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Ameresco, Inc. (AMRC)

Q1 2024 Earnings Call· Tue, May 7, 2024

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Transcript

Operator

Operator

Good day, and thank you for standing by. Welcome to the First Quarter 2024 Ameresco Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I’ll now like to hand the conference over to your first speaker today Leila Dillon, Senior Vice President, Marketing. Please go ahead.

Leila Dillon

Analyst

Thank you, 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, Executive Vice President and Chief Financial Officer; and Mark Chiplock, Senior 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. Today’s earnings materials contain forward-looking statements, including statements regarding our expectations. All forward-looking statements are subject to risks and uncertainties. Please refer to today’s earnings materials, the Safe Harbor language on Slide 2 of our supplemental information and our SEC filings for a discussion of the major risk factors that could cause our actual results to differ from those in our forward-looking statements. In addition, we use several non-GAAP measures when presenting our financial results. We have included the reconciliations to these measures in our supplemental information. I will now turn the call over to George. George?

George Sakellaris

Analyst

Thank you, Leila, and good afternoon, everyone. We are pleased with our first quarter performance as the team’s focus on execution drove growth across our four business lines as well as significant results in our business development activities. The actions we have taken to optimize our organization are already driving a positive impact across our company and positioning Ameresco to capture the substantial opportunities in front of us. First quarter revenue exceeded our guidance, led by strong execution from our projects group, and complemented by growth in our other business lines. Additionally, the momentum of business development has continued to show strength, with new project wins and energy asset development activity laying the foundation for good profitable growth. Our focus in cash generation is also yielding positive results as Doran will discuss later in this call. The current market demand for energy efficiency and renewable energy solutions remains robust across our technologies, geographies, and customer base. But this demand is continuing to stretch industry supply chains, create tight labor markets and generally lengthen overall timetables. I am pleased to say that these industry issues seem to be leveling out and we remain cautiously optimistic. And as we discussed last quarter, Ameresco is adapting to the new industry environment and the tremendous growth opportunities in front of us. We continue to refine our approach to drive increased win rates, expand project margins, and accelerate the speed of implementation. We have reorganized our corporate structure to bring more uniformity and scalability across all of our geographies and business units. We have also focused our business development efforts on larger contracts in our core areas of expertise in our traditional customer base. This is already helping us to increase our project win rates, and we are seeing early signs of improving gross margins in our total project backlog. We have, however, anticipated the continuation of these industry challenges in our approach to forecasting and guidance. And with our solid start to the year, plus the visibility from our contracted backlog and our energy asset and O&M revenue streams, we are pleased to reaffirm our full year guidance. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?

Doran Hole

Analyst

Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplemental information that was posted to our website after the market closed today. We are off to a good start this year with total revenues growing 10% to $298 million and with each of our four business lines experiencing growth. Our Projects business grew 11.5%, reflecting our focus on faster implementation and conversion of our backlog. While market challenges remain, we continue to take steps to succeed in today’s operating environment. Energy Asset revenue grew 6%, largely due to the greater number of operating assets compared to last year, improved production, as well as higher RIN prices. We brought an additional 13 megawatts of assets into operation in the first quarter, adding to our large and growing operating base of 518 megawatts, which we expect to provide decades of profitable revenue to the company. Our O&M business had a very strong quarter, growing 14%, due to favorable timing on some of our long-term contracts. Our other line of business grew 3% as strong consulting revenues offset continued softness in our integrated PV business. Gross margin of approximately 16% dipped as higher than normal project cost adjustments during the quarter outweighed higher margins in the O&M business. Enhancing gross margins is a key priority for us, and as George mentioned we are seeing early signs of improved gross margins in our project backlog. That said, we continue to emphasize driving incremental gross profit dollars and controlling operating expenses, in other words using our operating leverage to maximize EBITDA. We have been laser focused on increasing the efficiency of our business development process, a key controllable component of operating expenses. In the first quarter, our revenue growth as well as cost savings and operating…

George Sakellaris

Analyst

Thank you, Doran. Ameresco is off to a solid start with a commitment to profitable execution and growth. The company remains extremely well positioned to take advantage of the tremendous opportunities on the horizon in both our domestic markets and in Europe. Our top priority for 2024 remains execution and cash flow generation. In closing, I would like to once again thank our employees, customers and stockholders for their continued support. Operator, we would like to open the call to questions.

