Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2018 Ameresco, Incorporated 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 follow 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, Leila Dillon, Vice President of Marketing. You may begin.

Thank you, and good morning, everyone. We appreciate your joining us for today’s call. Joining me here are George Sakellaris, Ameresco's Chairman, President, and Chief Executive Officer; and Mark Chiplock, Interim Chief Financial 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 morning 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 morning, everyone. Q4 was another outstanding profitable quarter. We expended gross margin by 300 basis points to over 22%. When you exclude the one-time benefit in 2017 due to the Tax Cuts and Jobs Act, net income grew by 33%. We grew adjusted EBITDA by 35%. We placed 14 megawatts of solar projects in service and added 59 megawatts to our assets in development. A strong performance concluded another outstanding year. We again achieved our objective of growing profits faster than revenue. For the full year, we grew revenue by 10%, gross profit by 20%, net income by 8% and adjusted EBITDA by 44%. Important to note, excluding the Q4 2017 one-time tax benefit, net income growth was closer to 80%. And we generated adjusted cash from operations of over $100 million including the proceeds from Federal ESPC liabilities. Furthermore, we increased project backlog by 11% to $2 billion and more than doubled energy assets in development to 178 megawatts. As we look back on the accomplishments of 2018, I wanted to share key elements that we think make Ameresco a remarkable business and an attractive investment for you, our shareholders. The first element is resiliency, a quality we discuss in the context of micro grids, but rarely in the context of our business model. Our performance this year highlights why resiliency is so important. As in any business, something usually goes wrong. In general, we can now absorb those unexpected challenges because we have a large diversified backlog of projects underpinned by notably stable and high margins recurring revenue streams. At the start of 2018, we anticipated EPS in the range of $0.55 to $0.65 and adjusted EBITDA in the range of $75 million to $85 million. The midpoint of that range represented an…

Thank you, George and good morning everyone. As George mentioned, we concluded the year with outstanding fourth quarter financial performance. We grew revenue double-digits and achieved our goal of growing profit faster than revenue. Our growing project backlog and recurring revenues continue to bring increased visibility and long-term predictability to our business model. I will start with some brief comments about our Q4 results then turn to our full year 2018 results. All figures referred to Q4, 2018 and all the comparisons are for the year-over-year changes unless I say otherwise. As George mentioned with the delayed conversion of a large awarded convention center project and NYCHA's request to parse out our work, project revenues came in lower than expected. Despite these delays, however, total revenue was up 3%, supported by increased energy and O&M sales. The recurring revenues from these lines of business continued to help offset the natural variability that exists in our projects business. Strong gross margin performance was driven by high margin energy sales and a better mix of projects. We continued to demonstrate the operating leverage inherent in our business. Operating expenses grew only $2.2 million from last year, while gross profit grew by $7.7 million. This resulted in our operating margin expanding by 230 basis points. Full net income and EPS were below the amounts reported last year. However, keep in mind that in Q4 of 2017 we had a $14 million or $0.30 per share benefit due to the Tax Cuts and Jobs Act. Excluding this one-time benefit, non-GAAP net income grew 35% and non-GAAP EPS grew 28%. Now let's look at the full year results. These figures all refer to the full year 2018 and all comparisons are with 2017 unless I state otherwise. Revenue grew by 10% and gross margin expanded…

Thank you. [Operator Instructions] And your first question will come from Carter Driscoll with B. Riley FBR. Your line is open.

Good morning, gentlemen. Congratulations on very strong 2018 first half. Maybe you could George and Mark talk about the puts and takes conversion of the Texas plant. Just make sure I understand the timing of that and kind of like the incremental contribution from converting it over to green gas.

Okay. Well, one of us will cover it. I will cover the timing and then Mark will cover the contribution. The timing right now is contemplated to come online in the second half of next year. And we are in the process of getting there all the appropriate permits and that's why sometimes we say it depends what happens to the permitting schedule. Right now, based on what we know, it looks like we will be in the second half. But something could happen. As you probably recall on the Phoenix plant even though the project was completed this -- the fourth quarter of last year, it didn't fully operate until the first quarter of this year because of local permitting issues, right?

Yes. And then just to reiterate going in 2019 Carter, right, we're going to take that offline and as we mentioned. So, that's probably going to have an impact of about $2 million to $3 million in lost contribution this year. But then again when that comes back online and we're at full run rate as we mentioned in the prepared remarks, that plant will be about 12-megawatts -- 10 to 12 megawatts and we would anticipate about $1 million of EBITDA per megawatt annually. So--.

