Ameresco Inc
NYSE:AMRC
Earnings Call Analysis
Q4-2023 Analysis
Ameresco Inc
Ameresco closed the 2023 financial year with a strong fourth quarter, characterized by solid revenue, Adjusted EBITDA, and net income growth. The focus on business development led to a record backlog for the company, reinforcing a robust demand for energy efficiency and renewable solutions. The company's capabilities are well-aligned with client needs, setting up a growth trajectory for 2024. This is embodied in the guidance provided for 2024 revenue and Adjusted EBITDA growth of 20% and 38%, respectively, giving investors over $7 billion in multiyear visibility. Ameresco finished the year with a project backlog of $3.9 million, up 50% from the previous year, and 198 megawatts of new assets in development, culminating in 669 megawatts of assets in development and construction.
The last quarter's exceptional performance included a 33% year-over-year revenue jump to $441 million, with all four business lines experiencing double-digit growth. Notably, the Projects business was a standout, benefiting from substantial contract conversions. A $40 million increment was realized due to the accelerated execution of active contracts. Ameresco's success in growing its European operations was highlighted — a reflection of strong organic growth complemented by a strategic acquisition, leading to a 150% increase in European revenue. The company's energy assets revenue also grew by 12%, primarily due to an expanded operating asset count and higher renewable identification number (RIN) prices. Overall, the quarter witnessed a 33% rise in Adjusted EBITDA to $54.9 million and nearly a doubling of non-GAAP EPS from the prior year. Ameresco expects to leverage various tax incentives, which are considered in its 2024 guidance.
Ameresco's balance sheet showcased the strategic management of debt, segregating corporate debt from energy asset debt, with the former at $280 million and maintaining a leverage ratio of 3.3x — well within covenant levels. The energy asset debt, being the majority, is backed by multiyear offtake agreements, granting the company competitive borrowing rates. An important indicator of the company's financial health is its adjusted cash flow from operations, which despite quarterly volatility, shows a positive long-term trend. Capital expenditure (CAPEX) for 2024 is projected in the range of $350 to $400 million, with expectations to service about 200 megawatts of energy assets and operationalize 3 renewable natural gas (RNG) plants. The first quarter is set with a revenue target of $225 to $275 million and Adjusted EBITDA of $20 to $30 million, albeit with negative non-GAAP EPS due to the tail end of 2023's faster project completion rates.
During the question and answer session, executives detailed the company's strategic approach towards asset development and retention on the balance sheet, emphasizing a growth target for the portfolio of over 20%. The pace of project conversion remains unchanged, but there’s a noticeable improvement in the design-build, EPC work. Despite wider ranges due to operational conservatism and a $40 million revenue advancement, the 2024 outlook remains robust. For financial modeling, the historical trend of a seasonal Q1 low, with increased business activity in Q3 and Q4, remains a predictable pattern for Ameresco.
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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Ameresco Incorporated Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's 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, Lisa, 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?
Thank you, Leila, and good afternoon, everyone. Fourth quarter results marked a strong finish to a challenging year for the renewable industry and for Ameresco. We not only achieved very positive revenue, adjusted EBITDA and net income growth; but also our business development execution remained very strong. We exited 2023 with a record backlog and asset development metrics. These metrics together with our intense focus on execution point to 2024 being a year of [ foreseeable ] growth. Demand for energy efficiency and renewable solutions remains robust and Ameresco's ability to effectively compete and win new business demonstrates how well aligned our capabilities and offerings are with our clients' priorities.At the same time, we are also growing our assets in development at a strong pace, which together with our project backlog give us excellent multiyear visibility. This supports our 2024 midpoint guidance for revenue and adjusted EBITDA growth of 20% and 38%, respectively, and provides us with over $7 billion in multiyear visibility and profitable revenue. Ameresco's total project backlog was record $3.9 million at the end of 2023, up approximately 50% versus 2022 with new awards for the year of $2.2 billion and proposal activity remains at record levels. During the year, we also placed 118 megawatts of assets into operation bringing our operating energy assets to over 500 megawatts. We also added 198 megawatts of assets in development in 2023 ending the year with 669 megawatts of Ameresco-owned assets in development and construction.Now I would like to make some comments on the industry environment and what Ameresco is doing to address current challenges. First and foremost, as I stated before, industry demand remains very healthy. Elevated power prices, greater demand for electricity and green resiliency combined with attractive incentives have created a very favorable demand backdrop for renewable energy and energy efficiency solutions. This robust industry demand alone has also strained some parts of the system. The industry continues to experience lengthening in award conversions, interconnection