Operator

Operator

Thank you. At this time, we will conduct the question-answer-session. [Operator Instructions] Our first question comes from the line of Noah Kaye of Oppenheimer & Co. Inc. Your line is now open.

Noah Kaye

Analyst

Hey, good afternoon. Thanks for taking the questions. I’ll just try to do a couple quick ones here. First, talk about the improvement in conversion over to contracted, just the dynamics that you’re seeing in the market to support that where you saw the best pickup in conversion. And the related question is to talk about the margin profile of what’s going into backlog. Now, I think you mentioned in your prepared remarks visibility to just a better margin profile, but would love any dimensions around that.

George Sakellaris

Analyst

Yes, the conversion from the awarded contracts to the executed contracts, it’s across the board, but we had couple of good wins, I would say, conversions on the federal sector, which is basically our bread and butter, as well as a couple of streetlights, couple of school systems and so on. So it’s in a couple of battery storage, smaller projects, but it’s across the board, the conversion. And I think the fact that we reorganize the company and we focus more on converting, moving projects from the awarded category to the executed it, so we can build them out, it just helps. I think anytime you focus on organization, on a particular task, things happen. And I think that has helped a lot. With the margin side, one of the goals this year, a, we choose or we target which projects we go after. Like I said, they are around our core capabilities and the customers that we know best. And we have seen a little pickup on the contracted backlog, about 30 to 50 basis points. And that has been consistent now for the last couple quarters. And that’s why we started talking about it and…

Noah Kaye

Analyst

That’s really helpful. Thanks. Sorry, I don’t know if Doran wanted to add any more to that. If not, I’ll move to my next question.

George Sakellaris

Analyst

Go ahead, Doran.

Doran Hole

Analyst

The last thing I’ll add is just simply that within the different business units, one thing that we’ve consistently seen is that when we do focus on business selection and the high probability wins, you actually tend to find that the margins are a little bit better in the projects. So there’s a little bit of a connectivity there to business selection and margins that adds to the benefit.

Noah Kaye

Analyst

It makes sense. Just a quick question on the asset side, I think you called out the investment by Republic in the Roxana RNG plant. When we think about outside sources of capital for development as well as the develop and sell model. How do we think about kind of the types of assets that would go into develop and sell versus potentially attracting minority investments? Maybe you can kind of regiment how you’re thinking about the asset profile.

George Sakellaris

Analyst

I can start on the solar side, I think because the market is so fluids and liquid, it’s a better strategy to develop and sell, because our return on capital, the ones we want to keep, is a little bit higher than what the Street will accept. So then on the RNG side, though, we have started looking to developing more partnerships where we will be a majority partner or there will be a minority. Otherwise we explore in various situations. In this particular case with Republic, Roxana, they have the right, we have quite a few sides with them. They have the right to invest in any assets that they wanted. They picked this particular one that they wanted to invest. We welcome it and we hope they continue to invest in that many more. Want to add something to that, Doran?

Doran Hole

Analyst

Yes. I really think George has commented on the liquidity of the market in the solar space as well as the battery space, to be honest, those are the two categories of assets I think that really fill our develop and sell portfolio. And then we, of course, will opportunistically look at these potential partnerships, whether they be in the RNG or in the other asset classes, provided we feel like they’re accretive to our shareholders versus what we might be able to accomplish on our own.

Noah Kaye

Analyst

Thanks for all the color. Nice quarter.

George Sakellaris

Analyst

Thank you.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Moses Sutton of BNP. Your line is now open.

Moses Sutton

Analyst

Hi, thanks for taking my question and congrats on great execution here. First, on SoCal Edison project, maybe it’s just some of the language of the update. It sounds almost like the two of those three of the projects that were already in that very advanced stage of commissioning, maybe some similar to like two months ago, which is pretty recent of the 4Q call. Any specific tasks completed that you can sort of check off or outline that moved those two further along. And then any shift in the timing on the third one. I know there was heavy rainfall, but that was already true from months ago. Just curious on anything more specific from either.

Doran Hole

Analyst

I’ll start with the last question. No major shifts in the timeline of the third one. On the first two, the big difference is performance testing and duration. That’s kind of the big hurdle that we got through, and I think that’s really gives us a lot more confidence on how close we are to the finish line, Moses.

Moses Sutton

Analyst

Excellent, excellent. Thanks. And then any updated thoughts on the storage energy assets that you are going to potentially, some of them not build on balance sheet. If they don’t hit your hurdle, you might sell them mid-stage and then timelines on any of that.

