Ameresco, Inc. (AMRC) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Q4 2022 Ameresco, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Miss Leila Dillon, Senior Vice President of Marketing. Miss Dillon, please go ahead.

Thank you, Chris, 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 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 financial information. I will now turn the call over to George. George?

Thank you, Leila, and good afternoon, everyone. I am pleased to report on Ameresco's great performance for 2022. We just completed our fifth consecutive year of record revenue and profits. We achieved revenue growth of 50% and adjusted EBITDA growth of 34%. This robust performance reflected how well our advanced technology portfolio and capabilities are aligned with market demand. The Ameresco team delivered these impressive full year results while navigating challenging global issues. The fourth quarter was impacted by pushouts related to scheduling changes in implementation, supply chain issues and unplanned maintenance at 2 of our RNG facilities. Some of these timing-related issues will likely continue into the first and second quarter of 2023, but we believe that they are short term and that business will normalize in the second half of the year. Even in light of these pushouts and the very difficult comparisons, we will face this year from the unusually large Southern California Edison contracts. We are very pleased to [ we're climbing ] to growth in our 2023 adjusted EBITDA. This expected year-over-year growth is a true validation of our diversified clean tech business model. Market activity and demand conditions remain very healthy with heightened proposal activity. Our customers continue to evaluate the recently enacted Inflation Reduction Act, and we are working to prioritize the type and timing of their projects. The support for a very broad range of technologies provided by the IRA greatly favors comprehensive solution providers such as Ameresco. We believe this is a more transformational legislation affecting our industry, providing a long-term runway for advanced clean technology deployments for years to come. 2022 marked a year of major accomplishments in Europe, including our decarbonization award with the city of Bristol in the U.K. In addition, to be selected for this transformational Net Zero municipal project, our Greek joint venture was also selected as a contractor for the 100-megawatt PV project in Northern Greece. Both of these projects notably represent very large contracts for Ameresco, but also some of the largest in their respective geographies and thus, significantly raising our original profile. In the fourth quarter, we announced the acquisition of a 5-megawatt wind farm in Ireland, and today, we are excited to announce an agreement to acquire Energos, an Italian-based energy services company. This acquisition further strengthens Ameresco's European footprint by adding local resources, customers and a new pipeline of work throughout Italy. This also supports our growth strategy for the C&I market as Energos has a strong portfolio of commercial and industrial customers. They have a history of profitability, and we expect this acquisition to be immediately accretive. Our merger and acquisition strategy is generally to acquire highly regarded companies with great management teams and a strong plan for organic growth in order to create long-term value for our shareholders while minimizing risk. Now I would like to talk about renewable natural gas. With over 20 years, a vertically integrated experience in self-developing biogas plants, we are one of the leading players in the RNG space. Federal incentives in the transportation market plus a push by large execution utilities, universities and corporate customers should make this a very attractive market for many years to come. We believe we have significant competitive advantages in developing, constructing and operating these plants and navigating the many authorities, permitting agencies and equipment suppliers. With 20 biogas plants in our assets and development pipeline, we believe our RNG franchise will continue to be a significant driver in its shareholder value. Now I would like to provide a brief update for the Southern California Edison project. As we noted in the third quarter of 2022, Southern California Edison instructed us to adjust the project schedules in 2023. We are also continuing discussions regarding COVID-19 and weather-related force majeure relief. We anticipate the projects to be in service prior to the summer of 2023. Our relationship with Southern California Edison continues to be very cooperative. The knowledge and expertise we have gained from this and other large battery storage and microgrid projects help make us one of the go-to companies in the industry. We look forward to announcing additional wins in these areas in the future. Finally, our environmental, social and governance programs and goals remain a top corporate focus. We were very pleased to be named a silver winner in the Best Place to Work category by the best in these awards. I am very proud of our company's culture occurring for the communities in which we serve as well as our employees, customers and stockholders. I will now turn the call over to Doran to comment on our financial performance and outlook. Doran?