and permitting delays, supply chain disruptions and shortages of critical equipment and skilled labor. With a focus on execution and cost efficiencies, Ameresco continues to take steps to adapt to this new environment.We are optimizing our operation structure to bring more uniformity and scalability across all of our geographies and business units, taking a more conservative approach to our construction schedules, promoting knowledge sharing and increasing best practices across our teams and focusing our business development efforts on larger opportunities in our core markets and areas of expertise. We also remain very focused on our working capital levels and liquidity. As part of this, we are prioritizing the timely conversion and execution of our tremendous project backlog. These actions are already yielding results. Our 40% project revenue growth in the fourth quarter was helped by the conversion of awards to contracts that had been previously delayed. Our focus on conversion also helped drive a 32% year-over-year increase in our contracted backlog, which ended the year at $1.3 billion giving us good visibility into our 2024 revenue.Demand for our services remains very strong and Ameresco is well positioned for 2024 and beyond. As I mentioned before, there are a number of very favorable macro factors driving this strong demand. One of this is the IRA legislation. Looking at the Ameresco's history, one can see that we have performed quite well regardless of the party in office. The main reason for this is the diversity of our business model and the fact that our solutions are driven by economic returns and cost savings to our customers, many without additional government incentives especially in our project business. We also see tremendous support for our resiliency solutions from utility government and military customers again regardless of the administration. Therefore, we continue to see strong demand and great opportunities ahead.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 especially our supplemental information that was posted to our website after the market closed today and which contains some new financial content that I will describe in more detail. We ended the year on a high note with total revenue for the quarter of $441 million, up 33% from the previous year. Each of our 4 business lines experienced double-digit revenue growth. Our Projects business had a particularly strong quarter as the company executed on a number of large contract conversions, some that had slipped from the previous quarter, and benefited from increased overall activity. We also saw a benefit of approximately $40 million from faster implementation of active contracts. We continue to make great strides in growing our European footprint.You will notice in our upcoming 10-K that our European revenue now accounts for over 10% of our total revenue and is therefore now separately disclosed going forward. We experienced strong revenue growth of over 150% this year with solid organic growth and a significant contribution from our very successful Enerqos acquisition. We believe the European market remains highly fragmented and very economically attractive to Ameresco. Energy Asset revenue grew 12% largely due to the greater number of operating assets compared to last year as well as higher RIN prices experienced during the quarter. We continue to bring assets into operation growing this important recurring revenue stream. Our O&M business and other lines of business grew 13% and 12%, respectively. Gross margin of 17% dipped during the quarter as project mix impacted this quarter's results.Like in other quarters, our gross margins can be impacted by the mix of projects we are executing during the quarter ranging from higher margin performance contracts to lower margin design-build revenue. While gross margin can vary from quarter-to-quarter and year-to-year, we are not seeing any fundamental changes in the margins of our projects. As always, we remain focused on driving incremental gross margin dollars and operating leverage over gross margin percentages. Adjusted EBITDA grew 33% to $54.9 million in the quarter with non-GAAP EPS almost doubling last year's results, a key driver of tax benefits. We expect to continue to take advantage of a number of tax incentives, which we've accounted for in our 2024 guidance. Q4 was not only an excellent quarter for execution, but also for business development with over $500 million of new project awards in the quarter.Our project backlog represents a very well-balanced mix of performance contracts and design-build work with particular strength from the federal government sector. During the quarter, we also placed 63 megawatts of energy assets into operation and added 198 megawatts to assets in development and construction with a diversified mix of solar, battery, RNG and biofuel assets supported by our recent awards in Hawaii. Turning to our balance sheet and liquidity, I'll draw your attention to some additional metrics we are providing in our press release and supplemental information, both available on our website. First, let me spend a few minutes on our debt. As many of you are already aware, Ameresco carries 2 distinct types of debt, corporate debt and energy asset debt. The vast majority of our debt is energy asset debt supported by our large and growing portfolio of profitable energy assets.As most of our assets are backed by multiyear offtake agreements, banks are willing to lend a high portion of the cost of these assets at competitive rates given the long-term nature of contracted cash flows they're expected to generate. As of year end, our energy asset debt represents only 72% of the book value of the related energy assets, a fairly conservative level. It is also important to note