Good day, ladies and gentlemen and welcome to the Third Quarter 2017 Ameresco Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Gary Dvorchak. Please go ahead, sir.

Thank you, Christy, and good morning, everyone. We appreciate you joining us for Ameresco's third quarter 2017 earnings conference call. On today's call are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; and Executive Vice President and Chief Financial Officer, John Granara. George and John will review the operating and financial highlights of the third quarter then we will take questions. Keep in mind that we have a deck with supplemental financial information; you can download the deck from the Investor Relations section of our website. 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 and believe. Actual results may differ materially as a result of risks and uncertainties that pertain in our business. We refer you to the Company's press release issued this morning and our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the Company's projections are 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 the call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A GAAP to non-GAAP reconciliation as well as an explanation behind the use of non-GAAP financial measures is available in our press release, prepared remarks and in the Appendix of the slides. I'll now turn the call over to George Sakellaris. George?

Thank you, Gary, and good morning, everyone. We started 2017 optimistic about our prospects. With three quarters down, we believe that optimism was justified. In Q3, we grew revenue by 13% and earnings per share by over 50%. Our total backlog is up 15% from a year-ago and contracted backlog is up 41%. With one quarter to go, we are confident in Ameresco's performance for 2017. Our results are important, but equally important is how we are achieving our objectives. We have laid out a clear strategy to grow earnings faster than revenue by increasing our high margin recurring revenue streams. We also laid out a clear strategy to sustain growth and increase the profitability of Ameresco with core project businesses. As the result show, we continue to deliver on our strategic objectives. First, let me discuss high margin recurring revenue. In Q3, energy sales were 9% of revenue and 41% of EBITDA, operational maintenance was 7% of revenue, and 14% of EBITDA. Ameresco's energy asset portfolio in operation grewto 187 megawatt equivalent of capacity, 10 megawatts higher than the start of the quarter. The growth was from Massachusetts solar projects that were mechanically complete earlier in the year, but we are waiting for the electric utility interconnection. Another 10 megawatts are now mechanically complete and should be placed in service this year. This will bring us in line with our expectations replacing approximately 30 megawatts of solar assets in service in 2017. Also, 6.9 megawatt of newly operational capacity was in community solar, a segment in which we are seeing a lot of interest. In August, we announced a project with Blue Cross Blue Shield of Massachusetts and a Massachusetts-based developer BlueWave Solar. Nearly 200 residences and small businesses will also benefit from the net metering credits produced by…

Thank you, George, and good morning, everyone. Our press release and supplemental slides contain all the figures and comparisons you need. So I am not going to repeat all the numbers. Instead, we are going to focus on the analysis of the factors that influenced results. Keep in mind that we are referring to Q3 figures unless I say otherwise, and all the comparisons are for the year-over-year changes. The growth in revenue was driven mostly by an increase in project revenues in our federal group, where we continue to execute ahead of schedule and pick up additional wins. The strength in federal was partially offset by softness in the rest of our U.S. regions some of which are behind schedule. For instance, Hurricane Harvey delayed three projects we are expecting to start in Texas. Also, there were a couple of other larger projects that were delayed for various reasons which impacted revenue in the quarter. O&M revenue was down slightly due to the contract amendment last year and another contract that expired. However, year-to-date we've added over $60 million to our O&M backlog, bringing the total to over $800 million. That $800 million has a weighted life of over 14 years. Energy sales were very strong due to new assets coming on line. We also got a meaningful contribution from the recovery in integrated PV. We sustain the gross margin consistent with prior year. We did this through a better revenue mix with a greater proportion of the higher margin recurring revenue streams. We also got a positive contribution from the recovery in integrated PV sales. We continue to control our operating expenses with the growth well below the growth in gross profit. Keep in mind that operating expense last year included a bankruptcy reserve and restructuring charges. Excluding…

Thank you. [Operator Instructions] Our first question is from the line of Craig Irwin of ROTH Capital Partners. Your line is open.

Good morning and congratulations on a strong contracted backlog growth again. First question I wanted to ask is about the longer-term opportunity in landfill gas. So if we assume that prove it does what our sources are saying, which is issue the original RVOs that came out of the RMB checks. We had a little bit of growth in cellulosic for 2018. And if we think the Trump administrations the friend of biofuels and we do see some modest growth for the next few years. It seems like this could be a very attractive longer-term market? Can you maybe comment on the range of additional plants you might be looking at? Could we see additional plants move into construction in 2018 or 2019 above and beyond the Canton and Phoenix plant that you're looking to commission?

