Good day, ladies and gentlemen and thank you for standing by. Welcome to the Ameresco, Inc. Third Quarter 2021 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 conference is being recorded. I would now like to turn the conference over to your host, Ms. Leila Dillon, Senior Vice President, Marketing and Communications. Ms. Dillon, you may begin.

Thank you, Justin, 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 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. The third quarter was another strong quarter for a Ameresco, as robust new business development activity yielded significant growth in both our project backlog and our energy assets in development. Our results continued to benefit from our diversified business model, as growth in our higher margin asset and O&M businesses, plus a favorable project mix drove an increase in profitability that more than offset the impact of supply chain have COVID-related delays. Our energy asset business has an exceptionally strong quarter with revenues up 29% and 35 megawatts added into our assets in development. Ongoing additions to our energy asset base create a higher margin, long-term revenue stream that together with our O&M business syrup to smooth out the variability that we can experience from quarter-to-quarter in our projects business. Of note, we were very pleased to add an additional four RNG side and an innovative battery system to our assets in development during the quarter. Given our deep and wide expertise in advanced energy technologies, Ameresco is able to pursue a very broad range of high yielding opportunities across our entire geographic footprint. During the third quarter, several projects and our off grid integrated solar business were impacted by interruptions and delays due to the industry wide supply chain issues and COVID-19 related disruptions. It's important to point out that these issues primarily impact the timing of execution, and that the delayed revenue will be recognized in later quarters. Our projects business proposal activity has been robust, and we expected we experienced a considerable increase in our total project backlog, which was up 7% sequentially at the end of the third quarter. At the same time, a significant increase in proposal activity is taking place across our customers' base, which we say…

Thank you, George, and good afternoon everyone. Please refer to our press release and supplemental slides that have been posted to our website for additional financial information. As George mentioned, the third quarter clearly demonstrated the resiliency of our business model, as continued growth in our higher margin energy asset and own in businesses offsets software projects revenue, driving another quarter of profit growth. As we've noted before, quarterly projects revenue can be uneven by nature, which has only been exacerbated by industry wide COVID-19 restrictions and supply chain disruptions. This is one of the reasons the company has purposely built out our recurring revenue businesses since its founding, which now account for over two-thirds of our adjusted EBITDA. Q3 revenue was $273.7 million compared to $282.5 million, the previous year, approximately $30 million worth of projects revenue was delayed and is expected to hit in subsequent quarters. We anticipate the COVID-19 and supply chain challenges to continue into 2022. We constantly monitor the availability and timely delivery of materials, as well as the availability in cost of labor, especially given COVID-related restrictions and vaccine mandates. Our increased guidance, which I will discuss later in the call takes all of this into consideration. Energy asset revenue increased an impressive 29% reflecting the continued growth of our operating portfolio, improved performance of our existing operating assets, and strengthened RIN prices. O&M revenue also had a robust quarter with growth of 12%, as we continue to attach long-term O&M contracts to our project work. Our gross margin of 21.5% benefited from a favorable project mix and generally continues to benefit from the growth in our higher margin energy asset in O&M businesses. We had GAAP EPS of $0.33 and non GAAP EPS of $0.41, with adjusted EBITDA of $40.2 million, increasing 9%…

Thank you, Doran. In closing, I want to again take a moment to thank our employees for their dedication and outstanding execution, as well as our customers and stockholders for their continued support. I believe that the prospects we see in front of us have never been more exciting. Our portfolio of innovative solutions and our track record of execution and delivering top quality products makes Ameresco the industry's preferred partner for the most complex and comprehensive advanced energy projects. Our recent battery storage contract win is a tremendous achievement for the company, and we believe it's also indicative of the types of opportunities that are rapidly evolving in the market as we focus on a clean resilient future. Finally, I'm excited to announce that Ameresco will be holding its first Investor Day in New York City on January 13. We will provide analysts and investors with an opportunity to gain better insights into our compelling long-term opportunities. Operator, I would like now to open the call to questions.

Thank you. [Operator Instructions] And our first question comes from Noah Kaye from Oppenheimer. Your line is open.