that the majority of our energy asset debt for our operating assets is fully amortizing over the 15 to 20-year term of the offtake contracts matching our debt with our contracted revenue flows for these assets. And for a significant portion of our assets in construction and development, we have already lined up long-term debt financing through our existing sale leaseback, RNG and other portfolio financing facilities. In addition, given the strength of our asset development efforts, we're continuing to pursue a develop and sell business model for a portion of our assets in development.This allows us to convert assets that would otherwise require cash equity into EPC and O&M contracts, which instead generate project revenue and more immediate positive operating cash flow. Even with these develop and sell transactions, we will continue to target long-term operating energy asset portfolio growth of 20% plus. Lenders and investors have continued to fund these attractive assets at competitive rates allowing us to minimize the use of the company's own equity. Our corporate debt, which includes our term loans and revolving line of credit, is the minority of our total debt. At year end, our corporate debt was $280 million with a leverage ratio of 3.3x, below our bank covenant level of 3.75x. It is important to note that our corporate debt covenants do not include energy asset debt as part of the leverage ratio calculation.In the end, the vast majority of our debt is covered by our strong and profitable energy asset business backed by multiyear contracted revenue streams and our corporate debt should decline as we bill and collect on the SoCalEd projects. Another consistent topic of discussion with investors and analysts is our cash flow generation. Our quarterly cash flows can be quite volatile given the variations in the timing of collections and outlays on our contracts. Because of this, we are providing a quarterly moving average of adjusted cash flow from operations over an 8-quarter period, which is broadly representative of our implementation cycle. In our supplemental information, we have provided a longer-term chart of this metric over the past several years, which clearly shows the temporary impact of the working capital we needed for the SoCalEd contract. We expect this metric to improve back towards its historical positive trend as we bill and collect from SoCalEd.Now turning to 2024. We are guiding to revenue and adjusted EBITDA growth of 20% and 38% at the midpoints of our ranges, respectively. Included in our non-GAAP EPS guidance is the anticipation of a likely net tax benefit. Our ranges are slightly wider than prior years given the operating environment. We believe the primary variables that can impact our results this year will include the timing of converting project awards, the execution of develop and sell transactions as well as pace of implementation of our contracted back project backlog. Other important variables include the timing of bringing our new energy assets into operation, realized written pricing and tax benefits. We anticipate placing approximately 200 megawatts of energy assets into service during 2024 including our large Kupono asset and United Power battery assets.Our 2024 asset guidance also includes placing 3 RNG plants in operation, 1 of which went COD already in January. Our expected CapEx for 2024 is $350 million to $400 million, the majority of which we expect to fund with energy asset debt and tax equity. As we look to the first quarter, we estimate revenue and adjusted EBITDA to be in the range of $225 million to $275 million and $20 million to $30 million, respectively, with negative non-GAAP EPS. As we noted, we saw approximately $40 million of project revenues from faster implementation of active contracts in the fourth quarter impacting our Q1 guidance. We expect the remainder of the year to follow a more normal quarterly seasonal cadence.Now I'd like to turn the call back over to George for closing comments.
Thank you, Doran. We ended the year on a high note even in light of a difficult industry environment and that positive momentum has continued into the New Year. Ameresco's outlook for 2024 reflects the strong visibility from our backlog, recurring energy asset and O&M revenue streams. Our entire focus for 2024 is the execution of our tremendous project backlog and assets in development and the generation of cash flow. 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 now.
[Operator Instructions] Our first question today will be coming from Noah Kaye of Oppenheimer & Company.
When you talked about the energy asset portfolio planning for 2024, you indicated expectations for 200 megawatts placed in service. So Doran, picking up on the comments in your prepared remarks around developing portfolio growth, but also doing develop and sell; how much of the 200 megawatts do you kind of envision retaining? And then the $350 million to $400 million CapEx, how much of that do we sort of see an immediate turnaround on in terms of monetization and sales of assets?
So Noah, the short answer to that is the entire 200 megawatts is what we're retaining on balance sheet, the CapEx figures are what we're retaining on balance sheet. So the develop and sell is -- we fold that develop and sell into our financial plan under the Project business because it becomes an EPC, but we do not include it in those asset metrics.
Very helpful. Guidance, it's a very substantial growth versus what's in operations today. So I guess talk to us a little bit about your guide post for develop and sell versus retaining on balance sheet? How much of it is sort of unique to the assets and the nature of the offtakes versus an overall sort of philosophy of managing diversification of resources and portfolio?