Just on an apples-to-apples from one feedstock to another, would it be roughly I guess about a 50% increase in contribution in EBITDA? Is that fair?

Yes about 5%.

5%?

Five times I'm sorry.

Yes. Okay, all right.

If we ask the question correctly I mean we're losing $2 million to $3 million of EBITDA this year and will be pretty much $10 million to $12 million EBITDA once it's fully operational. And those numbers I want to question a little bit everyone that when we talk in $10 million to $12 million -- the $1 million contribution EBITDA it is the current rain prices and the plants operating at full capacity. Sometimes you might see it from quarter-to-quarter we have some variability.

Yes. Just trying to get a sense of the magnitude of the change in investment taken offline. Okay. Maybe just talk about some of the newer geographies. You mentioned having real success incrementally in the Southwest territory, Southeast has been more of an underserviced territory for you as you mentioned. Canada looked like it's come back online. Can you just kind of give your thoughts whether it's -- do you see more incremental impact in the second half of 2019 or 2020? And then the mix of types of projects you're going after by region?

Yes. And that's why I mentioned it because we have said in the past we have underserved in the Southwest and the Southeast. And we're getting -- I mean we reached over $100 million for the Southwest group and that's an outstanding performance for them for the year. And they have very good backlog -- established good backlog especially in Texas. But in addition to that we are not talking much about California, but we have made great strides in California as well. We have 10 operating LFG plants in California. Now, as you saw two of the new ones, the green grass plants, they are in California and we did not put them in the backlog until we have clear visibility as to the connection with their gas pipelines to the local utility there as well as the gas contracts. And in addition to that we're developing several projects there for assets -- solar plants that it will be in our provided visibility in a year or so. So, we're making good strides. The Southeast even though we have done some projects in the Southeast like Florida and Georgia, we think there is more potential. So, part of the investment we make in there, we put in more people in -- put additional resources in those particular groups.

And I am assuming the connection for the California plants is not BG&E territory.

Yes.

Okay. I'll get back in the queue. I'll take the rest offline. Thanks guys.

Yes, thank you.

Thank you. Your next question comes from Craig Irvin with ROTH Capital Partners. Your line is open.

Good morning and thanks for taking my questions.

Good morning.

So, George as we could look back to this time a year ago when you gave guidance originally of $75 million to $85 million in EBITDA, your actual result for the year was $11 million higher than the midpoint of the guidance you issued at the beginning of the year. You've already touched on a couple of the things that maybe went the wrong way in 2018. But can you maybe talk to us about the contingencies you had that were unnecessary? And maybe the projects that outperformed in 2018? And how this is factored into our guidance for 2019? Are you expecting the same conservative outlook for some of these projects that obviously went better than expected over the last 12 months?

Okay. Look we tried to be conservative in our guidance. But on the other hand we try to be realistic because we are in the project business and we implemented these projects and many things happen. So, last year we updated our guidance two -- three times actually during the year as we got better visibility. When we started out at the beginning of the year, we had over $150 million that we were planning to get for the year. That was coming from projects that they were not signed yet, otherwise actually awarded projects that they had to move into the executive category. So that's one. The other one, if you remember we had some issues in the beginning with Woodland asset and I was reluctant to step up to the plate and give a broader guidance on that. But as the year moved on though and we got more information, we upgraded our guidance. And the one that, I will pay more attention to throughout guidance is the EBITDA. And the EBITDA, the last one that we gave was top line was $89 million and we came in at $91 million EBITDA. And the revenues that we lost, they're lower-margin revenues as Mark pointed out. And they were about $12 million to $15 million all the projects I mentioned together, if you bundle them up. And – but the contribution for those projects and the bottom line most likely would have been $1 million. So that's – that explains last year. This year, again, we tried to be very cautious, because for example the Arizona plant is up and running right now. For example yesterday, we were at full capacity. Today, we have taken it out to do some modifications. Part of the course in ramping up this facility, it takes some time. In addition to that, again, like last year, this year we have slightly more amount of revenues as we have in our plant that comes from awarded projects they have to be converted to contracts execution in order to go ahead and implement them. Mark, you want to add anything else to that?