Thank you, George, and good afternoon, everyone. For additional financial information, please refer to the press release and supplemental slides that were posted to our website after the market closed today. The Ameresco team delivered another year of record financial results as all 4 of our business lines experienced solid growth and profitability. Full year revenue growth of 50% was led by our projects business as we continue to execute on the SoCal Ed projects. This growth was complemented by the strong performance of our other 3 business lines, energy assets, O&M and other, leading to adjusted EBITDA growth of 34% to a record $204.5 million. We started to face difficult year-over-year comparisons in our projects business during the fourth quarter of 2022, given that our work on the large SCE projects commenced during Q4 of 2021. We expect this to continue through the third quarter of 2023. These difficult quarterly comparisons, together with the challenges that George mentioned previously, resulted in year-over-year declines in project revenue. Energy asset revenue was down year-on-year by 6% due to unplanned maintenance issues at 2 of our RNG facilities in Q4, but these plants are now operating at their expected output. On the other hand, our O&M business line delivered another solid quarter of 5% growth as we continue to attach O&M contracts to our projects, especially those with the federal government. And our other revenue line had another quarter of double-digit growth, up 16%. As we expected, our gross margin increased to 18.6%, 150 basis points ahead of the prior year as the lower-margin SoCal Ed contract declined as a percent of our total revenue mix. We generated adjusted EBITDA of $41.3 million in the quarter. It is important to note that the quarter was impacted by higher-than-expected interest expense as the extension of the SCE projects required us to carry substantial working capital. Our contract allows for cost relief, and we have included this additional interest expense in the proposed cost recovery that we have been discussing with SoCal Ed. Total project backlog was a healthy $2.6 billion at the end of the quarter even in light of the substantial conversion of SCE projects backlog to revenue. Of note, our awarded backlog grew 6% compared to last year, continuing to build momentum for future project revenue. Ameresco expanded its portfolio of operating energy assets to 389 megawatts, and our owned assets in development was 470 megawatts at the end of the year. As a reminder, we are disclosing in our supplemental slides both the total assets in development as well as a pro forma net megawatt total after adjusting for our partners' equity interests. Our nationwide greenfield solar and storage development group continues to build up its pipeline of early-stage front-of-the-meter opportunities. We expect the volume of these opportunities to grow driven by the numerous IRA incentives related to these assets. Our ability to finance these energy assets remains strong as we secured $137 million in additional project financing during the quarter, bringing our total financing for the year up to $468 million. We believe Ameresco's unique business model affords us substantial forward visibility given the combination of project backlog, O&M backlog and the estimated contracted and market pricing revenue from our energy assets. Together, these lines of business provide a path to over $6 billion in future revenues. In previous quarters, we have only reported estimated contracted revenue and incentives for our operating energy assets. As George noted earlier, we believe that our RNG franchise is a significant driver of value to our stockholders. To help show a more complete picture of our RNG asset value proposition, we have started providing an estimate for the uncontracted R&G revenues that we expect to generate over the life of these assets. Using conservative assumptions for asset light and merchant market pricing for RINs, we estimate these revenues, again, just from our operating RNG assets to be an additional $1.2 billion on top of over $1 billion of contracted revenues from all of our operating assets. This projected R&D revenue is based on RIN prices of $1.50 per gallon, brown gas at $3.50 per MMBtu and LCFS revenue, where applicable, at $3 per MMBtu. We've assumed an average asset life of 20 years. Of course, we still have the option to enter into longer-term offtake contracts if we feel we are creating additional value by doing so. I'll reiterate that the $2.3 billion in revenue visibility only relates to our assets that are currently operating and does not include any expected revenue from our 470 megawatts of energy assets in development with construction. As those assets begin operating, we in turn expect to add significantly more revenue visibility to our profile. Turning to guidance. 2023 guidance anticipates adjusted EBITDA growth of 5% at the midpoint. We are very pleased to be guiding to this growth even as we face difficult comparisons due to the large SCE projects. We anticipate placing between 80 and 100 megawatts of energy assets in service during 2023. The 3 RNG plants we had expected to be mechanically complete by the end of 2022 continued to progress as their schedules were impacted by permitting delays and longer lead times on certain types of equipment. Looking forward, we expect these 3 plants to be operational this year, and we also have several additional RNG assets in late stages of development. We expect that 4 or 5 of those will come online during 2024. Our expected asset CapEx for 2023 is $325 million to $375 million, the majority of which we expect to fund with nonrecourse debt. As we look to the first quarter, we estimate revenue to be in the range of $220 million to $240 million and adjusted EBITDA of $20 million to $30 million. We expect non-GAAP EPS to be slightly positive. As George noted, we expect Q1 to be impacted by pushouts on a couple of large projects on top of our normal energy asset and project seasonality. Furthermore, net income will be impacted by the continued carrying costs of SCE-related working capital. We expect the remainder of 2023 to follow our normal cadence with progressive improvement throughout the year. Now I'd like to turn the call back over to George for closing comments.