I think the primary feature is based on returns, right? Obviously customer relationships will feed into that sometimes when we're making those decisions, but that's essentially it. We've just got a tremendous backlog of development going on. We want to grow the portfolio 20% plus. That gives us a lot of room to convert those into projects.
Great. And if I could sneak 1 more in just on the project side of the business. Really strong awards and backlog to close out the year here. Give us a sense of what's happening with the conversion cycle around awarded to firm contracted and how that's sort of flowing in? Have you noticed a material improvement I guess I would ask in terms of the pace of conversion and if so, what's driving that?
Going from the awarded contracts to execute, the conversion has not changed. What we used before is the 12 months to 18 months, it's still. And sometimes for example like now they are talking about the government shutdown, then you have delays and all of a sudden from 18 months you go to 24 months. But the areas that the timing has changed a little bit is the design-build, the EPC work that we are doing and that's helping. Another thing I wanted to give you a bit of perspective on the color of the backlog that the bread and butter what I call the performance contracts, we're going to keep seeing a very healthy increase.
And our next question will be coming from George Gianarikas of Canaccord.
I'd like to ask about 2024 EBITDA guidance, which I know you just gave an initial look last quarter that was a little bit higher than what you're talking about now. Can you just maybe discuss anything impacting your profitability for 2024?
I'll just start with the fact that we're building a little more conservatism in to the forecast to what we're guiding. And in addition as I talked about in my prepared remarks that we had some $40 million worth of revenue pull into Q4. So I think the combination of those 2 things really put us where we are and despite the wider ranges, this is a set of figures that we feel very good about.
Okay. And maybe just to clear any confusion, can you just remind us what the "normal quarterly cadence" of your business is throughout the year for modeling purposes?
Sure. This is Mark. I think we consider the normal quarterly cadence that we've talked about, Q1 is seasonally our lowest quarter and then it tends to be a steady ramp generally with Q3 and Q4 being our heavier quarters. So the shape will definitely have a heavier back half. I mean Q1 always unless something unusual comes into the mix, it is generally our lowest seasonal quarter.
Well, the other note that we might add on that comment that it's not heavily weighted as it was [ in '23 ] in the last quarter.
Our next question will be coming from Eric Stine of Craig Hallum.
Maybe we could just start on Europe. I mean obviously a pretty great story there the growth that you had seen, seems like it's a pretty wide open opportunity. Maybe just talk about how you see it playing out going forward. Do you see that acquisition organic combination of those partnering with people? Just maybe your thoughts on that part of the business going forward?
I think in the near term you're going to see a lot more organic. The thing about this acquisition, it's a relatively small company that we bought. They've overperformed based on our own expectations and we expect to use that platform and that local content to actually help them grow organically and actually help us grow organically throughout the continent. So I think that's 1 thing. The other thing is that a lot of the new technologies; battery, EV charging systems, you name it; those things are starting to really come into play in the U.K. And so I think we're expecting some really good organic growth there from some of the new technologies. So it is across the major jurisdictions; Greece, Italy and the U.K.; where we're focusing the most. But there's other opportunities in other markets where we haven't been yet that we see coming as well. So it's actually really exciting.
And then maybe just a follow up on the Bristol opportunity. Can you just talk about where things stand with that? I mean I would assume that that is some of the growth, but that also is just starting. So maybe how that plays into it and do you see other projects out there or opportunities out there like that?
It's a great question. Actually about the beginning of the year, I spent couple of weeks in Europe and in Bristol City, I spent some time and we had the Board meeting. It's beginning to have traction right now. We are in the implementation phase and we're getting to do more projects than we did in last year. So in addition to that, we are working with the mayor of Bristol and we're going to have a conference pretty soon that we'll invite quite a few other cities that are thinking of going down this particular route. So it's a great opportunity for us and it's right up to our toolbox because the reason they picked us because we provided comprehensive services across the full spectrum with intense technology. So it's a great project and I think we will see more coming down the pipe. And the other thing I might just say is organic growth. We're growing a lot in Europe, but we do believe the market is fragmented and don't be surprised that you will see some small tuck-in acquisitions in the near future. But we have not commented right now in our forecast on it, but we will be aggressively looking for them.
Our next question will be coming from William Grippin of UBS.
Just wanted to ask first about the debt raise pursuant to your creditor requirements and what is the plan and timing there? And then following completion of the SCE project in accordance with their requirements, what would the inflows and outflows of the cash look like there?