Yes, that's very good question Craig. Look I mean the way that the situation is right now in this particular market, we are cautiously optimistic, if they don't do something to adversely impact it. So looking forward a) we have many assets landfill projects as we're operating right now and some of them especially a couple of them we're looking to see if the opportunity is to convert them to green gas. In addition to that I will say we have three to four of this that again they are in the development stage. So if I was to plan out, let's say for 2018 and 2019 and beyond, I wouldn't be surprised to see us bringing two lines some of these five or six plants that we are looking right now. And most likely would be in the development how things go probably two to three plants investment to see them in operation 2018 and 2019 and mostly likely will come late 2018 or early 2019. So we are cautiously optimistic about that particular business of line and that's why we've been watching it for some time going back to when we developed the San Antonio plant and originally we had the long-term contract and then few years back and the contract expires. We were selling into the RINs into the California market and that was very encouraging, why we developed the two plants that we are right now and we have hoping that they will contribute substantially next year.

Great, and then regarding the Michigan and Arizona plants, can you maybe update us, if there's any significant change to the commissioning schedule and maybe update us on the process of developing financing and off-take agreements with the necessary parties?

Sure I can take that, so what we've previously said is we expected one of the plants to go online in Q4 and the other one to be in Q1 of 2018. So I can tell you where we sit today. We are going through the commissioning process of that first plant. So it's not yet operational and we need to go through the EPA certification process as well to get qualified for the D3 RINs for that plant. So it's not yet operational. We are hoping to get it operational this quarter and the other plant is still on target. In the event, we do see a delay that would just be timing where it would push out when we would begin to start recognizing the revenue there. For the financing for these plants, I should mention that for one of the plants we currently funded that through the cash from operations of our core business and then the second one we did obtain financing for. So from that standpoint we're offset from a liquidity and capital standpoint.

Great, and then last question if I may another quarter with 40% gross in contracted backlog year-over-year. It's an impressive base of business to drive the company over the next couple of years? When we look at the performance contracting side of the business, can you say whether or not you feel this market continues to accelerate and would you agree that this does create an upwards bias even though the duration of some of the contracts is longer than maybe what you've seen in past that we do see in upwards bias momentum in both of the short and medium-term?

Yes, I mean so I think what looking at the backlog where we are, as you know we believe that gives us a good two to four years of visibility. What we've said in the federal space specifically, we haven't seen any decline, since the change in administration through last year. So the opportunities appear to keep coming in consistently and what we're seeing, there is that they are larger more complex projects. And so with that those projects to take a little bit longer to develop. And so our average project takes about 18 months to develop, the larger projects in the federal space for example can take upwards of two to three years and then the implementation periods can be a little bit longer. So looking at - when you look at the contracted backlog of the 40% growth, it doesn't necessarily translate to meaning that we're going to be growing 40% year-over-year, because the projects are larger and are extending over a longer period of time. But that being said we do think it puts us. We do believe that we have better visibility than we have had in the years past and with the stronger awarded backlog that that provides us with even more long-term visibility. So we believe the backlog supports the growth. It's just a matter of now executing not only on the - for those projects are in contracted, but also converting those projects that are in awarded.

Thank you for that and congratulations again on this current progress.

Thank you.

Okay.

Thank you. Our next question is from Noah Kaye of Oppenheimer & Company. Your line is open.

Thanks. Good morning, gentlemen.

Good morning, Noah.

If could start - think you. Just pick up on something during your prepared remarks, you called out a couple of project delays, hurricane and then a couple of other things. One, could you kind of ring fence what this sort of revenue magnitude was associated with the storm concern with that that's something that kind of a common theme for companies this quarter? And then maybe give a little bit color on the other delays. This is really sort of a short-term timing that paying where the budgetary or are there other factors of play?

Sure.

Yes, I would probably say. For the quarter it was probably in the $5 million to $10 million range and in that might even be - maybe even include the second half of the year, which includes Q4 because not only doesn't impact Q3, but that's actually impacting Q4 to these projects. We're not going to - they're probably going to get delayed most likely into the beginning of next year. They're not going away, which is the based on our initial assessment. None of the projects are going away, but they are delayed. In addition to Harvey, we actually did have a project in Florida impacted by Irma as well. But we don't want to be too focused on the hurricane because there are other projects within the portfolio that have been delayed as well that we're trying to convert. But if you're looking for the impact for the year, I would probably put it in that $5 million to $10 million range for the second half of the year.