Doran Hole

Analyst

So we’re kind of regularly running sales processes. We do those internally. I think as far as categories are concerned, we like to keep the ones that have really solid economics with long-term capacity contracts. We’re not big merchant battery players, but we do know how to develop those assets. So anything that we throw into the asset development metric that looks like, that is likely to fall into the develop and sell. And we’ve effectively built in our expectations for the timing of these transactions into our guidance. So that’s kind of how we look at the way this converts into project business and O&M business for us.

Moses Sutton

Analyst

Excellent. Thanks again.

Doran Hole

Analyst

Thank you, Moses.

George Sakellaris

Analyst

Thank you.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Eric Stine of Craig Hallum. Your line is now open.

Eric Stine

Analyst

Hi, everyone. Thanks for taking the questions. Hey, just wondering if I could clarify, so talking about the award conversion sluggishness that has started to pick up. Just unclear, it sounds like you believe that’s more based on steps that you are taking rather than the market improving. Maybe thoughts on that, whether that’s the correct read and how much more is there to go if in fact the market really hasn’t improved all that much?

George Sakellaris

Analyst

Go ahead, Doran.

Doran Hole

Analyst

I mean, it’s a combination of both, to be honest, with you. I don’t see that it’s necessarily. Certainly, we’re taking steps, right. We’re trying to be more aggressive in terms of getting our conversions across the line, but the market has also been a little bit more cooperative. In terms of supply chain delivery timelines on the execution of the implementation cycle, we haven’t seen those. Well, we’ve seen them be a little bit more predictable now, and I think that’s been helpful to us. I don’t know that much more to add.

George Sakellaris

Analyst

They haven’t been extended. For example, the transformers, they were about 18 months. They were 18 months. And you can get them now, where before they will say 18 months and they turn out to be longer and you couldn’t get them, because I know sourcing various pieces of equipment lately. We can do it. They tell you a certain schedule and it seems to be holding. But as far as shortening any of the timelines, that’s what we meant by adopting to the new environment, which have not done and we have not taken into forecasting or the guidance, any improvement. That’s the availability and sticking to the schedule that we have seen so far. We had a hard time finding switches and so on. Lately, we’ve been finding them [indiscernible]

Doran Hole

Analyst

As George said in the prepared comments, cautiously optimistic, continuing to forecast that we’re going to keep seeing these pressures. We’re not going to get too excited yet.

Eric Stine

Analyst

Got it. And then maybe just on the gross margins you mentioned the project cost adjustments. I mean, can you provide a little more clarity there? I mean, it sounds like that’s just kind of normal course of business. Or were there any items that were one time that we should consider as we think about that?

Mark Chiplock

Analyst

Yes. Eric, this is Mark. And I think you said part of normal course, because we review these projects all the time. This just happened to be an unusual quarter where we had four projects that as part of that normal course review, we identified some additional costs where we made some adjustments to the cost budgets. In any particular quarter, these adjustments, which can go both ways aren’t really material to the results. They’re standing out a little bit more, because we had some larger than normal adjustments and these have been some legacy projects that have been around for a while and they’re getting relatively close to completion. But we saw some true ups, some write offs, some that were impacted by – one that was impacted by delays and just some unforeseen events that and the timing of these projects and those adjustments all just happened to be in the quarter. So it’s part of the normal course. But it was unusual in that they were larger than normal.

Eric Stine

Analyst

Okay, thank you.

Doran Hole

Analyst

Thank you.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Joseph Osha of Guggenheim. Your line is now open.

Joseph Osha

Analyst

Hi there, guys. Thanks for taking my question. Can you hear me?

George Sakellaris

Analyst

Hi, Joe.

Joseph Osha

Analyst

Yes, sorry, can’t work my phone. And I apologize if you touched on this, I may have missed it on Slide 6 of your deck with the – thanks for putting those advance rates in. It’s really interesting. Is the implication that as these assets go from development to operating, that you think you can probably take them to kind of 85% advance rate. And I had one other question, but I’m curious about that.

Doran Hole

Analyst

I think that’s right, Joe. I think that certainly as we’ve talked about in the past, some categories of the assets can carry higher advance rates than others. So depending on the mix of what’s in that pool of energy assets and development and construction, the advance rate may move around a bit. But once you get up to the operating on average, I think we are at that kind of 80% to 85%. And it is a little bit of a jump from where the construction lines and the construction lenders will advance.

