Thank you for standing by, and welcome to the Ameresco, Incorporated First Quarter Earnings 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. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mrs. Leila Dillon, Vice President, Marketing and Communications. Mrs. Dillon, you may begin.

Thank you, Robert, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer; Doran Hole, Senior Vice President and Chief Financial Officer; and Mark Chiplock, Vice President and Chief Accounting Officer. Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. This call contains forward-looking information regarding future events and the future financial performance of the company. We caution you that such statements are predictions based on management's current expectations or beliefs. Actual results may differ materially as a result of risks and uncertainties that pertain to our business. We refer you to the company's press release issued this afternoon and to our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the company's projections or forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call. In addition, we will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A GAAP to non-GAAP reconciliation as well as an explanation behind the use of non-GAAP financial measures is available in our press release and in the appendix of the slides, which can be downloaded from our website. I will now turn the call over to George. George?

Thank you, Leila, and good afternoon, everyone. 2020 marks not only the 50th anniversary of Earth Day, but also the 20th anniversary of the founding of Ameresco. Since our inception in 2000, we have seen tremendous technology advancements across our industry. When we started this business, we entered into an addressable ESCO market of about $2 billion to $3 billion annually, which grew to $7 billion to $8 billion in recent years. And with our investments in distributed generation, energy infrastructure, battery storage, microgrids and smart technologies, we have evolved our business and now participate in a combined market opportunity of $20 billion to $30 billion annually. We have witnessed a heightened awareness of the importance of energy savings and renewables. During this time, we have been consistently profitable. We have built over $7 billion of projects and our customers have been able to annually realize approximately $1 billion of energy savings. In the past 10 years alone, we have helped reduce over 55 million metric tons of CO2 from the atmosphere. We are very proud of the accomplishments and grateful to our customers and our employees. Unfortunately, this 20 year anniversary is also marked by one of the largest health crisis to face the world in many years. Much like the energy solutions we provide, Ameresco, as a company is resilient. In the phase of COVID-19 pandemic, we prioritize the health and welfare of our employees and the communities in which we operate. The company quickly established risk prevention policies consistent with current CDC guidelines and state, province and local health agencies. These policies are being monitored and updated as new information that comes to light. Our geographic footprint of over 70 offices allows us maximum flexibility in our operations, more efficient execution on our projects and greatly reduces…

Thank you, George, and good afternoon, everyone. As I review the company's first quarter 2020 financial highlights, I ask that you please refer to our press release and supplemental slides for more complete financial information. Our strategy of creating a more predictable and resilient business model paid off once again this quarter, as we generated impressive results and have the visibility to maintain our guidance even in the phase of the COVID-19 crisis. Execution on our contracted project backlog, along with the recurring revenue streams produced by our company-owned assets and O&M business, led to financial results that are strong and well-diversified from a geographic and client perspective. First quarter revenue of $212 million increased 42% from the previous year, driven by much higher projects business in a quarter that is usually impacted by seasonality. As noted, the company, along with our customers, worked tirelessly to proactively deploy more resources on projects in anticipation of potential COVID-19 related slowdowns. We estimate that we were able to pull forward approximately $20 million of revenue from these efforts. With a large percentage of project revenues, gross margin of 18.1% was impacted by our mix during the quarter. That said, gross profit dollars exceeded our expectations for the quarter, while controlled OpEx growth provided strong operating leverage for the company. Also benefiting our bottom line during the quarter was a $2 million discrete tax benefit from the CARES Act. Our liquidity remains strong, giving us the ability to fund our growth strategy. The company ended the quarter with $40 million of cash on the balance sheet. And during the quarter, we also amended our senior credit facility to provide additional availability under our revolving credit line. We have not seen a material change in the market for nonrecourse project financing. And furthermore, we…

Thank you, Doran. To conclude the call, I would like to leave you with three key takeaways. First, despite this challenging time, our recurring revenue streams and great contracted backlog give us stability and good visibility for 2020 and beyond. Second, we have the cash and access to funding that allow us to execute on our strong asset development pipeline. And third, once the COVID-19 crisis subsides, we believe that customer needs will drive even greater energy savings and distributed energy generation opportunities. Before we take your questions, I would like to, again, thank our employees, our customers and our partners for making Ameresco a great success story and for their extra hard work during these challenging times. The entire team hopes that you and your families stay safe. Operator, I would now like to open the call to questions.