Yes, but just still raise revenue guidance, so obviously overcoming it there. And then just - as Craig was talking about the other two projects, can you just remind us how to think about the magnitude of the two that are coming online, the CapEx associated with that the contribution?

Go ahead John.

Sure. So the CapEx associated with those are largely baked into our project assets and construction now or in development and the plant that's getting ready to go in line now or this quarter is largely paid for and it's on our balance sheet and it's within the balance sheet there. And we haven't typically given specific guidance on the dollar amounts there. But I can tell you that right now on our balance sheet in $25 million to $30 million range. The other isn't as far along, but and it's not as large. So that's going to be a little bit less to say in the $10 million to $15 million range, so that's on our balance sheet today. So in terms of the magnitude, we haven't yet come out with the guidance. That couple of things that I would say that impact these plants. I want to make sure everybody is clear about in that is, you have the timing of the construction and commissioning, obviously, and if you were to go back in time, we have seen some slippage over time, so for some of these projects to come on line. So you have the timing variance of when they're completed. You have the timing variance related to the certification with the EPA to get qualified for the D3 RINs. You also have the timing difference of revenue recognition and that is determined - and that's basically determined whether or not you have the RINs in the uptick pre-sold or if you're actually going to the market and you could have a portion of that actually contracted and you could have a portion of that on a merchant basis. And if you're in a merchant basis, you haven't pre-sold them. It can take upwards of 30 to 90 days to recognize the revenue and there have been times where we've actually put these RINs on an inventory compiled them and then sold them in a large transaction. So there's a lot of variability related to the timing of all of this. That being said, we do expect this to contribute materially and we do expect in February. We're going to have a lot more clear picture as to the timing of all of those things that I just mentioned and we'll be able to provide that within the guidance for the year 2018 when we get to February.

Thank you very much for the detail on that. I think in the past we've typically thought about these types of projects kind of on a longer term basis having maybe like 10% or low double-digit IRR. Is that still kind of the right ballpark or do RINs kind of significantly bump that up?

It's double-digits plus IRR.

Okay, great. Thank you.

You don't know what the RIN price will be down the road and so on as IRR perform over the next five or 10 or 20 years what you assume for the - you have a pretty good channel for the next two to three years, but what do you assume even in balance of the contract. But they look very good.

And maybe one last one from me. I mean, I think we fully appreciate that the financing for the energy assets are typically the non-recourse full stop or limited recourse, but there is still kind of headline leverage metric that comes out of putting all these assets on the balance sheet. Can you just remind us kind of any covenant restrictions and maybe even kind of internally how you think about kind of a ceiling on leverage for the whole company?

Sure. Thanks. So we typically will - so the way we evaluate it is we'll have our core company debt which essentially is our term loan in our line of credit and then we'll have the project debt which is non-recourse, and that's why you'll see us starting to break that out. With regards to the non-recourse project debt, we're fully comfortable in leveraging up the assets because we know that the returns that they are in, that's not supported by Ameresco, Inc. as creditor. They're 100% supported by the contracted cash flows. So from that standpoint, we're very comfortable adding leverage with regards to the assets. On the corporate side, again, I would say that given where we're at right now with the $20 million to $25 million term loan plus the letter of credit for 75, we actually think we're okay right now, but we do have an appetite to add a little bit more as well as we continue to invest in the strategy of owning assets. And so we're using that - we're using that line and the cash generated from our core business to fund the development of the assets. So we probably have a little bit of more room on the corporate side as we look to invest in the future.

Okay. Thank you very much for taking my questions.

Thank you. Our next question is from John Quealy of Canaccord. Your line is open.

Hey, good morning, folks and congrats. That's a quarter.

Good morning.

Hey, George. Just a couple questions maybe, John, the 87 megawatts of assets in development. How much is the landfill gas in Phoenix out of that?

Yes, so the two of them together are 23 megawatt equivalents for the gas.

Okay. In the remainder is mostly solar and other.

That's correct.

So you gave us timelines I think at least some partly on the gas side. But generally is that the two to four years to get all those assets producing or is it on the shorter timeframe like three or how should we think about the whole portfolio producing EBITDA?

For the assets and development…

Yes, 87 yes.

Yes, sure so of the 87 most of that is what I classified intermediate but we would expect the majority of that to be online within 2018 with maybe about 25 to 30 megawatts going into 2019. But the majority of that we would expect to come online next year and then of course we get the full benefit of 2019 when all the assets are up and running for the full-year.