Good afternoon, and thanks so much for taking the questions, everyone. So first of all, congrats on contract win with Southern California Edison. This is very significant, and so I'd like to ask a couple of questions related to it. I guess, number one is a housekeeping matter. Is it possible to do a simple bridge to the $80 million increase in revenue guidance, I think you mentioned that you expect revenue recognition on this project fairly rapidly over the life of contract? But maybe you could kind of help put a little bit of a finer point on it for us. I guess as long as we're at it, we could also ask a little bit about you're mentioning the increased investment in people and systems to support growth, there's any details you can provide there?

Hey, Noah, this is Mark, maybe I can start just talking about the guidance. So, on the $80 million, I don't think we're going to talk about specifics there. I mean, there are a number of puts and takes going into those increased estimates. Certainly on the revenue side, we took into account an estimate of additional revenue coming from the battery contract. But, as we talked about in the prepared remarks, and as we saw in Q3, we still are anticipating the impact of various supply chain and COVID-related impacts to the revenue. I think we feel really confident in that revised range, just given the visibility that we have coming out of our project backlog for sure. We anticipate greater than 85% coming from our contracted backlog on the project revenue line, and certainly a high percentage overall, coming from contracted revenue sources. If we work our way down the P&L, I think the expected contribution from that contract, and the adjustments we made to revenue, when you combine those with some of the investments that we're going to make, I think it's a combination, certainly on the human capital side, as we focus on retaining our people, as well as the investments we're going to make in new resources to support the growth. We're also expecting to see some increases on the project development side, as we continue to focus on the robust pipeline of projects. So, we're going to see those investments continue to impact OpEx, and I think that's what's flowing down to the adjusted earnings guidance.

Well, what I’d add to that, as you may recall, that during COVID-19, we did cut back a little bit on the expense side, and focus a lot in executing the contracts that we had in place. And I think that's why we came out through COVID-19 very good. And we failed in it, by the way. But the last couple of months and this quarter, we're increasing our OpEx, otherwise hiring more people, adding additional resources. That's what Mark is trying to point out. And we're doing it because then we shifted some resources, for that matter, because in order to execute this expeditious time schedule of this battery storage contract, we shift in some resources senior managers that they built in other projects to this particular project. And, our backlog is developing fast, the opportunities are out there. And that's why you saw the considerable pickup in the projects awarded over 31% year-to-date, but we have to make the investment in order to maintain and probably accelerate the growth down the road.

Right. And as you pointed, I think your prepared remarks that increase in order backlog didn't reflect the contract, so you had significant growth in your other projects business and we'll see that.

Yeah. And that’s what got this excited about the performance of the third quarter. The fact, we've been waiting, we say, we knew that proposal activity is more than double for what we had the previous years. And finally, we’re beginning to see the results, the awards, and then as our time and work through the backlog, get the awards, and then six months, a year later, you get the actual contracts. But, if you get the Southern Cal, it went from proposal to award to contract with a few months in the proposal stage, and then about 10 days in the award to contract the stage. So that's why we like this contract, by the way.

Thanks, George. So that feeds into my last question, which is around -- I mean, obviously, there was an urgency to this project. But I'd like to get a little bit of color on how you effectively won the contract, where you were able to differentiate whether, in around the service capabilities, the technology you were proposing? And then, what you think that means, in terms of other opportunities at the utility scale type? You're hinting at it in these prepared remarks, but it sounds like there's quite a robust opportunity out there.

Yeah, sure. Southern Cal, RFP, and we were monitoring the situation, what they were doing with the PUC, and so on. And we were one of the first companies to respond to the RFP and there were a few others as well. But in addition to that, we are doing another project for Southern Cal small size project, which is -- so we got to know them very good. And they recognize that we have tremendous capability in that area. Actually, I visited them, I would say, three months ago or so. And we went up there very aggressively. We did line up suppliers and EPC contractors, and so on. Because one of the key issues, of course, is getting the batteries, they're the rarest, and so on and so forth. So we have lined up suppliers for all the key equipment for the project, transformers and so on. And as well as somebody to wrap it and build it for us. And the other thing I want to point out and everybody to our investors, as well as the analyst is the fact that would you take the contract is a single contract is a very large size contract for us. But if you break it down here, three contracts, three different sides. If you think we did the Savannah River back in 2010, we won the third of the size of the company, we did a $200 million contract, and it was the wood biomass, much more complicated this particular ones. But what makes them challenging is the schedule and some of the supply issues, and we developed and continue to bless make sure that we get everything there on time. The opportunities, that's why I focus my remarks a lot, it's getting to be more and more of an issue. Micro grids and battery storage and so on, it's going to be the way of the future. But as I said in my remarks, more solar, more wind and of course, they are intermittent, and they depend on weather. As you get the coal or a hurricane, whatever, all those things out, you got to make up that difference somehow. So that's the need for backup power, energy storage, whatever the technology is down the road.