George Sakellaris

Analyst

Yes. And especially if they have long-term contracts or short end and so on.

Doran Hole

Analyst

That’s right.

Joseph Osha

Analyst

Right. And that makes sense. And just on the back of that, I mean, given what’s kind of been happening in bank world, I’m curious. I mean, have you guys ever thought about trying to securitize some of this stuff or are you happy with the options that you have?

Doran Hole

Analyst

We’re always looking for new options, Joe, as far as decreasing spread. But when I take a look at spreads on the securitization market, I think that the granularity and diversity of the portfolio probably isn’t there in the similar asset type with the standardized documentation in order to really fit the securitization criteria that would draw the kind of spreads that you see in the market from some of the other companies that are asset focused, that use securitization as a tool. The assets just get a little bit too lumpy. So what we have is a number of financing facilities, when you go through our debt footnote, you can kind of see all of those. Many of them are dedicated to certain types of solar or battery assets, some are the sale leaseback facilities, which are usually done one at a time, extremely efficient financing vehicle for us. And others are used when we’re going to use the tax credit ourselves or sell it. And I think we do feel good about where our spreads have been versus the market. And so we’re pretty happy with what we’re looking at. We think through competitive processes when we go to borrow funds against assets. We are seeing kind of the best of what’s out there.

Joseph Osha

Analyst

Okay, thanks. And then you actually just raised an interesting point. I wasn’t going to ask, but since you raised, I’m going to ask, how much of the credit volume that you guys are creating. Are you retaining versus placing either in regular tax equity or are you guys out there actually transacting. I’m curious what you’re doing.

Doran Hole

Analyst

Well, we haven’t disclosed the proportions, if you just break down entering into a tax equity transaction like a sale leaseback versus taking the credit ourselves for our own effective tax rate versus selling credits. We do all three. We haven’t come out and provided guidance with respect to any. We’ve executed one tax credit transfer this year so far. We’ve got another one underway. I expect that we will have more. It all depends on the volume and what we expect our tax liability to look like as well. As you dig into our effective tax rate, you see the impact of ITC and 179D, and given the transferability provisions, we love the flexibility of that tool. So yes, for sure.

Joseph Osha

Analyst

All right. Thank you.

Doran Hole

Analyst

Certainly.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Leanne Hayden of Canaccord Genuity. Your line is now open.

Leanne Hayden

Analyst

Good evening, everyone. Thanks so much for taking my question and congrats on the progress made throughout the quarter. Just a few questions from me. George, could you please educate us on how you plan to capitalize on the emerging data center opportunity?

George Sakellaris

Analyst

Yes, actually, we are working on several of them, and it’s going to be a great, great market, no question about it. And we have several that we are working on. And actually, as you probably know, we have several bases, the United States government, where we have what we call the enhanced use leases, and we have some of the major data center people or companies that they would like to team up with us and execute on them. As you probably everybody knows, it’s a huge market and with AI and so on, the energy needs and the resiliency that they will need on the energy, it’s a perfect fit for what we have been doing basically for the federal government on every base right now has resiliency. That’s why they have battery storage, combined heat and power, solar, and then of course, the microgrid [ph] associated with it. So each data center basically has the same needs. And I think you hit the nail on the head. It’s a market that we want to focus and expand further than what we have been doing so far.

Doran Hole

Analyst

I would just add back to the comments that we made about being selective in our business development. We’ve got a real stronghold in the federal government market when it comes to winning those enhanced used leases. We’re going to take advantage of that as our way to really enter this market. We’re not going to go shotgun blast, try to capture every data center in the world. We’re going to be smart about where we’re going and pick the profitable projects and projects where our expertise is strong. And in addition to that, ensuring that we’ve got a real comfortable view of our counterparty, the developer have the creditworthiness, who’s on the other side of these contracts because we are cognizant of the fact that there are a lot of players in this space and a lot of new ones in this space and we’re being smart and selective about it. Great, great growth opportunity, yes.

Leanne Hayden

Analyst

Right. Okay. Yes, that all makes sense. And just tangentially to that, do you have any interest in nuclear power?

Doran Hole

Analyst

We haven’t moved into any of the implementation phase of that. I think within the same group that kind of looks after the federal government and some of our large projects. We do occasionally get involved with NREL and others on certain pilot projects and things. And I think we’ve got our eyes on a few ideas, but nothing major to talk about yet, not yet.