Right. Okay. And then just take a step back us a little bit obviously this administration has been all over the place in terms of messaging RVOs and you know different limits? How do you folks internally when you look to monetize rents I mean is it a quarterly exercise, is it a full year exercise when you get financing for a plant? How to remind us again your strategy around any tax equity or related incentives, how you bake that into the IRR George I think you were referencing that lever in the IRR?

Yes. On the solar, the market is very liquid on monetizing the agency and so on. So the tax equity that's basically which up around. We lined up the projects and then we go out and get competitive quotes. On the RIN and Craig asked the second question kind of on one of the plants we have a long time contract for at least half of the output in the rest of that it's quarter-to-quarter I would say and based on our experience for this San Antonio plant and we do the pro forma we have extrapolated that's on the price and what's going into marketplace. So we have the group that very much what's going into the marketplace associated with RINs. So that's more I would say fluid market and we look at month-to-month and monetize it's quarter-to-quarter. In sometimes we might have to wait for six months and so on until we actually monetize and with the solar credits as well. Couple times we held in back for six months and we get better price down the road. So we are in that business, so we have to be up to date is to the prices are and where in a situation where we can wait otherwise the solar credit is there for a while, the prices were down. We can also ended because we didn't have to waited till the pricewent up and we got what we heard with price. So it's an active market and one is very liquid, the other one were in the early development of that particular market. But on the other hand because we are early in the development stage, the prices are pretty good - and most of many players yet into.

Yes, yes. A second question a smaller piece of your business but one that's been incrementally better is the Canadian business. You folks I think repowered and repurposed that a couple of years ago. Just talk about relative performance versus budget the overall opportunity there I mean 12 to 14 million this quarter versus last, but just talk about that in any opportunity still laughter is that kind of a run rate for Canada?

Actually if you were to [indiscernible] particular group. You would be cautiously excited about the Canadian group. I think restructuring and reorganizing the company is helped a lot. In addition to that the market activity we feel very good. The EBITDA was up. They're contributing and I would say considerably to the overall profitability of the company, but what we have more excited about it, the awards that they have received the last few months in the market activity. The new government up in Canada that will know, it's very much behind the strategy efficiency renewable. So I think that is going to be reflected in the marketplace and we see quite a bit activity there. So we are again cautiously optimistic. This market has changed as we have found out very fast, but right now the market appears pretty good.

Okay. And then last maybe George for you. As release from a disclosure perspective, it's been a while since you've done any sort of tuck-in acquisition. I can imagine with the valuations out there. This is in the environment that you generally like to shop. You tend to be a value centric, but talk about seems like the tailwinds are pretty good for the business right now and some potentially nice step ups coming on an EBITDA in the not too distant future? Talk about perhaps uses of cash. Do you still want to mine the energy assets side of the business or would you potentially look to bolt-on more projects services and in other parts of the country? Thanks again folks. Take care.

Yes. Thank you, John. First we will continue the strategy that we put that - it gives strategy to invest in renewable assets because we want to grow like we said before the annuity-based revenues and as long as we get very good returns to our investment, we'll focus on that. One the other hand, we want to look if we can find a good bolt-on acquisition, we will look at it. If we can step up the EBITDA considerably, we will. As John pointed out, we are not of the leveraged in anyway say perform and the Company generates very good cash flow. If an opportunity comes, we will step that. We will look at it, but we're getting in. It has to be accretive and it has to contribute to the overall number.

Thank you. [Operator Instructions] Our next question is from Carter Driscoll of FBR Capital Markets. Your line is open.

Good morning, gentlemen. Thanks for taking my question. Can you talk about what you have or have not planned for the looming decision from the U.S. ITC in terms of potential remedy being imposing solar industry? Any impact running your planning and just trying to get your thoughts particularly within that your current operating portfolio obviously doesn't get impacted by going forward. Just in a sense of what you're seeing out there?

