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 uncertainties that pertain to our business. Ameresco refers you to the Company's press release issued this morning, it's annual report on Form 10-K filed with SEC, which will be filed on March 4, 2016, 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 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 in 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 on 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 project 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 dollars. 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 operation and maintenance, both of which are 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 operation and maintenance contracts and power purchase agreements generally extend 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 would 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 the goal of building our pipeline. The result is a growing backlog. As…

Thank you, George, and good morning everyone. As we get started, please note that unless otherwise stated, all the amounts I reference relate to either Q4 or the full year 2016 and unless I say otherwise, all the comparisons are for the year-over-year change. In reviewing our results, the prepared remarks on our Web site 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 the 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 U.S. 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 benefits 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…

[Operator Instructions] Our first question comes from the line of Craig Irwin with ROTH Capital.

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 sort of what you are going to implement over the course of the year. Can you maybe talk a little bit about the gross margins and 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 and mix that could make it more challenging for a sell-side analyst trying to put a model out with quarterly expectations.

Thank you. That’s a good question. But John does a great analysis of the number so I will let him answer it.

Hey, Craig. 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, expect them to be pretty consistent which is currently 20.5%, somewhere in that range. That being said, I should clarify that that’s based on what we haven't 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 are 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 where we are now at 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 this last three to five years you are going to be able to see that in Q1 typically it's a 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 I 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. You know 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's something that’s 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 it was a contributor at that point in time. Looking at the business, 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’s going to incur in infrastructure. So remember, the off-grid solar business will have the standalone solar signs along highways. So for transportation and any work that’s being done along highway, certainly they are going to need those types of products. 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. 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 that 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 or 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 feeling 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 this last year or maybe even the first half. And if you believe that Trump is likely to maybe take a different tack on this priority for building infrastructure and how Ameresco could participate there over the next number of years.

That’s a good question. I would try to handle 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's possible that they can use the energy savings performance contract 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 have been working with all the agencies and so far they continue to ask for new request for proposals. We have a substantial amount of [indiscernible] contracts which makes us feel pretty good to where we are within the federal market right now. Again, on the awarded contracts we have in that particular group, we are in very good shape. So in the short-term, like I said, because it might have some management -- as new management, leadership comes in for the various agencies, you might see some slow down 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. And 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 of a couple of projects, actually executed projects, and they were put on hold. They couldn’t build them out. So that hurt us little bit. But around the country, and that’s why we are optimistic about the future. We feel that we are gaining better traction as we were, let's say, at 18 months or two years ago. So I am, Craig, optimistic about our business. John, you might want to add something to that.

Yes. Craig, just to add a little bit more color on the numbers. I can tell you that we have proportionately a higher proportion of federal backlog contracted and I mentioned 167% increase year-over-year, about $250 million of our backlog is in contracted for federal, and that’s up significant. So I think we take comfort in the fact that a good portion of what we are relying on this year comes from contracted. We are not planning on any significant new awards or contracts that 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 '18 and 19, 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, we didn’t have the -- 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 are 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 group substantially, 40% in last year, that they have the capacity to deliver a very good product. Otherwise we don’t want this service quality to go down but 40% growth in a particular group, we have to hire a lot of people, we have to train a lot of people. It's a challenge. But if we are unable to do it, the contract that they have, like John pointed out, in their books right now, have a longer implementation schedule. Two years, a couple of them they are three years implementation schedule.

Your next question comes from Noah Kaye with Oppenheimer.

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

Yes.

Great, so first of all I am right. But if I kind of look backwards at your history of adding to project revenue versus where you are starting the year of with contracted backlog, it's typically coming in above. And I think combined with your commentary for the growth in the energy and re-stabilization in off-grid PV, I am 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 of things I will add some color there. So a couple of points to keep in mind is that, one, we have been burning off a very large project in Canada. It's been a zero percent margin project for us. We accrued the loss last year in '15. And so if you actually exclude, and I think we have said, we were 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 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 revenue in the 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 years. So the good news is, as 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 and in terms of being conservative, I would say I don’t think that’s conservative but I think it lends to the credibility that the numbers are achievable.