Right. Well, thank you very much for the color. I'll jump back in queue.

Thank you. Our next question comes from Julien Dumoulin Smith from Bank of America. Your line is now open.

Hey guys, this is Anya stepping in for Julien. My first question here is I was wondering if you could just elaborate a little bit more on the supply chain issues? How much of that is driven by shortages versus cost inflation? Which of your businesses are particularly effective? And then, do you see any risks or I guess any impact at all tier annual cadence of three to four RNG projects? Or, do you think you could kind of make up over the long-term? Just wanted to get your thoughts on that.

I will talk about it a little bit and then Mark convenience into a day in and day out more. With the RNG projects, we had the slight delays or the projects that were executed in order to turn around. But no major hiccup impact that little bit of economics, but not so much. For example, some of the materials for the LED controls, we get them from a factory in Vietnam, it was shut down for three weeks, and so on. So that's impacted pretty much all of our LED projects. And a good thing and that's why it didn’t impact us as much on the profitability of the company, so that's why I mentioned on my call the project mix, some of the projects they were lower margin project, so they didn't have as much impact. The other thing that it surprised me a little bit with this vaccinated -- not vaccinated, especially in the Northwest region, some of our subcontractors because they had maybe one or two employees unvaccinated, they wouldn't have access to some of the facilities or before we used the schools will not often or even in the past, we used to do work at night in some of the schools, and now because they were open or they were concerned in case somebody was went in there that was unvaccinated, so they would allow us to do nice work. So then PVC, some roof tiles anyway, Mark.

Yeah, no, I think you hit on a lot of the examples. The only thing I might add is that it was certainly wasn't unique to any particular business unit or region, we saw it across really all of our project related businesses. And so, I think we even saw beyond that just sheer delivery of materials or COVID related impacts. We saw contracts being delayed, because COVID wouldn't allow certain officials to get into the same room and so you're getting just impacted the timing on a contract that we probably would have expected to see in Q3. So, we certainly ran the gamut of different challenges across supply chain and COVID.

Okay, awesome. Thanks. That was a great answer. I think the clarity there. And then, second, as a follow up, I just wanted to ask about just the guidance raise. Is that pretty much predominantly driven by this contract? Or how much of that is impacted by I guess, what are your thoughts on D3 RIN pricing? And what sort of expectations are factored into guidance? I know, last quarter, you said you were still relatively conservative on that. Have you sort of [Technical Difficulty] impact. I guess incorporated some of that positive pricing into your guidance for 2021?

Yeah, we have for sure. I mean, it's definitely one of the puts and takes. I think, again, without talking specifics about all the moving pieces and the guidance, our estimates are just slightly below where the market is. So, I think that certainly has to be a factor, but that's probably what I'll say on that on that particular input.

Okay, great. Thanks. I’ll jump back in the queue.

Thank you. Our next question comes from Eric Stine from Craig-Hallum. Your line is now open.

Hey, everyone. So just going back to the SCE award, and arguably, California has got the most urgency in this area, but obviously, as you mentioned other areas as well. I mean, you talked about this building pipeline of similar large projects, just curious if you could expand on maybe size of those compared to the one that you just won and timing of when we could start to think about that? Obviously, these are large and maybe they move slowly, but this one seems to have moved actually pretty fast given what's going on.

Well, this one moves very fast because like I said, it's an emergency situation at that’s stepping in California. I will say this much, we are working on quite a few of them, generally they are smaller than this particular project. And I think you will find out that the market is moving more and more battery storage, micro grids and so on. I’m [technical difficulty] if you get away with that echo there.