So we outlined a bit of this in the press release. There's not much more we can say beyond what we put in the press release. The process is underway. We've got strong interest. We'll obviously be talking about that deal as it comes to fruition. But I think we kind of have to stick with the info that we put in the press release that the timing of that deal would be the overall parameters not really directly linked to when we expect to collect cash from SoCal to be honest.
Fair enough. And then on tax credits maybe a bit of a technical question here, but what is the main process you intend to use for realizing the benefit of the tax incentives? Are you doing ITC transfers here and how much are you embedding in the guide?
So we don't have a figure to give you how much we're embedding in the guide, but we've got a combination of strategies. So we've got ITCs that we take directly that benefit our tax line. We have 179D deductions that we take directly that impact our tax line. We have and we will employ the sale of tax credits in tax credit transfer transactions. Those in fact don't go on the tax line, maybe a subject of a future Professor Doran commentary, but we actually reduce the book basis of the assets when we sell those credits. And then we will continue to do traditional tax equity financing as well for the solar and battery assets. We have not included anything related to investment tax credits on the RNG plants in our guidance. So to the extent that that changes based on the recent hearings and some of the recent guidance changes, that would be upside for us.
Okay. So just to put a final point on that, what I'm hearing is you don't need IRS clarity on any points of the IRA to sort of hit the guide with respect to whatever is embedded for tax incentives?
That's correct. Yes, that's correct. I mean the stuff is still outstanding impacts what might be upside to our figures.
We have to make sure we get the clarification in order to be able to give it down the road.
Our next question is coming from Christopher Souther of B. Riley.
Just any clarity you can provide on the expected timing around those first 2 SoCalEd projects? And then any color you can provide on expectations around how long after completion, you'd expect the cash flow in from that? I think would be helpful.
So look, I mean, I don't think we're going to put specific time frames out there. We're continuously constantly daily, hourly working on getting these substantial completion checklists completed with SoCalEd and obviously there will be announcements when the time comes. The terms of the contract remain 60-day payment terms after we have substantial completion kind of fully declared and agreed by SoCalEd as it relates to the timing of the cash flows.
Okay. And then just on the develop and sell, what would be the timing in the development cycle where you'd be looking to sell? I'm just kind of curious how much working capital or project debt we'd be expecting to commence close through to that or is it kind of earlier before you start substantial kind of spending on a project that you'd be looking to sell? And just how much I guess of that is baked into your EBITDA guidance for next year if there's kind of a more concerted effort towards that space?
We're not breaking out how much of the EBITDA guidance comes from the develop and sell business model. But the strategy of course is to get those assets identified and transacted before we start construction. I wouldn't say that that happens 100% of the time. There certainly are circumstances where we may transact after we've started construction or maybe you ordered some long lead time equipment. As you guys know, we've talked about switchgear and transformers. And since this is pretty much just battery and solar assets, those types of CapEx are particularly relevant here. But beyond that, that's really it. And as we've disclosed in the past, we've got a solid construction and development financing facility that we use for those assets as we go through the process of executing those develop and sell transactions.
Okay. So it would probably be near or maybe a little bit of CapEx related to that, but then go mostly just through backlog on your project side. Is that how you kind of watch that space?
Yes, I think it does.
Next question is coming from Kashy Harrison of Piper Sandler.
So the first one I guess just surrounds the guidance. If we look at Q1 revenues, it's about 15% of the full year and if we think back to 2023, the original Q1 guidance was also 15% before you guys were forced to walk that back due to project delays. And so I guess my question is what's the difference between 2024 and 2023? What gives you the confidence that you can actually meet expectations this time just given the similarity in the really low Q1 as a percentage of the full year? And I have a follow-up.
Kashy, this is Mark. I'll just take that again. I think the simple answer there is just visibility I think what we see in terms of Q1 what's available and what's coming out, which is pretty much all contracted backlog. It's just really our confidence in our ability to execute on that contracted backlog during Q1. So we're not expecting much of anything from the conversion of awards that we would then need to execute on the implementation. So we feel pretty good about although it's lower than normal, the visibility gives us the confidence in Q1.
What I might add there too is that last year at this particular time, we were counting more projects to move from the awarded to the contracted category and this year about over 75% of our total revenue is already contracted and that's why it's important to execute on the contracted backlog that we have. And the other one, don't forget that we did it take off $40 million from this quarter to last year for the acceleration. Once we started focusing and accelerating the construction of some projects, things began to happen and that's helped last quarter and I think it's going to help as we go through this year. But the most important thing is we don't count as many contracts to go from the awarded category to contracted in order to make our plan this year.