That’s extremely helpful color. Thanks, John. I am sorry, George, do you want to?

No. That top line growth, the 9%, when you exclude organically, we think it's very 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. That makes me feel very good about the business that at least now over 50% of our EBITDA comes from what I call annuity based business with long-term contracts. And that takes away some of the lumpiness of the project business.

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

Yes. I would let John answer that in more detail but from the overall point of view, we do have $228 million of project assets in development which was 35% up from last year. So it's base, the growth that we see comes from those particular assets and not concerning all of them but it's a good chunk of it. I will let John add a little bit more color.

So a couple of things. We did at the beginning of the year say that we were planning to add 20 to 30 megawatts in service. And 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 [SREC2] [ph] program in Massachusetts and also the net metering issue. So what happened was 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't say that, we placed about 8 megawatts in service during the year which was sort of our original goal but we had more than 20 megawatts, just over 20 megawatts that met the mechanically completion date, which means we will be eligible for that [SREC2] [ph] program in Massachusetts on January 2017. So that was important for us. So we would expect those 20 megawatts certainly to come on line 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 on to 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 get those assets up and running or close to 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 in construction right now. 57 megawatts. It does include 23 megawatts for the biogas plants and about 34 megawatts for solar. I am not expecting all of that to 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. I mean it's clear that the Trump trade thus far has not benefitted the shares. Perhaps there is a perception that somehow that administration changes bad for energy efficiency. But from our perspective, it seems clear that energy efficiency is non-partisan and economic. And moreover, we have 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 programs expansion. And since you have mentioned potential expansion, I guess I would just like to clarify, where that possibility of expansion is. Is this something that you have had any kind of preliminary talks with policy makers 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 which are within several layers and so on. And we had the executive order by President Obama to do the $4 billion of energy savings performance contract and we would like to expand that order to be of larger magnitude because we say it's consistent with our overall goal of public private partnerships and infrastructure upgrades. And they need them. I mean as much as $50 billion $70 billion of potential projects associated with energy savings performance contracts in federal buildings. So it makes us feel good, I would say, or cautiously optimistic because of the economics, great economics associated with this particular offering. And I don’t know if John wants to add anything to it.

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 opportunity. So we are continuing to see opportunities in design and 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 the department of energy, for example, and also our defense customers. And the defense customers in particular have been leveraging the private financing. I could say that of our backlog, over 40% of it is coming from the department of defense. Obviously the project we announced in Q4, [power silent] [ph] 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 you have qualified, up to this point there has been no significant change.

Again, very helpful. And just to clarify, you said over 40% of the backlog coming from DoD, is that 40% of the federal portion?

Contracted and awarded. Yes. Sorry. Of the federal portion.

So 40% of a 48%?

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

[Operator Instructions] Your next question comes from the line of Carter Driscoll with FBR.

Just regards to your guidance and the commentary you talked about both the projects 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 in scope and size and tying up some of those specific assets and being able to manure quickly to a newer opportunity. Just kind of the cadence, 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 the complexity of adding storage, just some additional color would be helpful. Trying to understand really your commentary.

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 large more complex projects moving us more towards the annual. I would say to some degree it is with the larger projects. If a larger projects slips by one month or two month, 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 early, 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’s supposed to start in the month of April and it doesn’t start till the month of June, that can impact the quarterly number meaningfully. But again it doesn’t really impact the health of the business overall, we still have that 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.

Yes. Just trying to understand the extent of the scope of the projects. What in particular is changing? Is it the power requirement, is it the additional...?

The concept, and this is what makes us feel very good, it has got an acceptance now where people, they look at it with more resiliency. And that’s why you see backup power. In addition to that they have renewable goals that they want to meet, so you have combination of installation of renewable power whether it's PV 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 they have built in 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 built in. And that plays to our strength because that’s, we feel Ameresco has the engineering expertise to handle complex technologies.

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 into 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 U.S., 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 in 2017 and look forward to reporting our progress to you throughout the year. Thank you for your interest and support. I’ll 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.