Leanne Hayden

Analyst

Got it. Got it. Thanks so much. I’ll jump back in queue.

George Sakellaris

Analyst

Thank you.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Pavel Molchanov of Raymond James Associates. Your line is now open.

Pavel Molchanov

Analyst

Thanks for taking the question. It’s been a year since you acquired Enerqos in Italy. Can we get an update on the European opportunity and how that business is tracking?

George Sakellaris

Analyst

Actually, they are doing excellent, much better than we get forecasted. It’s a great group and I think with our help its growing and I don’t know if you know, but we have teamed up with a great, great contractor of the solar projects in Greece and it was very small. And right now, I think we have over 1 gigawatt potential of solar projects are going to be building together. The market is very good. Don’t be surprised that we might have some more tuck-in acquisitions in Europe. The market over there is exploding, but on the other hand, we got to be careful how we go about it. And – but the Enerqos acquisition has worked out excellent for us. Actually, the Board of Directors are one of the people that probably gave me hardest time to buy that company. He said he loves Italy now.

Doran Hole

Analyst

Yes. Pavel, we – I think the joint venture methodology with the solar EPC is really, really good leverage for us. We’re able to leverage off that organization, not just in Greece, the company is based in Greece, but we’re also building projects in Italy and the UK through that joint venture. And that’s a very good way for us to add incremental business and help them grow and in fact help Enerqos grow because we’re building projects in their home turf. So it’s a pretty exciting jurisdiction, to be honest. I think the UK is continuing to grow and continue to show strength. So we’ll be continuing to invest our time there.

Pavel Molchanov

Analyst

Let me follow-up by asking about situation with Section 45Z. I know a lot of RNG developers have been surprised that the treasury has not unveiled the carbon intensity kind of calculation yet. What is your understanding of when that’s going to come out?

Doran Hole

Analyst

Well, look, given the state of play in Washington currently, I think that the – irrespective of what you might hear from Washington, I think they’re being very careful about what they decide to put out in terms of guidance because you’re really inching up to that Congressional Review Act date. And I think that we’ve got to be quite careful about trying to estimate timing. So I think that it’s because these projects are critically important to the administration, I don’t think that means the guidance isn’t coming. The guidance is going to come. However, given where we are with the CRA, my suspicion is you’re getting second and third and fourth looks at the regs before they go out. They’re going to be very thoughtful about them because I think the last thing they want to do is have – the same thing happen with this as what happened with the renewable natural gas when they had to kind of turn around and reverse course on one of the provisions with the cleaning and conditioning equipment, if you remember. So that’s kind of my thoughts.

Pavel Molchanov

Analyst

Thanks very much.

Doran Hole

Analyst

Thank you, Pavel.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Ben Kallo of Baird. Your line is now open.

Ben Kallo

Analyst

Hey guys, congrats on the quarter.

George Sakellaris

Analyst

Thank you.

Ben Kallo

Analyst

Just quickly – just the approach to the RNG credits RINs, I know in the past you guys maybe hedged some or sold forward some, and just your approach now, then I have a follow-up.

Doran Hole

Analyst

So with respect to the RINs side of things, we’ve been pretty happy with where those have been trading and the levels. As you know, it’s an [indiscernible] liquid, kind of over the counter market. But we’ve been relatively steady with going into the market and hedging a lot of our rent exposure for 2024. We’re – at this point, we’re over 70% hedged for 2024. So I think we’re feeling good about where those prices have been. We obviously always try to keep a little bit in our back pocket for production, but nevertheless, we’re kind of continuing to watch that market. I think we – so we feel good about that. The ITC on renewable natural gas, we’re still waiting for the guidance to come out to really affirm where that’s going to come through for 2024 projects that we’re placing in service. And the truth of the matter is, we’ve been underwriting those projects without it, and we’re continuing to underwrite our project.

Ben Kallo

Analyst

I don’t want to put the cart before the horse, but just as we think about kind of 2025, 2026 and what you’ve established with the recurring revenue, any kind of color on how you think, because it was kind of lumpy in 2022 and 2023, but how we should think about going forward?

Doran Hole

Analyst

We continue to invest in the asset portfolio, right? I mean, there’s not a fundamental change in the way we’re thinking about the RNG off-take, with the exception of the fact that we’re seeing prices in the non-transportation market go up. So we’re starting to look really closely. We’ve kind of come close to hitting a couple of those contracts that might be longer-term, certainly not related to the transportation market. And I think that we probably will see that increase as we bring more of these projects online for the next couple of years. The rest of the business, we’re – when we look at the growth rates for 2024 over 2023 and beyond, I think that we’re still feeling like it’s a steady growth. We’ve got the CAGR chart in our supplemental slides, 10% revenue, 20% on the EBITDA, and we think that that’s likely to be the direction that we go.

