.

Got it. Okay. And a question on gross margin. Particularly high. Should we expect it to come down, I guess, sequentially as installation activity picks up? How should we be thinking about your -- I guess as far as timing, getting to your 20% gross margin goal?

I think we might see a little bit of -- you'll see some improvement with renewable energy. Energy efficiency, as we said, benefited from some closeouts. We're still looking at 20% as a goal that we are going to continue to trend towards, and the big driver there is going to be the improvement in the overall mix of our business as we bring on more operations and maintenance, as well as some of the revenues from the consulting and other recurring revenues that we brought on with the acquisitions last year.

The next question comes from the line of Michael Lew.

George, you just made a comment on M&A activity. As I understand it, you're looking at 2 or 3 potential targets this year. How far along are you on this? Is this like a third inning or more like seventh inning process?

I want to make the comment that we always look at 2 to 3. We get so many -- we have a group consisted of at least 2 people that they're looking at companies all the time. So I said it's not unusual for us to have -- excuse me, a couple, 2 to 3 companies that we are looking at, but not that far along in any one of them.

Okay. And also with regards to the increased quotation activity, pipeline activity, can you also characterize the level of rescoping? Is that -- is it fair to say that with this type of improvement in activity, that's also -- there's a level of rescoping that's declining?

I'm sorry, the level of what?

Rescoping? Rescoping of contracts, renegotiations of contracts, potential downsizing.

No, no, no. It's basically that people are beginning -- because they have a goal in the federal government, if you recall, that they execute about $2 billion of energy savings performance contracts by 2013. That was an order by the White House and that White House was they called [indiscernible] initiative. And all the agencies now, they trying to send out RFPs in order to be able to achieve that goal, and that's why you see that. But as far as the projects, the mix of the projects and so on, other than a couple of things as I mentioned earlier, the business continues to be the same. And the competitors on the federal government now, we have more than the companies that they are qualified, which are 16. But the rest of the market, still the players that we've been competing in the last 10 years, the predominant players. It hasn't changed much otherwise, the bottom line.

Okay. And you had highlighted some improvement in C&I activity. How much has that pipeline grown?

For us, you can say 100%. But it's small. Like I said, we're just beginning to address that market, and we are getting some pretty good traction. But it's not significant. It's not going to make any significant impact on the numbers this year. If I might add there, why we want to be there, because like I said before, it's a huge opportunity, and we want to be able to play at it. So we will get some small contracts, get moving, get the experience and then be ready when the market fully opens up.

The next question comes from the line of David Giesecke.

Craig and I are working through some technical difficulties. He's sorry he can't be on the call at the moment. I have a couple questions though. Following up on that last exchange, could you go into a bit further detail on what you see in the federal market? Are you seeing awards momentum pick up consistent with the recent statements from the DoD? And how do you expect that to play out over the next few quarters?

Yes -- no. The federal market, like I said, we won $20 million of new contracts in the federal market. And I think if my numbers are correct, it's probably over $100 million that were awarded. So the market is picking up in the federal government.

And do you expect that to accelerate over the next year?

If we are successful with our efforts, I think yes.

Okay. And then could you tell us what your typical timeline is that you expect for a new office that you would stand up till when it delivers revenue?

Yes, you see, that's a very good question. It takes about a couple of years, and that's why I said many times, when I said we have 62 offices across the United States and Canada, we have a tremendous, tremendous franchise that we have established because it takes a long time to turn a profit in a particular office. And last year, we opened 6 offices. So you can do the arithmetic on why our numbers, they look out of sync. So we have not significant revenues coming out of those 6 offices. And that's why sometimes when I say, well, if we acquire a company, when we find a small company with 10 to 20 individuals in a particular location, it accelerates our potential growth. And that's what has helped us a lot in the past, and that's why we're always looking for what I call small tuck-ins to help us bring the staff on. And they know the local culture and the business. They have the connections, and it helps us. And there are quite a few opportunities still out there that we get to take advantage of that.

There are no further questions. I would now like to turn the call over to George Sakellaris for closing remarks.

With that, thank you, everyone, for joining us this morning, and I'm looking forward to the next call. Thank you.

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