Got it. And then my follow-up question is surrounding the FTE project. I imagine you guys are frustrated that it's taken so long, but it is now I think 18 months now delayed just based on the potential summer COD versus I want to say the original late 2022 COD. And so similar question of what gives you the confidence that it is a summer date in fact and we won't see additional delays?
I would only jump in because I'm kind of personally involved in all of the costs that are taking place. So we've got a lot of heavy attention being paid to the day-in, day-out commissioning efforts going on on the site. Not only is it the team on the ground from Ameresco and our major subcontractors, but also at the executive level of each of those subcontractors as well as the executive level of SoCalEd. There's a tremendous amount of momentum on getting those 2 projects through the testing, through the open items on the checklist for substantial completion as the visibility is definitely there. And I mean I think we do feel comfortable that those are really close to being completed and being completed safely.
And our next question is coming from Julien Dumoulin of Bank of America.
Look, just talk about the debt, right? You mentioned in the prepared remarks talking about them being roughly at 3x below the covenant of 3.75x. You also talked about effectively deleveraging through the course of receiving some of these SoCal payments here. How do you think about the cadence of that leverage through the course of the year? How do you think about where do you want to end the year? And then related, how do you think about the force majeure related to SCE, the decisions you can offer up? Any comments about that $90 million dynamic? I mean again I appreciate that this might be a little tricky, but really focusing on that deleveraging commentary.
Sure. I mean I think the deleveraging so we've all kind of circled around the amount of unbilled that's sort of still sitting there. We've got to get these projects to substantial completion, collect the amounts after 60 days and see those go to paydown that corporate leverage especially our revolver. The third project finishing later in the year, obviously you'll see that substantial completion payment, the final acceptance payments coming in. I don't think I'm putting a particular time period on it. I'm not going to say it's going to happen in Q2 or Q3 or Q4. I think it's going to kind of spread itself across the rest of the year as we delever over the course of the year. That's the way that I would answer that. And then frankly on the liquidated damages and the force majeure claims, there's not really any new information. We're continuing to exchange information with SoCalEd and that's what we've been doing and we're continuing to do it and the hard yards on that will probably come after we finish the projects.
Got it. So really don't expect any updates until after the summer or something like that on the force majeure liquidity and payments here. And then on the specifics of where you're targeting leverage to be, just there a bunch of puts and takes here. By the end of the year, any specific metric that you would offer up relative to 3x today that you would kind of aspire to be?
So the short answer, Julien, is no. I probably won't put that metric out there and the primary reason is because George talked about being opportunistic in Europe. If something pops up and we want to go make a small acquisition in Europe or something else happens, then we want to be able to use the corporate resources to actually go after transactions and ideas that will help us grow the business. So I don't think it's appropriate for us to kind of put a target out there. The numbers are pretty clear as far as the way that the SoCal will reduce that leverage. If there's anything that we do that will increase the leverage, it's going to be something we'd be talking about, whether it's asset opportunities or M&A opportunities or something along those lines. But no particular target, Julien.
Our next question is coming from Craig Irwin of Roth MKM.
So George, looking back to the time of COVID where you very successfully pulled forward execution, it was a large part of the significant appreciation in your stock, right? Looking back to that time, a lot of the success was your ability to move your resources away from prioritizing pipeline backlog, contracted backlog towards execution in a quarter. Can you maybe explain for us whether or not this was a factor in your fourth quarter upside? And how are your employees' positions in the current quarter compared to historical? Are you leaning in a little bit maybe so we could see some upside over the course of this year given that the pipeline and backlog and everything is still incredibly healthy there or is this sort of more of an even distribution like you've seen over the last 10 years?
Great questions, Craig. But this year to the management team and to the Board, I told them look guys, the development business is at a pretty good clip. We have to execute, execute and execute. And when we reorganized the company a little bit in order to take advantage of the people that we have around the company, we reduced it by a couple of units so we have more interaction between the management team right now and taking advantage of some of the expertise we have around the company. By having less units, we can transfer that knowledge from 1 group to another, have more purchasing being done through the headquarters so we're saving money in the purchasing of equipment. And the other thing, sometimes lot of people may focus on smaller projects and maybe they are not within our wheelhouse.So I'd say we got to focus in larger projects and to the ones that we have a competitive advantage and those are the ones that are around our expertise. That's why particularly I mentioned the federal government, we have over a $1 billion backlog just on that one alone and the [ institutional ] accounts, again the backlog is very good. So the bread and butter business the backlog, which is the energy efficiency which is our core business, I think here we have the organization refocus a lot on that. Because what happens once you pivot in some of these new strategies, new technologies, everybody is rushing to that. So we wanted to take a look back and say hey guys, this is what brought us here and I want you to start focusing on this particular project and it has an impact already. We started that process I would say late last summer and we're seeing some good results coming out of it.