Thank you. [Operator Instructions] We will start our first question with the line of Noah Kaye [Oppenheimer]. Your line is now open.

All right. Good afternoon, thanks for taking the question. And first, it’s good to hear your voices and hope that you and your family and most of your employees’ community are all doing well. So let me just convey that upfront. Maybe can you comment on the cadence of 2Q so far on the project side, just anticipating just $10 million of revenue delays, that’s – it’s really not much at all and we can change of lost revenue. So just help us understand what you’ve seen so far to give you confidence there. Did delays really present at the beginning of, say, in the month and start to ease up over time? Just kind of help us understand how you’re getting to this $10 million expectation.

Yes. First, $20 million, we pull it forward because we had more people, more resources, allocate them into the various job sites and that helped a lot. And we had, of course, in order to change that schedule, work with our customers in order to be able to accelerate that construction and worked out very well. And what we have experienced in some of our jobs, what we call project delays is a particular job, there might be shut down for a week or two, and then we have to secure the site and then coming back and remobilize again and get going again. And during the month of April, there’s various states that were closing. And most of the jobs, especially in hospitals, it happened in a couple of situations, a couple of school systems and so on. And the other thing that’s happened in some of the sites, let’s say, one of the subcontractors test positive, then we have to stop construction, clean the site and then probably take another week, so we remobilize the resources for that particular site. But then in addition to that, we pretty much on the construction side, we shut down in Ontario and UK. But we continue to work there to do design and development work and so on, and we anticipate that they will come back by June 15, and that’s all the indications right now. So that’s why – I know it’s a small number, but the thing that is going to hurt us a little bit, too, it’s the margin, too, for the quarter. Because every time you close down a particular site, and then you start again, it costs you a little bit more money. And the other thing that’s happening, let’s say, you have electrical subcontractors. You have mechanical subcontractors. We have to control the number of people on any particular sites. So we have to follow the rules and regulations as they might become practice safety otherwise, for whether it’s our employees or the subcontractors employees and be cognizant of that. This is the estimate that we have from the various units. We had a meeting a couple of weeks ago or so. And the number looks reasonable, let’s say, even if it’s a little bit more we feel very confident, though it has just been shifted to the next course.

Understood.

And the same – where we have seen more delays is what I would call in the delays in going out with new RFPs as well as moving contracts from the awarded to the executed contracts. And that’s why I made the statement. The customers, though they remain committed and engaged. And our people, we make sure that we stay in close contact with them. And they say to us, you guys wait. Once we get over this crisis, we will be with you. And that’s why, again, we feel very comfortable that we will see the pickup later on the awards as well as moving contracts from the awarded to be executed. I’m sorry. Go ahead.

That makes sense. Just so I understand the first part of what you said, what kind of streaming have you had to put in place? Are you implementing broadly to make sure that your contractors and your subcontractors are kind of following all appropriate health protocols?

You’re talking about – I don’t know if I understood the question right. Yes, sorry, no.

Yes. Can you just talk about what kind of testing and screening requirements you put in place to monitor for COVID amongst the labor ports on these jobs and to minimize the risk that you’re going to have these types of shutdowns?

Yes. All the CDC guidelines, we’ve been following them. And pretty much all our employees with – and exited now when we start-up in the office. We bought the infrared thermometers that anybody before they come into the office, we will take their temperature. Everybody has to wear a mask on the particular sites and maintain the distance and so on. So we’ve been following all those guidelines.

Okay. That’s very helpful. And then just quickly on the energy assets. Any change in expectations on the timeline for deploying, say, 50 megawatts of renewable assets this year? And are you still comfortable that McCarty Road will come online by year-end?

Yes. The schedule is that McCarty Road will come online by the end of the year. And I think it’s scheduled something like late November, beginning of December. And then we had a total, I think, on the last call, we mentioned 50 megawatts of total capacity installed by the end of the year and we still maintain that. I’d like to point out there are a couple of projects on that. That’s a pretty good size. And if by any reason, the utilities delayed the interconnection, that might be a slip into early next year. But as far as us delivering on the construction, we don’t encounter any problems.

