Ameresco, Inc (AMRC) Q3 2021 Earnings Call Transcript – Motley Fool

ameresco,-inc-(amrc)-q3-2021-earnings-call-transcript-–-motley-fool

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Ameresco, Inc (NYSE:AMRC)

Q3 2021 Earnings Call

Nov 1, 2021, 4: 30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by, and welcome to the Ameresco, Inc. Third Quarter 2021 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to your host, Ms. Leila Dillon, Senior Vice President of Marketing and Communications. Ms. Dillon, you may begin.

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

Thank you, Justin, and good afternoon, everyone. We appreciate you joining us for today's call. Joining me here are George Sakellaris, Ameresco's Chairman, President and Chief Executive Officer; Doran Hole, Senior Vice President and Chief Financial Officer; and Mark Chiplock, Vice President and Chief Accounting Officer.

Before I turn the call over to George, I would like to make a brief statement regarding forward-looking remarks. This call contains forward-looking information regarding future events and the future financial performance of the Company. We caution you that such statements are based on management's current expectations or beliefs. Actual results may differ materially as a result of risks and uncertainties that pertain to our business. We refer you to the Company's press release issued this afternoon and to our SEC filings. These documents discuss important factors that could cause actual results to differ materially from those contained in the Company's projections or forward-looking statements. We assume no obligation to revise any forward-looking statements made on today's call.

In addition, we will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Our GAAP to non-GAAP reconciliation, as well as an explanation behind the use of non-GAAP financial measures is available in our press release and in the appendix of the slides which can be downloaded from our website.

I will now turn the call over to George. George?

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thank you, Leila, and good afternoon, everyone. The third quarter was another strong quarter for Ameresco, as robust new business development activity yielded significant growth in both our project backlog and our energy assets in development. Our results continue to benefit from our diversified business model, as growth in our higher-margin asset and O&M businesses, plus a favorable project mix drove an increase in profitability that more than offset the impact of supply chain and COVID-related delays.

Our Energy Asset business had an exceptionally strong quarter, with revenues up 29% and 35 megawatts added into our assets in development. Ongoing additions to our energy asset base create a higher margin, long-term revenue stream that, together with our O&M business, serve to smooth out the variability that we experience from quarter-to-quarter in our projects business. Of note, we were very pleased to add an additional four RNG sites and innovative battery system to our assets in development during the quarter.

Given our deep and wide expertise in advanced energy technologies, Ameresco is able to pursue a very broad range of high yielding opportunities across our entire geographic footprint. During the third quarter, several projects in our off-grid integrated solar business were impacted by interruptions and delays due to the industrywide supply chain issues and COVID-19-related disruptions. It's important to point out that these issues primarily impact the timing of execution and that the delayed revenue will be recognized in later quarters.

Our projects business proposal activity has been robust. As we expected, we experienced a considerable increase in our total project backlog, which was up 7% sequentially at the end of the third quarter. At the same time, a significant increase in proposal activity is taking place across our customer base, which we see as a positive signal for Ameresco's growing business.

Several factors have started to come together that they are influencing customer decisions. For many customers, the attraction to budget-neutral cost savings remains a key selling point. But we are now seeing a significant increase in projects being driven by the demand for greater power and water resiliency, as well as advanced technology solutions that could lower our customers' carbon footprint. Ameresco's ability to provide comprehensive solutions, addressing all these elements, puts us in a very strong competitive position and has significantly expanded our addressable market.

The transformational 537.5 megawatt battery energy storage contract that we announced 10 days ago is an excellent example of the growth potential we see on the horizon. The contract is the largest in Ameresco's 20-year history. We will be designing and building three battery energy storage systems for Southern California Edison. In total, the project will provide the California grid with four hours of clean resilient power storage for a total of 2,150 megawatt hours. The incredibly fast-paced timetable for this project has been driven by the devastating impacts and higher frequency of extreme weather events, which continue to create energy supply emergencies in California.