Yes, so I would say that everything within our portfolio in development or specifically in construction not only for us, but for customers where we may have committed to price. We've actually been able to procure the panel, so from that standpoint immediate - no immediate term impact. We do have - I would probably say one project in particular that we're planning to go live within probably 2019 where we haven't secured the panel. So there is some projects and there is some risk associated with that. To the extent they were to add a significant tariff to that. I think big picture that the way we think about this is, one, we don't want to speculate. So we're just operating under what we know today. But two, their overall thought is long-term is that the cost of the panels and modules are going to continue to come down and so you'll get to the point where the projects will make sense. With regards to PPA contracts that we signed with customers, there are some that will sign that will allow us to go back and adjust the PPA price to the extent. There is the significant change. That being said, it not only needs to work for us economically. It needs to work for the customers. So but I would say, no near-term impact. There could be a long-term impact for sure. But we're not isolated in that instance and it's going to be impacting everybody and we're obviously advocating against any significant tariffs along with everybody else in the industry. And so we're waiting to hear what comes out today as just like everybody else is.

Thank you for the commentary. Just follow-up, you talk about what you have or - what you've learned from kind of the early implementation, the Chicago street lighting project and takeaways you can take there and particularly interested and see what the competitive environment - well it seems like a very robust opportunity, but they don't have a lot of insight into the competitive headwinds you are facing right now in that segment?

Well, certainly very competitive and it's not only people within our core industry, but it's actually people that we haven't traditionally competed against. So we have some very large players participating in that because they actually see what we do and that it's a large opportunity. So I don't know that we have anything to share with you in terms of the early implementation. I will say that we have seen a pipeline of activity. George alluded to some of it for projects we've actually won, being able to leverage our experience, and we're pursuing other projects that are large. But in terms of sharing anything we've learned, I mean I think it's still a large opportunity as we said in the past and it is one that we believe we're positioned to take advantage of it.

And then maybe just lastly, you referenced to a few of those other potential large opportunities. Is that a similar scope to what you did in Chicago?

That is correct. And generally, where we have an advantage where there's some kind of a sophistication and some kind of telecommunications, what we call Smart Cities otherwise at on. And that's usually where we have some competitive advantage, otherwise, you've just replacing it.

Yes. We're not going to compete if somebody is just looking to replace the lights and just go in and basically do a retrofit. Where we differentiate ourselves is with adding on and the different technologies and in the Smart Cities and from that standpoint as George referenced. So that I can tell you because if you just want someone to come in and install your lights then we're not going to be the right person for that.

And maybe just last question if I may. You talk about you had a lot of increase in activity in the microgrid side, maybe specifically talk about the storage opportunity is a lot more interest, obviously been a lot of false starts in energy storage market, but it seems to resonate as a combined total solution rather than necessarily pairing in a standalone basis for some of the largest renewable projects. Just some general commentary, pricing obviously continues to improve with the fallen battery prices, is it becoming more economical or is it still largely need to be paired with other types of renewable solutions as a complete solution?

Again, we're optimistic about storage and where it's going and that's why we have made - and afterward you might say what they focus for our business to develop the expertise and we have several projects that we have installed already and in the development stage. So we are again optimistic about that particular market segment, especially when we see the prices coming down the way they have. And it reminds us lift of the solar, which happened to the solar industry. And I say that at the end of the day what's going on in microgrids and so on that storage once it becomes economically attractive it will become the glue that accelerates the potential of the microgrid in that potential market. And going back to Craig's question, one of the things and the traction that we're seeing in the marketplace, in fact the performance contracts include more and more of these new technologies. And as these new technologies become mature in the marketplace and the customer acceptance is where the projects getting larger and of course the way we have built this company. They fit more with our strategy and it helps us out. So I will tell you, we developed this strategy to go after battery storage couple of years back and I'm very glad that we did and we see very good traction in the marketplace.

And I'm assuming virtually everything is lithium or are you seeing any other chemistries making any inroads in storage?

Right now everything that we've been working with is lithium. And again, we are not the technology - the company that will invest in technology or something like that, but we wait until a particular technology is developed, matured a little bit, and then integrated basically.

Thanks for all the commentary. I'll get back in queue.

Thank you. And that concludes our Q&A session for today. I'd like to turn the call back over to George Sakellaris for any further remarks.

Thank you, Christy. To conclude, our results this quarter support our belief that we have the right strategies in place to continue to grow our revenue and profitability. We are focused on sustaining the pace of development of our energy asset portfolio and further building our stream of high margin recurring revenue. We are utilizing innovative contract structures, innovative technologies and strategies to drive more value add in efficiency and renewable energy projects. And we are addressing new non-traditional segments to expand our addressable market. These strategies drove excellent results this quarter and enabled us to raise our guidance for the full-year. We are confident we will conclude the year with solid momentum and look forward to even greater success in 2018. Thank you for your interest and support. I will now turn the call back to the operator.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a great day.