Thank you, Doran. We maintained an excellent line of sight to our 2024 target of $300 million in adjusted EBITDA. As governments and institutions around the world invest in solutions addressing climate, geopolitical and budgetary challenges, Ameresco continues to enhance our expertise to provide these solutions, positioning us for robust, profitable long-term growth. Finally, we look forward to welcoming analysts and institutional investors to our European Investor Day being held in London on May 11. This event will feature presentations and panels by key Executives from our leadership team with discussions focused on our expanding growth opportunities, including our plans for continued expansion in Europe. Operator, we would like to open the call to questions now.

[Operator Instructions] Our first question will come from Noah Kaye with Oppenheimer & Co.

Wonder if you could start by giving us just a bit more color on some of the timing and scheduling challenges around the RNG development. Obviously, you mentioned permitting supply chain. I don't know the degree to which you can get granular, but just your line of sight to those challenges being resolved here in the first half of the year. Anything that we should consider top of mind in terms of key milestones that you have to hit to bring those projects online.

I guess we started out with yet some difficult permitting issues. And even though in some cases, we got the environmental permit, we got stuck in the building permits. Things that would take normally a weeks, they took several months, and in one case, as much as 6 months. It was very delayed. The other thing that's helping a lot, for example, on a couple sides, we're expecting the major equipment delivery last July and August. And as it turned out, we got the delivery in late December and early February for the other one this year, for example. So what we did going forward, we scrub the schedule very, very, very carefully, and that's why we said, we will have these 3 plants completed this year. Actually, they were all mechanically completed by the middle of the year, and then the other 4 to 5 plants, a good part of them, they are in the construction or permitting or advanced development stages right now. So we built it by the bottoms up. And we never anticipated that the supply chain issues would be the [ weight of the things for us ]. Another example, the rainstorms in California. One of the slides, we had built the hole, we have done all kinds of excavations and so on and so forth. Everything got wiped out, we had to start basically from scratch. So I don't know if Doran, you want to add any more colors to it, but we have scrubbed the numbers very carefully in the schedule, and we have factored in our guidance, not only for this year and for the next year as well.

That's very helpful. Sticking with the theme of RNG development, as you talked about having, I think you said, 20 biogas projects in development. You said, biogas rather than RNG. I'm just wondering, with all of the policy developments that are supportive of biogas assets, some perhaps more for RNG, some perhaps more beneficial to landfill gas to electricity. Just how are you thinking now about planning and optionality for your biogas assets? I think it's pretty clear what you're expecting to bring on line this year for RNG, yes.

That's a great question. Actually, when last year we had said that 5 to 6 plants, we think 1 of 2 sites -- actually, one site that was electric, we're going to convert it to renewable natural gas. We stopped that because we think the optionality now to [ D3 RINs ] subject to what comes through the EPA. We didn't. There was another plan that we're going to expand it and go to renewable natural gas. Now we are in the permitting stages much like we will go electric. So economics will -- the ones that we have right now that we have already equipment, the 4 that we talked -- 4 to 5, they will be renewable natural gas. As we go down the road, I think some other ones, they might turn out to be [ really ] landfill to electricity.

Our next question will come from Stephen Gengaro of Stifel.

I guess, 2 for me. What I'd start with, George, you mentioned some confidence on your $300 million EBITDA target, and that's a pretty steep ramp. I think it's 40% growth in '24 versus '23. Can you -- could you talk a little bit about sort of the path to get there?

Yes. I mean we look at it very, very carefully. We look at the contracted backlog, [ reported ] backlog. And the contribution is that we will get not only from the RNG assets, but the other assets that we place it into, whether it's solar or battery storage and so on, and we feel very comfortable. The way I look at it, though, it's a 40% jump from 2023 to 2024. But if you were to look at it from 2022 to '24, it's not that much out of line. Between the 2 years, it's 45% growth, which is 32% growth for each year. And if you go in the past, we are in a little bit lumpy business, but building it up to the '24 number, we feel very comfortable because it's basically constructed backload, awarded backlog and assets that we have a very good handle on, [ including ] the operation.