Ben Kallo

Analyst

Good stuff. And just going back to the data center question, technologies that you guys would use, is it batteries or fuel cells or what are you guys…

Doran Hole

Analyst

I would say we’re going to continue to take an agnostic approach. Of course, we’re going to be focusing on the carbon reducing technologies, right? So renewable generation, battery storage, the microgrid, et cetera. That’s going to be the key focus.

George Sakellaris

Analyst

And some fuel cells here, yes.

Doran Hole

Analyst

Yes. Fuel cells are not off the table, right? And backup power is important, so we’re going to have to think about what the customer is looking for, to be honest.

Ben Kallo

Analyst

All right. Thank you, guys. I appreciate it.

Doran Hole

Analyst

Thanks.

George Sakellaris

Analyst

Thank you.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Luke Tilkens of Piper Sandler. Your line is now open.

Luke Tilkens

Analyst

Hey, thanks for taking the question. Most of ours have been answered. So just one for me. Looks like you brought on about 10 megawatts of projects in the quarter. Can you talk about your confidence on the 200 megawatts for the year? Thanks.

Doran Hole

Analyst

Yes. I did provide a little bit of a laundry list in the comments. We’ve talked Capuano that’s a big one. We’ve got all these united power battery assets. Those are looking very good as far as completion here in the coming weeks and months. And then the other RNG plants, and kind of by the time you get through all of that, you’re pretty much there. And then in addition to that, of course, we’ve got our typical granular kind of solar assets scattered around the country that we’re doing for customers. So we feel pretty good about that.

Operator

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Craig Shere of Tuohy Brothers. Your line is now open.

Craig Shere

Analyst

Hi, good afternoon and thanks for taking questions.

George Sakellaris

Analyst

Hi, Craig.

Craig Shere

Analyst

On Ben’s question, did I hear correctly that you’re looking at the discretionary institutional off-take market for RNG? And if that’s correct, are you looking at upwards of 10-year terms and maybe in the ballpark of $20 an end? Could you provide any color, if that’s the case?

Doran Hole

Analyst

So probably because all the negotiations are private, we can’t really give you any color on where the prices are ending up. I would say that there was a long time when levels like you described were things that we – with the way that we were looking at our returns, what we were getting from using the 50/50 strategy, those weren’t horribly attractive. I think that we’ve seen the rates come up, that a lot of these parties, the voluntary parties are looking to pay and there are some that are really still in the five-year, but non-transportation there’s a number that are in the 10 or even 20-year range. So there is – I think that market’s still trying to find itself and we’re trying to find it. And as long as we feel comfortable with the credit of the counterparty and the nature – and the actual risks in the contract, I wouldn’t be surprised if we go ahead and hit something because the prices are definitely looking better.

Craig Shere

Analyst

Great. That’s very helpful. And the awarded project backlog was kind of flattish sequentially, but as you mentioned, the actual contracted backlog rose the proportion the firm. So going forward, given your focus, should we anticipate maybe focus on both quality and margin and converting to contracts, should we anticipate maybe a slower awarded growth but steady to improving conversion rates?

Doran Hole

Analyst

I wouldn’t say necessarily. I would say that one of the things that drives those differences are probably a little bit circumstantial and potentially related to larger projects that might be awarded and contracted in the quarter, intra-quarter, some of the design build stuff that kind of goes through the design phase more quickly. So that’s kind of how I would think about it. I wouldn’t necessarily view that as a particular trend. I think, again, we’re – conversion is important, right? Conversion is important. The pace of conversion is very important. But as far as the long-term kind of view of the company, the way I look at it, it’s total backlog.

Craig Shere

Analyst

Okay.

George Sakellaris

Analyst

And don’t forget there is some lumpiness. The one that we can control more is getting the awarded to the executed contract that’s – it depends on the customer, of course, and as well as the awards many times it’s lumpy. And don’t be surprised that you see that picking up later on during the year, primarily a third quarter [indiscernible]

Craig Shere

Analyst

Great. Thank you.

Operator

Operator

Thank you. This concludes the question-and-answer session. Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.