I would only add, Craig, I think that the comparison to COVID is an interesting one. It's probably not quite as drastic in terms of the reallocation of resources than what we saw in COVID because of the fact that the business development world hasn't kind of come to a halt like it did early in COVID. And for that reason, what we're focusing on is making the business development process much more efficient and then the operational efficiency of getting proposals into awards for projects and then converting awards to contracts. Certainly you'll see some more resources going into execution because we've got the management team focused on execution and reducing OpEx and so on and so forth. But it's a good comparison, it's not quite as extreme.
So my second question is about margin and backlog particularly contracted backlog. So your growth in contracted backlog is really impressive, but EBITDA guidance is lagging versus this growth. So can you maybe help us understand if we are seeing compression from the increased size of large projects, the increased contribution from large projects and maybe lower margins on energy storage products compressing the profitability of that backlog and pipeline or is this something that's really just a short-term item that will pass?
I'll answer that, Craig. So I think that if you look at the awarded backlog and the contracted backlog conversions during the entirety of the year of 2023, no fundamental changes in the margins. I think Q4 certainly had some larger awards in there where the margins on some of the solar EPC especially in Europe are a little tighter than what we normally would go after. Again very, very good operating leverage for that because it doesn't require a huge amount of resources from us because we have a JV partner that manages the execution. But that to me actually feels like the latter part of your question sort of maybe a temporary jump in that because we did sign a few pretty sizable projects in Europe in the fourth quarter that probably would have had that impact. But I don't see that necessarily impacting long term and in fact post signing those contracts, George and I have been back to that team on the origination and preaching the same thing we're preaching in the U.S., you need to go with the higher margin, higher hit rate projects. We've got a lot of great stuff in the backlog, but let's focus on the really high quality stuff going forward.
Great. Well if I can say congratulations for that success in Europe. George, the 15 plus years I've known you, you've been trying to figure out how to get a business there and grow it. And it's nice to see Ameresco figure out that formula and see real success driving revenue and profits over there. So congrats.
Thank you, Craig. We're at good place I will say.
Our next question is coming from Tim Mulrooney of William Blair.
I just have a couple of industry-related questions as it relates to energy storage. We recently read an article about Duke Energy decommissioning CATL battery systems at Camp Lejeune military base. We know you do work for military bases. Do you think we'll see more of this type of action across the government space and how do you think that might impact your business if at all?
So I'd say that there probably will be more of an actions similar to that as the national security concerns start to raise, no different than the 5G network stuff that was going on a couple of years ago. That being said, the primary concern doesn't really have to do with the CATL battery containers or the quality of their systems. They're still one of the largest manufacturers of those in the world and in fact most battery manufacturers use their cells. It's really about the software in the battery management system, the BMS systems. And I think that CATL is going to need to respond and figure out a way to ensure that they can get the federal government comfortable with what the BMS systems are and so I think there's more to come on that space. Importantly, from our perspective, we are agnostic to suppliers. CATL is not the only game in town. We're deploying batteries from numerous other manufacturers in our projects and things that are in our backlog. We're bidding other manufacturers into these projects and those just don't -- they simply don't carry the same concerns.
And what I might add once this came to reality, I went back and I checked with Nicole that runs the federal group whether we have any of the CATL batteries with the military bases, we have none.
I appreciate all that clarification. That's really helpful. Sticking on batteries, we've heard lithium-ion phosphate batteries come down quite a bit even since the prices that is even since your last earnings call. I guess my question is are you seeing that as well and can you talk about what kind of impact a greater availability of batteries for energy storage or lower cost for these batteries might have on the project economics for you and your customers?
Yes, certainly positive moves in the in the economic benefits. Whether it ends up -- I mean ultimately all this ends up benefiting the ratepayers in the utility districts where these utilities are putting the batteries. The utilities are rate basing either a long-term capacity contract what they have with us when we own the batteries or it's just the EPC price and the cost of the batteries. If it's coming down, those rates come down and it really helps them pass those savings on to their rate payers.
Okay. So input prices here doesn't really impact project economics for you. It's more about the end customer?