Great. And then the other thing I wanted to just ask about was just on the contracting side in general. It feels like things have progressed pretty well sequentially as far as your backlog is concerned. Just when you're talking to customers and given the inflationary environment and interest rates, what are the conversations like? And have there been any impediments to getting these deals across the finish line?

Because of the interest rate jump, it has impacted the business and couple of the pushouts that we have, they are very large projects. I'm talking in the context between -- both of them are $150 million project. And one of them, so the federal facility, the way -- it's a good actually example to remind everybody of the process. But we did a detailed energy audit, then we negotiate the scope with the client and then the price and then we go out to get the financing. And then what happened in this instance, the financing now, we had a couple -- almost a couple of points jump in the interest rate, and [ when they save it ] within finance the over all of the project. So we're going back to the drawing board, renegotiate the scope of the project and so on. And so that was one of the projects. And the other one, it was a municipality, but because of the higher interest rate, they had to go out and refinance -- submit their new bid. So it's a concern, but lately, though, what's happened a little bit and that's why on my comments, I said the customers. It's hard to prioritize the projects and the timing because some of them now, they're getting money from the IRA. They're waiting to see how much they're going to get from the IRA and how will it impact them. And we have a couple of projects that we think we'll be getting a good chunk of money from the IRA, and actually, the projects will grow. But the reason, I would say, is a little bit of wait and see until everything comes out. But the activity though, the request, the activity, the pipeline is growing a lot. That's why we feel very comfortable for the businesses going forward.

Our next question will come from Greg Wasikowski of Webber Research & Advisory LLC.

I wanted to ask about Energos. Could you just talk about the origination of that relationship? Was Italy a market that you were actively targeting before this? Does it make it easier to expand into additional territories, thinking like France, Spain, Portugal, those areas? And does the business help with any other existing operations that you have in Europe? Kind of thinking probably more like Greece, but just trying to understand any synergies there.

That's a very good question. You might recall that we have targeted Italy as one of the countries that we wanted to expand. So what we had was basically an internal intensive effort market view that we did in identifying potential companies that we might want to acquire, and we approached this particular company and then people made the arrangements that they would make a Zoom call and meet the management of the team and so on. And then we had a good meeting, then I went over there, we met with them and then the whole team went over there. And they are very, very, very similar to what we are doing. Basically, it's an energy services company, and they are more focused actually almost exclusively on the C&I customer. They may ask them, I said, "Why are you focused on in the C&I?" Because the government entities in Europe, finally, they're beginning to get their act together trying to do something. But the C&I cases because of the higher cost, of course, what happened in Europe, they are very conscientious about it, and we have a good program that's going to help them. So it's a very good company that we are very excited about. And we have been doing some other work in Italy with some other [ potential ] partners that we have in that area -- and we have some very good traction through those companies. So this one gives us a solid, solid foundation. And what we like most about this company, tremendous, world-class management team. And even though it's a small company, it operates like a large company, and it could probably serve as a pretty good platform for us in Europe. And it's not a great secret, we are looking for other companies, and we don't have anything to talk about it right now, but don't be surprised that we might have something else to announce in the near future.

Got it. Okay. And I know you guys can't think too much about numbers, but worth asking if you think -- or if you expect this to be accretive on an EBITDA or earnings perspective in 2023? And if it's at stake to the guidance.

For 2023, by the time we close the deal and so on, it will be slightly accretive, but it's not going to -- it's included in our guidance now.

Our next question will come from George Gianarikas of Canaccord Genuity.

So last quarter, Doran, you spent some time discussing interest rate exposure. First, with regards to how it impacts your capital stack and then how it impacts projects and asset deployment. Can you just kind of go over that again and just remind us exactly how rates are impacting your business and your balance sheet?