Okay, got it. Alright, I guess we'll stay tuned for that. But it’s obviously a pretty positive environment. Maybe, I'll stick with two questions and just on RNG. You mentioned the four new ones that you added. Any color on whether those are very RNG. And then if you look at the pipeline, how does that kind of break down between your traditional landfill versus dairy?

No, those are landfill sites, I’ll follow them. But I will say this much in the jury, we are working on some sites and some other potential deals. I will still put them in a proposal category right now. But I think in the near future, you will see us moving more, but we'll be able to put them in what I call asset in development. But right now, they're medium stages I will call them. But because they are fast grow much lower, the value proposition is much better for them and so on. We are looking at it very aggressively.

Okay. Appreciate it.

Thank you. Our next question comes from Chris Souther from B. Riley.

Yeah, thanks for taking my question here, guys. And congrats on the SCE deal. Maybe to start for me, talk about the uptake in energy asset development pipeline, you saw strong additions in both solar and storage demand and then also the renewable gas. Can you talk about the types of solar and storage where we're seeing strength here? And then it looks like you had a pure kind of battery added during the quarter here, I wanted to get a sense of within the pipeline and kind of current assets, how many are pure battery versus hybrid or solar only if you can kind of give like a breakdown of where things stand and the momentum between those. And then the timeframe for the renewable gas plants that were added before would be great as well.

Sure. So I'll try to hit all those questions in one fell swoop. So you will notice that we kind of labeled the solar and battery in the supplemental slides now. Out of the figure that you see for solar and battery 39 megawatts of that represents the battery capacity. Some of that is standalone, some of that is combined with solar. The one that's being added is a battery that's being added to an existing solar project, that we've already got in our operating portfolio. So that's kind of a great example of being able to go back and figure out how battery resiliency can be a supplement to things that we already own and operate. I think on the RNG side, there hasn't been really any change to the cadence of implementation. So we've talked in the past about the 2021 the single asset that's placed in service already, 2022, three assets, and 2023, four assets. The four that have been added, I think, clearly, we talked about 17 assets in development, and the ‘21 through ‘23, don't add up to 17. So you can kind of see the timeframe is going to stretch beyond that 2023 mark, to get the rest of these in operation.

Okay, that's very helpful. And then, project delays, obviously, challenged the whole space. And you talked about pushing about $30 million from some of these supply chain challenges. It sounds like that was stuff that you thought was going to be in the third quarter, but got pushed to fourth quarter and beyond. I'm just curious, how many projects are being pushed into 2022 versus the prior guide? And then kind of curious around the timing, where you guys are seeing there might be kind of a light at the end of the tunnel here, is it too tough to call at this point?

Chris, I don’t see the number of actual projects being pushed, right. I mean, we're kind of looking at it from a total revenue standpoint, and certainly, we would see some of the revenue that got pushed out in Q3 go into Q4. But in terms of pushing out into next year, I mean, again, look, we continue to anticipate that we're going to see these challenges through Q4 and into next year. And so we'll continue to pull revenue out of this year and into 2022.

How much was kind of pushed out for the full year for some of these?

I would just say that it's not common project delays, that's why I said revenue delays. For example, take some of the streetlight jobs and we're going to get to control but we could do some other work. So otherwise you delay some of the revenue associated with a particular project, and that's why in my remark I said, delay, that revenue will be recognized, but a little bit later time.

Understood. Okay, thanks, guys.

Thank you. Our next question comes from Tim Mulrooney from William Blair. Your line is now open.

Hey, this is Sam filling in for Tim. Thanks for taking our questions here, guys. Congrats on the quarter, first of all. You've discussed in the past the ongoing shift towards more comprehensive and complex projects. I was curious if you had any stats to help us understand the magnitude of that shift, like maybe the average size of a project five or 10-years ago versus the average size of project today, or even a range just anything to really kind of help frame the issue for us?