Understood. Well, thank you and good luck and good health to you all.

Thank you very much. Same to you.

And our next question will be coming from the line of Chris Van Horn [B. Riley FBR]. Your line is now open.

Good afternoon. Thanks for taking my call and congrats on the solid execution in the quarter.

Thanks, Chris.

So just want to talk about the puts and takes on your adjusted EBITDA guidance. Is some of that due – from mix? Is some of that from cost controls? Is any one of those weighted more than the other?

Yes. Actually, Mark, actually did the actual calculation, I’ll let him answer that.

Yes. I mean, Chris, I think, as you know, it’s a function of all that. I mean, it’s certainly going to be impacted by mix, and we’ve got some good visibility there in terms of the projects that will drive revenue for the remainder of the year for the revenue that we’re expecting for the next nine months, about 80% of that is going to come from contractor or contracted backlog, based on the project revenue side. We’ve got another 16% that we expect to come from awards that will convert to contracts and then just a little bit of book and burn. Yes, we’re certainly going to expect to maintain some discipline with OpEx. But yes, we feel pretty comfortable with the EBITDA ranges holding steady for the rest of the year.

Okay. Got it. And then when I think about your backlog, do I – do you use kind of the sales mix that you provided on Slide 5 as kind of a template of what backlog might look like? Or is backlog going to shift more towards that recurring and less project work? Any clarity there?

I mean, Q1 is generally heavier recurring just because seasonality wise, the projects can be a little bit lower, that should start to even itself out, and you expect a heavier mix of the projects at the back-end of the year. So from our project backlog progression, we’d expect that to pick up by the end of the year and we start to see the percentage from assets and recurring start to level out a little bit.

Okay. Got it. And then just last one for me. There’s a lot of chatter around municipal and government budgets and the pressure that they’re seeing. We’re hearing that the cost savings and the value-add that some of the projects you do are – those projects are going to be maintained, if not kind of added to the help kind of weather the storm. Is that a fair assessment? Is that what you’re seeing in the marketplace?

Yes. And that’s why I say because there will be in budgetary constraints and they will need to do many of these upgrades and save money on their budgets. And that’s why we think that the business will pick up at the other end of the COVID-19. If you – our business model is that it’s a third-party financing. So they don’t have to come up with the upfront capital. So we help them reduce their operating expenditures. So it’s budget neutral, you may say, the offering that we have, and that’s why the federal government loves it so much.

Got it, makes sense. Well, thank you so much for the time and stay safe everyone.

Thank you.

And our next question will be coming from the line of [indiscernible]. Your line is now open.

Thanks. Congratulations on a solid quarter.

Thank you very much.

I was wondering if you could just comment on the debt markets. And specifically, while I recognize one of the benefits to your business model is the fact that you’re not taking on the direct risk, your customers, you’re still reliant on a liquid in sound lending market. And what we’re seeing, aside from the injection of liquidity from the Fed, is somewhat concerning. So I’m just wondering how you think about sort of an optimistic rebound post COVID and juxtapose that against what you’re seeing in the debt markets?

Yes. I will let Doran handle that. But, my overall comment, I will say that, we see an opportunity, but I will let Doran explain it.

Yes, sure. So I think there is – I've just got to kind of split this into two pieces. One is the market for the lenders who participated in the energy financing on the energy efficiency side, which is the project side of our business. And we certainly haven't seen a pullback on that side. Again, this is – companies who are financing the guaranteed savings from the energy savings contracts. When we move into the kind of Ameresco asset side of things, we have not seen a slowdown in the project financing. We are engaged in a number of lending relationships. And our indications thus far has been that, each and every one of those institutions is still willing to step up and make new loans, do refinancings, whatever, it might be. And spread activity while rumored to be pretty heavy. I don't think we're necessarily seeing it when the rubber hits the road, at the end of the day when we negotiate terms. So we haven't really seen the impact of that. And I think that furthermore, what you've probably seen is the – when you think post COVID, really that comes down to is where the broader capital markets be there and be available. And again, that you've seen the bond market start to open up a little bit. Again, obviously the spreads are not back anywhere, where we'd be interested in presenting things. But I think, we're not seeing the pullback, thus far.