No. I think you hit on a lot great points. If I just come back Craig to your question regarding the 2018 closeouts. I mean, we don't plan for the pickups from project closeouts. As you know, I mean, our recent history has shown that we've had some, but it's not a guarantee. And with all aspects of our project business and the size and timing is going to vary from quarter-to-quarter and year-to-year. So in 2019, we don't plan for pickups from [Technical Difficulty]

Okay. Excellent. And just a follow-up question here, you mentioned $150 million in business executed last year that was both awarded and executed in 2018. Can you share whether or not you've included a similar assumption for 2019? Or have you factored something maybe on the conservative side like you did at the beginning of last year?

Yeah. I mean, again we're – as George mentioned, we are assuming a certain amount converted from awarded into contracted in our numbers probably not as large as last year, but still we are going to have to rely on a fairly sizable amount coming from awarded. We have good visibility from our contracted backlog contributing into the project revenue. But, yeah, we're still going to rely on converting awards this year.

Okay. And my next question's about the Phoenix plant the new G&G plant that you brought online this quarter. Congratulations about getting that thing up. Can you maybe clarify for us was this a headwind for EBITDA in the quarter? Will it be a headwind in the first quarter? Would you expect to maybe see a modest profit contribution in the March quarter for that plant as it starts to ramp and go through the shakedown?

You will not see much impact at all in the first quarter. But it will start ramping up the second quarter, and of course the balance of the year. Like I said, I think it's so far gives you even more color if we got it up to full operation two, three days ago operated for a couple of days, then we take – we took it down, because we were going to do some minor modifications so it might take a few days to a week. So it will be my – a very small contribution this quarter, but then you will see it picking up the second and the third quarter and so on.

Great. And then…

One of the things, the other thing that I might point out even the Michigan plant we had a hard time getting it up and running. And this last quarter, I would say over-performed the last quarter. I'm talking about the last quarter of last year over performed that what we expected. By the way, there's was an excellent performance on the particular plant there the fourth quarter of the year.

Those are amazing plants which is why I've been so focused on them for the last 18 months. So just to…

They were great. And that's why we called them out, because they are so significant and they have such a contribution to the EBITDA for the year. Even though their timing might not be exact, we wouldn't be able to predict it exactly when they come online. But they are becoming catalyst for the year or for the quarters that they show up and they are fully operational. And that's why we called them out in order to help everyone else understand, how much potential contribution we have. In addition to that, to give a better color what's it's going to look like over the next two to three years going forward.

Great. And then last question, if I may. The two plants you mentioned in California you moved into your backlog for the G&G pipeline, right, 41 megawatts. Can you maybe discuss with us what changed over the last couple of months? Were there specific permits issued, or were there preliminary design engineering plans that were formulated and approved, or what have you booked these into backlog now? What gives you the confidence that this is changed? And how should we look for potential bookings of the remaining five or so which actually seems to point to a little bit of growth total in the headcount there, right? But what should we look for those other plants to potentially come into your backlog as you build out this portfolio? A – George Sakellaris: I'll be very specific. For example, the two plants the Keller and Solar that we put in service I mean the service in our awarded backlog this last quarter that made a significant impact. We had to execute the agreements with the utility in addition to that the gas contracts with a client. Now the client of course there is the landfill owners. And they are the ones we're looking right now. Once we execute those gas contracts, you probably see them on the awarded category. In addition to that on the PV, the last quarter we did acquire some projects from developers that they were not able to complete them at the early stage of developments and we acquired them and then we executed and so that's why you saw a major impact. Going forward, again and Mark might want to add some more color to it, but we will use the same guidelines we used in the past. The pipeline is large, but we are careful when we put them in the awarded category. We're going to make sure that the probability of getting them up and running is much than -- better than 50%. A – Mark Chiplock: Yes. No, I agree. I think the only thing I'd add, I mean, once we get them into the asset and development metric, it's generally a pretty high probability, better than 90% that those will go to a project. So we feel pretty good about that one if they get into the metric.

Great, thank you again for taking my questions.

Thank you. Your next question comes from Noah Kaye with Oppenheimer. Your line is open. Q – Noah Kaye: Thanks. Good morning George and Mark. Maybe just a clarifying question since we're talking lot about the RNG-asset portfolio. What are the total RNG assets in operation today in megawatts or megawatt equivalents including Phoenix? A – Mark Chiplock: Bear with me just -- we've got 22-megawatt equivalents in service today. Q – Noah Kaye: Right, including Phoenix. And assuming the Texas conversion and the two California plants come online, what does that grow to at the end of 2021? A – Mark Chiplock: Yes. So another 10 to 12 each for the three of those, so another 30-plus megawatts on top of that. Q – Noah Kaye: Okay. And just to understand here, as we're thinking about the puts and takes of the guidance, I mean that the -- you're getting a full year of Michigan now which -- it's correct you said it was a that's a 16-megawatt plant, did I hear that right? A – Mark Chiplock: Yes. Q – Noah Kaye: And Arizona is six, right? A – Mark Chiplock: Yes. Q – Noah Kaye: Okay. So let's just say we're getting -- let's be conservative and say we're getting eight megawatts -- or $8 million or so of kind of year-over-year benefit from Michigan. That's already -- that alone is the bridge to the midpoint of your guidance in a vacuum. But there are a lot of puts other puts and takes that you -- yes I'm sorry go ahead. A – George Sakellaris: We have to take $3 million off that because of converting the Texas plant from brown gas to green gas. In addition to that we have to take another $5 million of…