Yeah, it's a good question. I mean, we go back into one of my favorite projects that they use, that its size changed dramatically, Parris Island. When we won that contract was through the RFP process, it was about $48 million contract. And some of the measures, it was changing out some boilers, some killer work, some lights, and steam upgrades in the hot water heaters, and so on. Otherwise, it's typical HVAC boiler retrofit. And then the client approaches us, he says, we have many storms down here, we need resiliency, also, whichever requirement by the federal government to have 30% renewables both by -- I forget the year right now. So we went back to the drawing boards and we designed a project that he had the combined heat and power plan of 8 megawatts, an emergency generator, a battery storage, a solar plant. And of course, in order to match the load with the generation that you have on your system instantaneously when you get off the grid, you need a micro grid, you need a computer in order to control and see what's going on. And that became a [indiscernible] number project. It's been up and running very successfully. Portsmouth Naval Shipyard, that's where they maintain the nuclear submarines. Similar situation and during the ice storms that we had the last couple of winters is the only place that hit power. And the same with Parris Island, they had one of the storms, the hurricanes that came by they maintain power. So it's expanding more and more. I think I've said it before, back when I went to New England electric, and we're doing the planning for generation of transmission, we used to design the system for a loss of load probability of one in 101% otherwise. And, we had come up that to achieve that we needed about 10% of the outstanding load the spinning reserve. And now spinning reserve will be the various. So if you take out, and we go down the road, they say you have a 30%, 40% between solar and wind, a single event which weather can take out both. So you need some backup, you need micro grids in the data centers out there, the banks beginning to realize, hospitals. And of course, the federal government was the first to realize that we have to get the backup. And so, the project has expanded. So that smart sensors are included in all the advanced technology.

Awesome. Appreciate the color there. Maybe pivoting back to the battery technology a little bit, but more so on the distributed energy front. When we look at LED mining technology, and just how to ensure that it helped lower the cost of the technology by 90%. And that ushered in a wave of retrofits and mass adoption. When we look at the state of distributed energy now and just the battery storage, where do you think we're at on the technology maturity curve here? And then how much do costs need to come down for more than currently at to kind of see maybe a similar mass adoption of it?

It’s quite a few cases that make economic sense even right now, because they take into consideration interruption of service. If you're a hospital, for example, you cannot afford to lose power. If you're a university or a data center, where they do -- you don't want to lose. Everybody worries about cybersecurity, losing power, sometimes it can be much, much worse than that. And of course, I think they have come down some and that's why the market has expanded. For example, the sensors, the smart sensors, or the LED, and, of course, the solar, the panels and everything else, wind they've come down tremendously. The batteries, we are making progress, but not as much as ultimately I think we will be able to see. And the micro grids that they are getting to a point that they make good economic sense.

Got you. Appreciate the answers here. Good luck in the next quarter.

And that's why the market expanded, it went from $10 billion to $20 billion market to $90 plus billion market, if you look at some of these studies by Navigant and those guys out there.

Perfect, appreciate it.

Thank you. Our next question comes from Jed Dorsheimer from Canaccord Genuity. Your line is now open.

Hi, thanks. I guess first question just maybe an extension on the storage side. It looks like that was for -- it wasn't for long durations storage, just doing the calculation of four hour backup. So I'm curious, maybe could you provide a bit more detail on how that came about? And because your comments around micro grid would maybe suggest a combination of both long duration and short duration storage, and so I'm just trying to figure out, sort of where we're at if this is the tip of a much larger iceberg, or how to think about this?

Yeah, I didn't look at it this way. The four hour battery storage for this particular application came from looking at the load profile of the utility. That's what basically they went out to and requested. So what they thought in order to beat it actually, believe it or not, this was a morning pick that they were worried a lot about. But ultimately, with a micro grid such thing, and that's why I said in my comments, we will need firm renewable supplies. And for example, go back to the Parris Island that we use natural gas right now, it has a combined heat and power. And the battery storage has been used to bridge the gap. Because even though you have your own generator, you cannot bring it up to maximum load instantaneously, the battery can. You have the battery, it bridges use, it keeps you up and running for the next two, three hours until your load picks up. But now 20-years from now, we want to be net zero, that natural gas, we have to fire the turbine with the hydrogen clean fuel. And that's why I say ultimately, we will need firm renewable resources.

Yeah, I was just going to ask, I mean, along those same lines we're seeing I think, I'm not sure if it came from Charlie Baker, or somebody else. But I read that, this state, Massachusetts wanted from ever source of plan that without natural gas, we're seeing nat gas in California that’s viewed in a similar fashion is oil. Now, I completely disagree with the logic, and most of these people don't understand physics or failed their physics classes. But I'm curious with that exposure, how you're thinking about positioning the -- George just mentioned hydrogen. I'm curious how you're thinking about the portfolio in the context of some of these political debates that are going on right now?