I mean it certainly gives us a little bit more room. It allows us to sharpen our pencils on contingencies that we have to include, right. That's most certainly the case.
And our next question is coming from Pavel Molchanov of Raymond James.
You have a lot of interesting businesses in Europe except 1, I don't believe you've ever operated an RNG plant in Europe. Would you be interested in either developing or acquiring RNG assets in Europe?
Actually we are looking at some. You're right though, we haven't done 1 of them over there yet. But we have hired a business developer to go after RNG facilities in Europe and don't be surprised that we might have some partners. But rather than we're not a bank to just buy operating assets unless we believe we can add some value to it and get a good return. But we are looking, no question about it. Actually 2 days ago I approved a particular proposal that we are making in Europe for this business.
Okay. Kind of a big picture question about the economics of energy efficiency. We've talked about through the past 2 years constant escalation in power prices and the incentive for building owners to invest in energy efficiency. Is that economic rationale the best it's ever been right now?
I would say so because energy prices are going up. Even though inflation is going up, there's still the value proposition and that's why in my commentary and my script, I said energy efficiency doesn't need any government incentives whatsoever. But with 179, it helps. That's why I've been preaching to the world that 30% of the energy can be saved economically and it pencils out. And the other thing that's happened is the technological advancements that we have are bringing the cost down. So it's great and it's getting greater I would say.
Our next question will be coming from Craig Shere of Tuohy Brothers.
A couple of quick ones. First, last quarter you all mentioned similar supply chain and project execution issues, but noted that Europe had been largely exempt from that. Is that still the case?
It is. Europe has still been really good availability of solar modules. Of course we were all kind of spooked by the Red Sea, but it ended up kind of not being much at all. We have a supply management consulting business in the U.K. as well and I talk to the head of that business quite often about what's going on with the natural gas and power supply markets and what happened with the Red Sea on supply chain. And yes, not a whole lot impacting our business. It's been good.
Great. And staying on Europe a little, George, as you talked about more internal communication, centralized purchasing, increasing project sizing. How do you see those kind of internal initiatives playing into your European strategy?
I mean the short answer to that is me because George has me kind of directly involving myself in the execution of the operational aspects of a lot of what's going on in Europe and many of those centralized functions are things that I have been developing over the last couple of years on the procurement side, enterprise risk management, et cetera, Risk Review Committee. So we have mechanisms in place to ensure that these large projects go through risk reviews that involve the folks in the U.S. who have been involved in the large projects and also that we can kind of capitalize on these operational efficiency measures that we're implementing here. We're still a very flat organization. We've got a lot of direct involvement directly with the gentleman who runs our Italian business Enerqos, directly with the JV partner, directly with the guy who runs our U.K. business; we're in constant conversation.
And our next question is coming from Benjamin Kallo of Baird.
If possible, could you just kind of give us any kind of back of the envelope or any kind of color on the assets you add to the balance this year? What kind of EBITDA you project to layer on for next year when they're all completed?
So I don't think I've got a really good guide. We can probably reiterate some of the guidance we have provided in the past as far as EBITDA per megawatt with respect to solar and battery, right? We're talking about couple of hundred thousand dollars per megawatt mostly solar. I think the range for the renewable natural gas still kind of remains valid there on the EBITDA side $750,000 to $1.5 million if RIN prices are doing great. But based on those particular cadences, I think that should give you some idea of the breakdown and you probably have the megawatt numbers that we're looking at the 3 RNG plants. I think we have a total of about 20 megawatts of the new megawatts going in this year is RNG. The rest of it is kind of solar and battery with that 200,000 number being a good back of the envelope like you said, Ben.
Have you guys changed anyway that you contract or think about doing energy storage or battery development either your on-balance sheet or for customers because of SoCal?
Actually I think the contracting framework as it relates to that, things that we think about. If it's an EPC project, obviously we're being very, very tight with working capital now. We've got a lot of guidelines out to the business units to minimize the amount of working capital that is associated with any project where we're doing EPC. And then secondly, from an execution perspective, clearly a lot of heavier focus upfront about the commissioning process and that feeds into supplier selection. But as far as markets where we're developing, types of assets that we're developing, we're still kind of pulling things in from multiple jurisdictions and economics and risk will determine whether we end up putting those in kind of a develop and sell category or we're putting them on the balance sheet. So that's probably the best description I can give you, Ben.
Thank you. This does conclude today's conference call. You may all disconnect.