This is a good thing about our business. As you know all these Federal ESPC contracts are funded through a third-party Bank of America whatever the case might be, Hannon Armstrong and so on. So the money goes into it an escrow account and then we as we build them out, we draw from that lines. So we had no interruptions though the government shutdown. It did not impact our project. And what the other thing that's helped there is the fact that we were doing the projects all of them in contraction there were for basis-in-basis, it was no impact on that. If for example, we were doing a GSA build-in and then it was not occupied during the time, I'm sure we wouldn't be able to do construction. So we didn't see any impact at all on the implementation side where we saw an impact was on executing a contract that was ready to be signed and there was nobody there to sign. So that got moved into this quarter. Other than that we didn't see any impact. We saw some impact on a local government elections. Switching a government in a particular state and the contract got shifted to this quarter from last year. So because the projects get funded through third-party financing then don't have to come up with the money, the bottom line is that that helps our business model during commission. Q – Noah Kaye: Yes. I mean, yes, because that's something that I think we all wanted to understand because the fully contracted backlog is up very nicely. Year-over-year, but obviously did step down sequentially by a fair amount and the new contracts and awards were lighter than a year ago. So really the question is should we expect maybe an above-average kind of amount of bookings and contracts' conversion in 1Q relative to last year really due to the timing?

No. It's due to timing and it's the lumpiness. There's lumpiness from the awards but what is impacting a little bit the backlog is the fact that we shifted, the business model for more projects to more assets. And a good part for example, the Southwest region, we're transforming that unit for built-in assets for others built-in assets for us. So some of the awards that get shifted now into the assets in development, as we tried to retain them for our own balance sheet, we don't show them as projects anymore, we show them as assets in development. And that's why I will look at the total. That's why I started pointing out the assets in development because there is a shift in our business model and that impacts the project awards.

Yes. The only thing on the awarded I mean the optics there with the year-over-year growth is small, but 2017 had some large awards. So I think it's a tough comp year-over-year, but we're continuing to back still projects, we had over $700 million of new awards in the year, and we continue to see some song quoting activity in federal and C&I. So I think we feel pretty confident we'll continue to grow the backlog in order to meet our revenue goals going forward. Q – Noah Kaye: Perfect. Thanks so much for taking the question

Thank you.

You got it.

Thank you. Your next question comes from Chip Moore with Canaccord. Your line is open.

Hey, morning folks. Thanks for taking the question. Maybe we could talk a bit more about the solar-asset pipeline. How are things trending there? You did buy a firm in California during the quarter, what do they bring? You've had them for four months or so, what have you seen since you have acquired them?

They have a pretty good pipeline of 100 megawatts or so. It's only the two individuals. And part of the resources we are increasing the development capability of that group associated with engineers. And so far I think they haven't moved any projects to what I will call to-be-awarded category yet, but we contemplated that they will put some in service this year. And they're primarily focused in the central even though they're located in California. Our primary focus for that group is in the center. And that's why when I talked about transforming all the company to be able to compete in the new environment and part of the addition investments that we're making in resources, it has to do with that particular group as well as the Southwest in the Southeast.

And the East.

Yes. No, absolutely. Understood. Thanks guys.

Thank you.

Thank you.

Thank you. And this concludes our question-and-answer session. I'd like to turn the call back over to George Sakellaris CEO for closing remarks.

Thank you, Heather. To conclude we are optimistic about the years ahead. Our pipeline is strong. Our growth opportunity is solid. Our technical expertise is proven. And our team is highly engaged. Our strategy is sound and our track record of execution is excellent. We look forward to report more success to you in the quarters ahead. Thank you for your attention this morning, and I will now turn the call back to the operator Heather.

Thank you. And ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you all may disconnect. Everyone have a wonderful day.