That's helpful. Thanks. Then I have a two part follow-up if you would. And one is kind of internal as well as, external. I guess for the internal question, the work from home environment has provided with many of the other companies that I cover, data points that are suggestive that, productivity is actually increasing from some of the sales force that forcing function of Zoom meetings, being or virtual meetings, not limited to Zoom, being acceptable, has allowed for sales folks to increase the closing ratio or the number of sales calls. So one, are you seeing any of that kind of play out? And then I guess the flip side to that would be that potential contagion into C&I starts, which obviously if you're seeing virtualization is a benefit that may have negative implications on starts. And I'm wondering, what your thoughts are on both of those? Thanks.

Yes. If I – first, speaking for myself, I've been very pleasantly surprised the way that we're working from home has worked. And, when I have to start thinking about main reasoning of how we do some things and how we may be ultimately we will actually probably reduce operating costs in the company because we learn different things. As far as doing virtual meetings with a particular customers, when it comes to the initial meetings and the contact, I will say yes. But the thing that we have run into delays when you need the Board to meet and have a virtual meeting with the Board presentation in order to approve the projects or a school committee meeting or a college trustees. This is where we've seen some delays. And I will say this much though, that the last week, two of those meetings are going to happen, and we will be bugging them, telling them to have it virtual. And Dave just told me one of them they're going to have them do it. So, I don't know what's going to happen, but it's a way of doing business and some of the Boards and trustees and so on and the school committee meetings, maybe they will get to that point. It's a much more efficient way rather than have to travel to the particular locations. We will save a lot of travel and expenditures.

Great. And so, if you see that play out, any thoughts on a C&I start because that would be the consequence of sort of positives.

And actually we have seen quite a bit of C&I start, and I did on the last call, we did say it, I mean a substantial amount of the work that we do on the design build is from the C&I customers, because sometimes we approach them and say, look, we want to develop a solar plan for your facility. And they say, yes, great. I said, we want to own it. They say, great. And then as you go down the road a little bit, then they have a lower cost of capital than we do. They say, thank you very much, will you design it. The development design and build it for us and we'll pay you. And we're seeing that quite a bit, and that part of the business is picking up and we are making more of an effort in that space. And I think I did mention it last time that the C&I, they are getting into it, because especially with the distributed generation, because it pencils out, otherwise it's economic, it's more economic for them. And of course it has environmental benefits attributes associated with it. So – and maybe this virtual meetings will probably accelerate that business, but we're paying attention to it, Craig.

Great. Well, thank you very much.

Thank you.

Next question comes from the line of Craig Irwin [Roth Capital Partners]. Your line is now open.

Good evening. I hope you're all well and thanks for taking my questions. First thing, I wanted to ask is your EBITDA on this quarter was really impressive. Can you maybe clarify for us whether or not there were any individual project closeouts or one-time items that contributed to strengths there? Or is this sort of a new stair At the bottom of the annual steps that we're looking at as Ameresco’s building this really impressive assets business?

I can take that real quick, Craig. This is Mark. There really were – wasn't much at all from a closeout perspective in Q1. They're very minimum and we had some minor impact, but it was very small. So yes, not a whole lot, it was really just the contribution from the projects themselves. A that's generally just based on timing. So we don't normally plan for those anyway, but Q1, I can tell you that just really had no impact at all.

So was – can you give us a little bit more detail, maybe Doran on the mix contribution on the asset size? Was there anything that outperformed, specifically, have the RIN issues maybe left you behind at this point? Are you seeing seasonality help you a little bit with PV? Was there anything particular that we can call out for the strength? Or is this really the new annual beginning, as we do climb these stairs?

Yes, look, I'll jump in a couple of things. One is that, as we talk about acceleration of some of the pull forward of revenue, some of that is in design build where we've got a lot of incremental gross profit, not a whole lot of additional incremental OpEx going on to that and I think that's a mix issue. With respect to energy assets, we did see performance, especially on the solar side look really good. I think, on a weather – the weather adjusted, when you look at our projections, they don't really know forecast for that kind of good weather. So solar certainly did well within the portfolio. So that's why you kind of saw that going up. I can't say that this is a paradigm shift, I wouldn't describe it that way though.