Well, I think when you look at hydrogen and what's potentially coming there, I think that we like the optionality that we have with the portfolio of operating landfill gas and renewable natural gas plants that are in development. So that's something that there's a reason why we're keeping our eyes on this. You've mentioned a couple of technologies which are coming and just kind of circle back to the fact that we're an integrator. We're clean tech integrator, and focus on the highest and best technologies. We're looking at new technologies pretty continuously. We start to pilot these in certain projects, sometimes it's on the EPC design build side, sometimes it's on the energy asset side. I can say that I've seen pilots on hydrogen as well as long duration storage, flowing through into our backlog. They're small, but they're small for a reason. Because we need to test them out, we need to make sure that we're comfortable with the technologies because the customers that we have, like us to stand behind our work. And so we need to be able to stand behind the technologies. But nevertheless, as these technologies advance, we're just going to position ourselves to have the technological capability to understand, install, operate, maintain, and if we liked them on our own balance sheet we will own them, if that's better suited for our customers then our customers will own them. I think that's the way I see that.

I agree.

That's helpful. Thanks, guys. I'll jump back in the queue.

Thank you. Our next question comes from Stephen Gengaro from Stifel. Your line is now open.

Thanks. Good afternoon, everybody. Two things for me and I'll start with the significant award that you guys announced over in California. Can you talk about with a project of this size, sort of the safeguards you've put in place and the confidence you have on the execution front. Because it's the one thing I worry a little bit about is, there's obviously a pretty large project. And you mentioned in gross margin ranges for similar projects. What's the level of confidence? And how do you think about execution here?

We are very confident in that, we will execute and execute well. And it's an extremely important project for us. We develop to the contingency to make sure that nothing falls through the cracks and the whole management team is focused on that. But look, if I go back, and I told that to the management team and to my board, because it breaks down into three different projects, if you think about it, what does it involve, battery storage, transformers, inverters, and of course, then you scale them up, if they are many of them, but then you have to interface them. I feel very comfortable. I have built a 650 megawatt power plant and coal fired way, way back when I started as an engineer for the Savannah River, which was the biomass plant. We think we can execute very, very well.

Okay, great. Thanks for that color. The other quick one for me, is when I think about, and I know you're not going to give me an exact timeframe, but when I think about the energy assets under development, and it's obviously a very healthy portfolio. Should we think about that sort of becoming active over a four year time period? Or, is that a reasonable way to gauge how they kind of unfold and come into operation?

I think that's probably fair, Steve. We have talked before about a three to four year time horizon. Based on the assets that are going in and coming out, I don't think that's changing substantially. Some of those assets can move a little bit more quickly than others, but three to four years is probably fair. Yeah.

Okay, great. No, thank you. This is helpful.

Thank you. Our next question comes from Ben Wheelan [ph] from Piper Sandler. Your line is now open.

Yeah, hey, thank you for taking my question today. So, in the past, you guys have talked about the theme of increasing demand for resiliency solutions, which is leading to that larger ticket size or larger project size overall. And I'm trying to figure out, just how that impacts your margin profile of your projects business? So does this mean because you're taking larger projects it hurts your margin over time because you're giving customers discount? Or, am I thinking of that incorrectly? And then I have a follow-up. Thanks.

Yeah, I mean, I think we've probably said what we can about the margin profile associated with that big contract. The one thing that I would kind of go back to is something that I pressed upon our own business units again, and again it’s about operating leverage. Gross margin percentage may see impacts from project mix. But when you look at the contribution to the bottom line, if we're taking on lower margin design, build contracts, without the requirement to really boost up or increase our OpEx as a corresponding response to taking on those projects, then we're executing on improved operating leverage, which I measure as gross margin dollars versus OpEx dollars. That's kind of how I think about operating leverage. And as long as we continue to improve that, then we're doing the right thing, even if it means going out and winning business that might have a lower gross margin percentage on that particular thing that might bring a project mixed out. Again, like we talked about in our comments, because we continue to invest in the energy assets and increase the O&M, those higher margin recurring revenue businesses will continue to feed into that mix and temper any impact, temporary or otherwise, that might be on our gross margin percentage.