Yes. Sure, George. Thanks for the question. I mean I think what I'll start with is, broadly speaking, we -- we'll talk about the SCE piece in a second, but the financing we do on our energy assets is long term. So we're talking about looking at the longer end of the curve for purposes of interest rate exposure. And as I think you guys have seen, despite maybe some recent volatility, the overall shifts there haven't been nearest impactful as what you've seen on the short end of the curve. So that's kind of point 1. We did talk a little bit about the high end interest expense on the SoCal Ed pushouts. I think it's important for folks to kind of recognize that, that's an element that we have the ability to include in the overall settlement of costs related to that change. So we'll continue to monitor that, and we're, as you might expect, doing all the calculations and ensuring that, that information is front and center from the perspective of those discussions. I guess the last piece is just kind of looking at the overall short-term debt. And I think that beyond the working capital required for SCE, we're expecting all of that to normalize so that our interest rate exposure on anything related to SOFR or short-term unhedged rates should be much more muted as we get through the rest of the year, in particular because despite the fact that we do invest some of our capital in construction and development of assets, our ability to hit nonrecourse financing like the large R&D refinancing transaction that we did in Q4 is still there. That lender market hasn't loosened up. We're still able to get great tax equity financing using sale leasebacks, and we don't expect the overall impact to be long term.

And then just as a follow-up. You talked a lot about scrubbing permits and other potential delays in your '23 and '24 EBITDA guidance. Can you also help us understand much as -- much ink is dedicated to discussing and trying to analyze movement in RIN pricing. And I'm wondering as to if you can help us kind of understand what your -- how much exposure you have there, and how much we should be monitoring that and potentially handicapping your '23 and '24 EBITDA guidance based on volatility in that index?

Well, you know that 50% of the RINs that we plan to generate for the year, that they are hedged. So the other 50%, we are on the market, and we sell them as when we feel the market is right. And we have incorporated the prices that we think we will be able to get in our guidance right now. Add anything to that?

I mean, I think as you as you might expect, we're heavily engaged in following what's happening with the EPA and what adjustments will be made. And we have, just like you, our eyes on the summer as to what will happen when they finalize the RVO , but we do feel confident in where we've kind of established our estimates for the year based on the unhedged portion at least.

Our next question will come from Eric Stine of Craig-Hallum.

Maybe we can just go back to the 2024 EBITDA outlook and great that you reiterated that, but just want to -- just be clear. So if you're thinking about backlog awards not yet signed plus the operating assets that you've not yet contracted, when you take that all together, is this something where you feel like you've got -- or what is your percentage visibility into that number from all of those buckets? I mean are you -- is it a high level of confidence? Is there stuff that you still need to fill in? Or how should we think about that when looking at '24?

I would say, it's a very high level of confidence because when Mark does his numbers, unless we are at the 70%, 80%, whatever he sees in the pipeline, he takes it out pretty much. No, we feel pretty good. Can something happen that certainly on our control? It's possible, but we feel pretty good that we'll be able to deliver that number. Because when we established that number way back, I think we were a little bit conservative. We have a little bit, you might say, in the bag. And so that's why even though we had some things happen to us, [ last note we still stand ] and we feel good about.

Got it. That is great color. And then I guess last one for me. Just on the SoCal Edison project, I don't know if you're willing to discuss how much of that project is left, but I guess more interested in you mentioned that as a result of that, you've got a growing number of projects in your pipeline. So maybe some color around those projects, maybe not as big as SoCal Edison, but big nonetheless.

Let me -- I'll start by just saying that on the proposal front, they're definitely coming in large and small. As you know, it's a competitive market. We feel like we're very, very well placed to win a good number of those projects. There is a mix of some of these projects that are going to be assets on our balance sheet as well as straight construction contracts like we did for SoCal Ed for other utilities or other types of asset owners. And from a sizing perspective, maybe don't see any single one that's quite the size of SoCal Ed, but when you add them all up together, they're certainly in excess of what SoCal Ed is when you look at the proposal activity. So I think there's more to come there. We'll talk about them as they get into the awarded backlog, but I think we're definitely seeing a move toward being pulled into discussions about some of those design build projects that we're really, really excited about. For SCE itself, we -- probably 90-plus percent -- 95% complete by the end of 2022. So we're, from a practical perspective, focusing on grid integration and getting to substantial completion, as we said, before the summer.

Our next question will come from Christopher Souther of B. Riley.

Maybe just a follow-up on the Energos. Do they have projects on the balance sheet that you're acquiring? Or is this more of a projects business? I'm curious if that kind of evolves over time where you'd be owning assets over there as well. And then can you talk through just from a market-by-market perspective, what other [ market the ones ] were acquisition to kind of gain foothold is most helpful?