Okay, understood. So then big picture question, right. Stimulus, particularly infrastructures on a lot of people's minds. Looking down the runway, a lot of people are thinking maybe this is something that goes more to municipal and state governments than roads and bridges. But either way, it's something that could be additive and incremental. Can you maybe describe for us what you're hearing on the infrastructure side? And everybody knows Trump is a builder, right? He comes from construction. And he didn't scrip the performance contracting program when he came in and his presidency, like his predecessor. Can you maybe describe for us what gives you confidence that he's not going to do something stupid like Obama did when he introduced the competing funding for performance contracting? And can you maybe shed a little bit of light on your discussions with DC?

Yes. I mean, one of the things that, Ameresco has done very, very well building out project. So we are great, execution of various projects and most of the work that we do is infrastructure-based, because we are addressing boiler plants, chiller plant, combined heat and power, which is a cogeneration or take their Wood River – the Savanna River plant that we built, which was with wood, $200 million project. So we do large infrastructure projects, and the government, and actually – that's why last year, the federal has the largest execution or energy savings performance contracts, because basically they get the infrastructure upgrades with using third-party money. Now, if they come up with a stimulus package where it addresses more infrastructure upgrades, we can leverage those dollars to do more upgrades, whether it's a state facility, whether it's a municipality or the federal government, whatever the case might be. I don't think you can see us going into built in bridges and roads. But on the other hand, the infrastructure in many other areas, even if it's a way from the performance contract is just designed, built, because we have pivoted the company to be able to do design, build work because that has benefit the company, especially on the gross margin, they are lower gross margin, but they add gross margin dollars, contribute a lot, and that's how we were able to leverage the company. And many of those from, example I can use from the RFP process to actually execute in the contract, one of the largest contracts that we signed last year designed built, it was six weeks and some other ones, it's even less time than that. So we love that kind of business and we have pivoted the company to be able to do more and more design build work. So we will take advantage, that's the bottom line. We will take advantage of that program. And I think you will be a contributor if it comes to pass.

Great. Thank you for that. So another big picture question, right. So California, the low carbon fuel standard is obviously a big benefit to the green gas market, cellulosic gas and green gas in general. Something like 180 projects, most of them tiny, but in process there. And I know you guys are going to participate, Canada in summers going be filing its clean fuels program and the Canada Gazette, which will be the point that starts the clock for people to actually be able to start construction on new facilities. Can you talk to us a little bit about your project development in Canada historically? Have you seen the Canadian market historically as an attractive market? How well prepared are you to maybe go in and share the Canadian green gas opportunity? If we see this heat up the way it has in California.

Yes. We are talking to quite a few people up in Canada to develop some green gas sites in Canada. And as you probably know, we have a great presence up in Canada. We have five offices with the center located in Toronto, Canada. And with our group down here, we leverage in our group and trying to develop some sites up in Canada. And I think we have couple right now that we are talking to build with very early stages. But what has happened in Canada, which probably more interesting, some of the utilities, they are looking for green gas and we are talking to couple of them may be for long-term contracts, shipping some of the green gas from the United States to Canada. So I think mentioned it last time and I will mention it again. We had a great pipeline right now of green gas plants, we did say that we have one be up and running by the end of this year, we have two coming up and running at the end of next year. We anticipate that we will have probably three the year after that. So we had a very good pipeline of green gas plants, but we're always looking for more. And we think that market is developing and for the better. I did mention this last time that we are looking to get some long-term contracts and we continue negotiating those contracts. It has slow down a little bit because of the COVID-19 crisis, but for the long-term, we think that's going to be a great, great opportunity for this company. It's would be a great catalyst for us.

Excellent. That's great to hear. Stay well everyone and thanks for taking my questions.

You're welcome.

Thank you.

And we have any further questions. Presenter, please continue.

So, I guess none. So thank you very much all. I am looking forward to our next call. Thanks.

And this concludes today's conference call. Thank you everyone for your participation and you may now disconnect.