Got you. That's helpful. Thank you for that. And then switching gears a little bit here. Could you update us on the acquisition front or on some of these inorganic growth opportunities that you have in front of you? I think in the last earnings call, you guys mentioned possibly looking for an acquisition to expand your presence in the European markets. Is that something that's still on the table? And then, could you provide any insights into when you guys might make an inorganic growth opportunity? Is that 2022? Is that later this year? Thanks.

So, short answer, we can't really tell you anything, sort of with any kind of certainty about the timing of any particular acquisition. We continue to evaluate things as they come along.

Okay, that's helpful. And then could you maybe comment on what you're seeing in terms of like, multiples you would have to pay for businesses? Is that what's keeping you on the sidelines right now? Is that things are priced too aggressively, and you want those prices to come down? Or what's keeping you guys from making a deal?

I wouldn't put it into any one thing. Ameresco has a strong track record of acquiring businesses over the last 20-years and integrating them appropriately. And so it's not just about the multiple, it's about is it the right business, is it additive, do we view it as financially accretive, does it make strategic sense. The multiple is one of those factors, but I don't think that's determinative.

I wouldn't assume that we stay in a wave. We are actively looking, we haven't changed our rule. That has to fit our metrics when we're looking for.

Thank you. Congrats on the quarter.

Our next question comes from Ben Kallo from Baird. Your line is now open.

Hey, guys. Hey, George, you've been hiring people for a long time. I just want to understand the market right now for hiring. And let's go from there.

No, we’ve been hiring and once in a while we lose few people. That's why we have made some I would say strategic investments to make sure we keep good employees. But one of the good things about Ameresco, we always have been able to hire the talent that we need. For example, all the units may be there. They are looking for people, but they are not short of people. I mean, I don't know if we can disclose how many people we hired. But we've been very, very active in the last two months -- two months of the last quarter and first month of this quarter, because we build enough and especially the RNG facility unit, and now the battery storage the micro grids all these advanced markets. If you recall, back in 2018, ‘19, we made huge investments in order to get to these advanced technologies. And now because we’re coming out of COVID-19, again, we make some good investments, and I think it's going to help us very, very well going down the road. So it hasn't been an issue.

Thank you. And, there's a lot of talk in the marketplace about software and layering on to all types of technologies from smart meters, whatever. How are you thinking about that? And then, what you're doing in the -- M&A question was already asked, but how do you think about where software fits and what you could do? Thank you.

Sure, those software are critically important. So as you know, we have a couple of Software-as-a-Service businesses and what we've been doing has been to continue to integrate the offerings and the capabilities of those businesses into our regular way, origination of energy efficiency of renewable energy business. And I think it is critically important. One of our business units that uses a software called Asset Planner is currently monitoring data collection on energy infrastructure from, I think, approximately 3 billion, a little bit more than 3 billion square feet of building space. That gives us a tremendous database to provide benchmarking to our customers, when we're talking to them about the state of affairs of the state of play from their perspective, where they stand from a building infrastructure, facility condition, carbon reduction opportunities, you name it. And I think that the software plays an important part there. And we're continuing to develop that internally. I don't see that as M&A discussion.

And thank you. And our next question comes from Chip Moore from EF Hutton. Your line is now open.

Hi, thanks for taking the question folks. Wanted to follow up on the utility scale energy storage opportunities. Well, I think you alluded to a number of active discussions underway. Is there a way you can talk about sort of how advanced you are in some of those discussions? Or maybe how the overall pipeline looks, particularly some of the regions that may have a bit more sense of urgency?

No, I mean, I think from a regional perspective, we probably don't even need to say, because it's, pretty clear, which utility regions are facing the needs for resiliency. And then furthermore, because much of what we're talking about here is at the proposal stage, it's difficult to frame volumes, quantities, timelines, etc., for those particular opportunities. I think it was just important for us to note that the proposal activity and the level of discussions is certainly on the rise in that sector.

And Chip about the reality, then we are in some kind of competitive process. So it's very hard to talk about specific.

Yeah. Understood. And this is probably more for the January Day [ph], right. And just love to get your thoughts on proposed funding and the reconciliation bill, and how you could be positioned there. Thanks guys.