Yes. We do not have any assets on their balance sheet right now. But basically, let's say, a solar plant and some of the marquee customers that they have, they've got them. And then they have a conduit that buys those projects out. Also they look on their balance sheet as a design-built projects. And they do very little O&M. That's why we think that there's tremendous potential for us to expand the O&M business. And at the end of the day, we might take some of the assets on our balance sheet as well. And I think with us bringing some more additional financing and management and marketing capabilities, I say we can accelerate the growth of this particular business. And some of the other companies that we are looking in Europe, they are similar, similar companies. Because in Europe, what has happened with the energy prices being where they are, especially some of these distributed generation for the commercial and industrial customers. And now it's beginning the institutional accounts of the governments of the cities and towns, the market is picking up. And I think, for us, we developed a good management team in this particular company. I think we can grow it.

And I think if you look at the landscape over there, having gone outwards and found this company, kind of no banker process here, this is kind of the outreach that we're doing is, we're looking to expand our own business across the region. There aren't any particular geographies that are -- where we're focusing 100% of our time. We're being opportunistic. We're finding the opportunities where businesses like Energos can be kind of tucked in. I think the -- you've seen the expansion of our activities in Greece. We certainly like Italy. We're not going to go into markets where we're not going to be able to compete. I think it's -- again, it's opportunistic, and we think there's certainly some -- going to be some more opportunity out there for us.

Got it. No, that's very helpful. And then maybe just on the SCE progress. I think you had called out $35 million last quarter that you expected to be 2023 revenue, but I want to kind of focus on -- it looks like the costs and estimated earnings in excess of billings came down again. I wanted to get a sense of timing around payments if we have a sense of when that starts to look like a more normal number again, if you have any visibility on that?

I mean from an unbilled perspective, you're talking about more or less the bulk of it is when on substantial completion.

That's right.

Yes. So we -- as we said, timing-wise, we're looking to complete these projects by the summer. I think that's kind of when you'd see the invoices start going.

Okay. Great. And then maybe just last one. Of the 80 to 100 megawatt equivalent additions for this year, can you give a mix between solar, batteries and RNG? And then any sense of the cadence would be helpful there, and then I'll hop in.

I think we're looking at -- so sorry, give me a second to get the numbers. So we think, out of that, the RNG, we're talking about 22 megawatts out of that 80 to 100. And the rest of it is a mix between solar and battery.

Next question will come from Tim Mulrooney of William Blair.

So apologies for the overly simplistic question. But I had in my notes that you expected to complete one RNG plant in 2021, 3 in 2022 and 5 to 6 in 2023. But today, I think you said 3 in '23 and 5 to 6 in 2024. So did the whole RNG completion timeline essentially get pushed out by a year? Or were my notes incorrect?

The 1 in '21, that was in '21, '22 -- that came in. it was mechanically complete in '21. And the ones in '22, there were 3, you got correct. And then there were 5 to 6 going beyond that. The delay -- the actual delay is between 4 to 8 months on -- between the 3 and the 5 to 6. But the 5 to 6 became 4 to 5 because actually 2 plants that we originally were contemplating to go to renewable natural gas and because they were conversions, now we're going to -- we stopped doing any work on them because we will most likely keep them [ D3 RINs ]. So I would say, 6 to -- 4 to 8 months delay.

Got it. And you talked about -- for my second question, you talked about that 20% -- essentially 20% EBITDA CAGR between 2022 and 2024. And I understand, given the timing of projects and such that the 2-year timeframe is probably a better way to look at things. But stepping back and thinking about that 2-year timeframe, how should we think about how much of that growth is coming from projects versus EBITDA coming in from some of your energy operating assets?

Yes. I think the project business is a [ constant rate ] that's going to grow even -- 10 to 12 to 13 CAGR, if you were to take it from '21 going forward rather than taking it from last year to go forward. And the rest of that comes from the asset and the O&M. The O&M is growing very well, and the other business, the [ contribution is going fast ] as well.

Our next question will come from Kashy Harrison of Piper Sandler.

So I guess I just wanted to -- just a quick question on the 1Q guide. $230 million of revenues implies a pretty big ramp into 2Q, 3Q and 4Q to get to the full year guide of $1.5 billion. I think you indicated there are some pushouts behind the soft Q1, but can you maybe share some more details on what exactly gives you the confidence in that big recovery as we think about 2Q, 3Q, 4Q? And then maybe just share some color on how much of the revenue guide is already secured by the 12-month projects and O&M backlog?

Yes. Yes, this is Mark. So I think, again, as we've talked about before, our confidence in anything that we guide comes from the visibility that we have from the backlog. On the project side, so we have better than 80% of the project revenues coming from -- are either contracted or awarded. And then from a total revenue perspective, more than 70% is coming from what we consider contracted sources. So I think we have really good visibility in terms of how that will -- how we're able to achieve that ramp throughout the end of the year. There's always some amount that's going to come from pipeline, but again, I think we have decent line of sight to what those opportunities are going to be. So we're going to be able to fill that in between Q1 and the end of the year.

Helpful. And then as my follow-up, just a quick question on cash flows. So 2022 adjusted cash flow from ops was $100 million use of cash. I'd imagine that was driven by the Edison project. So with the billings looking to go out in the summer of the year, I was wondering if you could just maybe give us some color on how you're thinking about adjusted cash flow from ops in '23 based on the midpoint of your guidance?

I mean, we haven't generally guided to that. But as Doran was saying, we expect to wrap these projects up by the summer, and a lot of that is tied up right now in the unbilled revenue. Everything to date that we have been able to build contractually, we have been paid for. So we would expect those cash flows to come in soon after the projects are completed, which I think should directionally should point to a much improved adjusted cash from ops number.

Yes. I mean there's -- as we talked about substantial completion being the next important building point, so depending on when we -- if we can get the weather to continue to cooperate in California, we wrap these projects up. I think with the payment terms, you might see some of the cash flow actually coming in beginning Q3, depending on when the bills go out. So I can't say that it would be a specific quarter here, but that's the timeframe we're talking about when you'll see that kind of turn around.

Our next question will come from Joseph Osha of Guggenheim Partners.

Following on what Kashy was asking, I'm wondering as we think about that EBITDA run rate, which obviously comes out of 2023 at a considerably higher year -- rate than it goes in, is this just a straightforward cost absorption? Are there some mix shifts on a quarter-by-quarter basis in terms of the revenue mix that we should think about? I just -- I want to understand what the walk from Q1 to Q4 EBITDA looks like.

I don't know that we have anything really granular to share with you there, Joe. The pushouts that George talked about where we've kind of going back and are recalculating some things and we're expecting contract signing, some of those larger projects carried with them a good amount of costs in preparation for signing. So we get a little bit of revenue charge once the contracts get signed. And this is where having pushouts that go not just from one quarter to the next, but maybe 1 quarter to 2 quarters later. We're seeing a little bit of that here and that kind of explains some of that ramp, and especially as you start to work on full execution in those projects in the latter half of the year. I don't think there's anything really meaningful to share as far as mix, though. For the balance of the year, again, we we've got our typical seasonality where we're going to see the ramp-up over the course of the year just kind of progressively going from the Q1 up to what we expect to be a more back-ended Q3 and Q4.

Yes. And what I might add that compounded some of the projects that I said they got delayed, which happens to say, you lose 3 months on a particular project, especially the large ones. And then it takes you a couple of months to mobilize, and that's why I made the statement we go to 2 quarters. It takes time to -- for those projects not only to get signed, but then to mobilize and then see some revenues -- real revenues coming through in the construction side.

Okay. And as a follow-up, obviously, you've got some additional storage projects in the backlog that we've been talking about. I'm wondering what you all feel like the lessons learned are from SCE and how that's changed your approach to how you source sales for future projects? How you contract? How are you going to come with this next round of storage products -- projects differently to hopefully maybe avoid replaying what's happened with SCE?

I'll start with the -- we think that was actually a really well-done contract. The lessons that we learned [ that to it ] -- well, how well are you prepared for a force majeure event? How well are you prepared for supply chains to be shut down in Shanghai or shipping, et cetera. So I think that's what's been causing us the most of the delays. As we talked about the other delays associated with this is related to SoCal's desire to have those projects go into great sync in 2023. So one of the -- well, I'll call it a lesson learned, but it's actually an important thing that we've got to carry through to our future projects is, there is no -- while there's no -- there's nothing more valuable than having a very solid, open and honest relationship with your customer. I mean that's a theme that this company follows with a lot of projects, but our relationship with SoCal Ed has been open and honest from the beginning. We have continuous high-level executive meetings. I think that, that's of critical importance. So when we are approaching new proposals, new opportunities, that's one of the important pieces of the puzzle is to ensure that some of us on the executive management team get involved early on, get to know the management teams at our counterparties and our suppliers to ensure that we can manage a smooth process for what sometimes can be large projects. So at the end of the day, we feel really great about the project that we've built. We feel like it's adding a lot to our resume, and I think we're spending a lot of time looking at the way that was executed and using the resources that are working on those projects and that worked on the contracting on all of the proposals that we're working on going forward, to ensure that there's a mind share with respect to the way we approach the new projects.