Well, that, of course, the proof is in the pudding, depending on what ends up passing, right. However, our current read of this bill is that what remains is still extraordinarily constructive to the industry overall, and hits directly with a number of the businesses where we operate, whether it be the biofuels or the solar, or the battery storage, or what have you. I mean, energy efficiency. The initial draft when it was still in the $4 billion range was pretty robust, right? And so even when you see things fall by the wayside, there's still a lot in there that is quite meaningful for our business.

Thanks guys.

And thank you. And our next question comes from Pavel Molchanov from Raymond James. Your line is now open.

Thanks for taking the question. Let me go back to actually the very last one about Build Back Better. Given that one of the, I suppose high profile provisions of Build Back Better is opening the investment tax credit to standalone power storage for the very first time, this $800 plus million project that you're working on, will that qualify for the tax credit, if it is already getting built, and will presumably continue to be built after the Bill passes.

It depends. But the way it impacts us it will impact the utility, Southern Cal because they will own the project.

Yeah, the technical answer your question is we don't know until the legislation is passed, and we see the effective dates and the nature of how they view, placed in service versus starting construction, etc., when it comes to those ITC eligibility points on storage. But as George pointed out, this isn't an energy asset on Ameresco's balance sheet. So that calculus is more relevant to our customer.

Right. Okay. Understood. One more policy question, I suppose back in July is when the EPA was supposed to release its RVO targets for 2021. And of course, now we're in November, and it still hasn't happened? What is your understanding on when those numbers will come out for the current year, if they will come out at all?

The latest estimate and the information we get from the people that we have in Washington, is sometimes in December. But they said that before. So we don't know it depends. But on the other hand, we know what the supply is. I think the demands for the rings will continue to degrade because the market is under supplied.

Okay. Last question, recognizing you're not speaking about M&A or inorganic opportunities, but three months ago, I think you touched a little bit more about what you're doing across the Atlantic on an organic basis, in terms of new project opportunities. Can you touch on what you're seeing in Europe, now that Fit for 55 framework has come out and is starting to get implemented?

I mean, we've seen very, very good activity, especially in our UK office. And usually the UK office, we're looking at some opportunities in, I would say, the eastern parts of Southeast parts of Europe. But we are not [ph] disappointed that we can't talk about it yet. We could do some additional leadership, like to hire over there and expand. The opportunities are many there. But I want to focus a lot and point out that the United States continues to have tremendous opportunity. And what makes me excited about it, the market is expanding. If we get the legislation, it will be even better for us.

Yeah, indeed. Thank you.

Thank you.

Thank you. And our next question comes from Greg Wasikowski from Webber Research. Your line is now open.

Hey good afternoon, everybody. Thanks for squeezing me in.

Sure Greg.

I know you guys have talked about it at length already. But a couple more questions on the SCE deal. First, just when thinking about the pipeline for similar types of projects of similar size, just curious how is that going to work operationally, maybe from a personnel perspective, or Doran to your point from an operating leverage perspective? Are you able to stack similar types of projects on top of each other? Or is it more of a one at a time approach as of now?

I think we're able to stack. I mean, interestingly, what we also have the ability to do and what was evident from kind of implementing this one, was that we actually have quite a few people we can tap to pull in on a consulting basis as well. We're not afraid to do that. That cost actually doesn't hit our OpEx because they're 100% utilized. There's no real kind of overhead to think about with respect to those people. And actually going through the process that we've gone through in staffing this particular one makes me even more confident in our capability to take on more, because we're recognizing that there are people there who really want to work with us.

Awesome. That's great to hear. And then next is wanted to get a sense of the price variability, if at all on that $892 million in revenue. Is it -- is this something that would get firmed up and settled soon? Or is it the idea is to remain variable in terms of scope throughout the life of the project?

I think that the $892 million is based on the sum of the kind of face price on each of the three contracts, to the three projects. Each of those have standard traditional change order provisions that you would see in a design build contract. So that is probably as good as an answer as I can give for that.

Got it understood. All right, that's all I got. Thank guys.

Thank you.

And thank you. And I'm showing that as our last question. This concludes today's conference call. Thank you for participating and you may now disconnect.

Thank you.