I'm sorry, I may add, and that's why I said in my opening remarks that we have become a company to go to, and we are working on several projects right now along those lines similar to the Southern California subcontract. And you might recall, when we signed a contract in September in 2021, everybody thought we were coming out of the COVID-19 situation, but then we ended up going back into it. And we have the supply chain issues that basically, we executed that project, what I call an unprecedented situation. I think we did pretty well.

Our next question will come from Chip Moore of EF Hutton Group.

Wanted to ask a question on visibility as it relates to IRA. When do you think customers maybe get better clarity on potential funding opportunities? And then how do you sort of in-cap risks for any pushouts there or potential for acceleration?

I don't know that I would necessarily frame it in the context of pushouts or acceleration. I think as the treasury guidance comes out, it seems like our customers and their advisers are kind of waiting with bated breath. As soon as the guidance comes out, they jump on it and they're immediately in contact with us about, okay, what do we do next? They do seem eager, but it is out of all of our control collectively, the pace with which the government will actually issue guidance. And we had a totally -- the same day the treasury came out with the guidance on low-income communities, the clients were e-mailing us, okay, ready to go. Here we go. This is the project and this is where we think it's going to apply and so on and so forth. But we're -- so I think that's going to be an interesting dynamic as the guidance comes out. There's likely to be some scrambling, but I think as George talked about a number of times and we also need to be realistic about execution timetables with our customers and ensure that once we have certainty on structure supported by the IRA that we have time to pursue execution, procure equipment, et cetera.

[Operator Instructions] Our next question will come from Pavel Molchanov of Raymond James.

You've been asked several times about higher interest rates. I'd like you to also talk about higher utility rates and how that's affecting both the efficiency side of the business and your solar power plant development?

The higher interest rates, that's why it's on any project that we underwrite, let's say, solar or whatever the asset we might own ourselves, we take into account the new interest rates. And of course, on the performance contracts and that's why that goes on what I said earlier on that contract, we had to go back and renegotiate the baseline energy prices. We use the current prices rather than the old one, and that's what made that project spend allowed, even though it's a higher interest rates. But they do impact us, no question about it. But on the other hand, though, because the energy prices have gone up, it gets neutralized with the performance contract. And on the assets we own, we take that into account. So we go out, we shop, and we see what the long-term rates would be, and the long-term rates haven't gone up as much as the short-term rate, but the short-term rates impact us on the working capital that we use on the line.

And I think the higher energy rates elsewhere in the country for purposes of offtake contracts, et cetera, I do believe there's a little bit of a lag there with respect to those kind of catching up with where the energy prices are going, just given the long development cycle of some of the assets. But our expectation is the same, the same thing will happen there.

Our next question will come from Ben Kallo of Baird.

George, when you gave the guidance for EBITDA next year, there was no IRA. So could you just talk about maybe what's beneficial from IRA for next year versus what's not good for next year EBITDA? And it's a big question -- sorry to interrupt, big question is, the ramp from this year to EBITDA to next year? And what are the drivers of that? If you could just name the biggest driver and the second biggest driver.

We have not taken any potential impact from the IRA. It's based again on the project. A good chunk of that will come from the project execution, but a substantial number will come from the assets we placed in operation. For example, I know we -- the number of vessels we put in operation last year wasn't the number we contemplated, but 40 megawatts of assets will go in this first quarter, and that will help a lot. And then, of course, the RNG assets that they will go into operation by the end of the year and a couple of them, they come on early in 2024. So they will contribute as well. So -- and then we have a couple of battery projects that we are working on. And then the other business, they can become a good contributor now, the other lines of business, and they will help as well. I don't know if you want to add any more color, Doran, or what?

I think that pretty much says it.

And that will be all the time we have for the Q&A session. This will also conclude today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.