California, though, is not the only state or region to be facing extreme weather events. Over the last years -- few years, the grid has been disrupted by numerous wildfires, extreme heat and cold, as well as hurricanes in many regions of the country. Many utilities and their customers are now looking at distributed energy resources and microgrids to augment the grid and create a more reliable resilient system. As a larger percentage of our energy supply comes from these intermittent resources like solar and wind, blackouts and energy shortages may become more likely. We continue to support these technologies as they are a very important part of the new energy mix in our economy. However, their intermittent nature does create a need for more backup power and resilient solutions, including firm supply of renewable energy resources. Ameresco portfolio of solutions perfectly complements this approach.

While the Southern California battery contract is our first of this size, we are actively engaged in numerous other discussions for similar solutions. We believe the next decade will be marked by dramatic changes in the domestic power system with resources shifting to more distributed assets and microgrids to increase overall reliability and resiliency.

I will now turn the call over to Doran to provide some comments on our financial performance and guidance, Doran?

Doran Hole -- Senior Vice President and Chief Financial Officer

Thank you, George, and good afternoon, everyone. Please refer to our press release and supplemental slides that have been posted to our website for additional financial information. As George mentioned, the third quarter clearly demonstrated the resiliency of our business model as continued growth in our higher margin Energy Asset and O&M businesses offset softer projects revenue, driving another quarter of profit growth.

As we have noted before, quarterly projects revenue can be uneven by nature, which has only been exacerbated by industrywide COVID-19 restrictions and supply chain disruptions. This is one of the reasons the Company has purposely built out our recurring revenue businesses since its founding, which now account for over two-thirds of our adjusted EBITDA.

Q3 revenue was $273.7 million compared to $282.5 million the previous year. Approximately $30 million worth of projects revenue was delayed and is expected to hit in subsequent quarters. We anticipate the COVID-19 and supply chain challenges to continue into 2022. We constantly monitor the availability and timely delivery of materials, as well as the availability and cost of labor, especially given COVID related restrictions and vaccine mandates. Our increased guidance, which I will discuss later in the call, takes all of this into consideration.

Energy Asset revenue increased an impressive 29%, reflecting the continued growth of our operating portfolio, improved performance of our existing operating assets and strength in RIN prices. O&M revenue also had a robust quarter with growth of 12% as we continue to attach long term O&M contracts to our project work.

Our gross margin of 21.5% benefited from a favorable project mix and generally continues to benefit from the growth in our higher margin Energy Asset and O&M businesses. We had GAAP EPS of $0.33 and non-GAAP EPS of $0.41 with adjusted EBITDA of $40.2 million, increasing 9% year-over-year.

During the quarter, we placed 4 megawatts of assets into operation. We also added an impressive 35 megawatts to our assets in development, including a battery energy storage system and four additional smaller RNG facilities. With the addition of these four, we now have 17 RNG assets in development, with a total expected annual output of over 10 million MMBtus, the equivalent of approximately 129 megawatts. Our 319 megawatts of operating assets have approximately $1 billion in long-term contracted revenue and incentives. Together with our $1.1 billion O&M backlog, we continue to have considerable long-term visibility to these higher-margin revenue streams.

Moving to our project backlog, we were very pleased to have increased our total project backlog 7% sequentially and 5% year-over-year to $2.36 billion, as we continue to see a significant pickup in customer interest and bidding activity. Our recently announced battery storage contract with SCE was not included in the Q3 backlog number but will hit our Q4 contracted project backlog. And as a leading cleantech integrator, we are pursuing many other large complex projects with clients who recognize our expertise and proven track record.

Let me add a little financial color to the SCE design/build contract. Work has already begun in the fourth quarter with anticipated completion by August 1, 2022. As with other projects, revenue will be recognized on a percentage of completion basis, and we expect a relatively uniform level of work throughout the life of the contract. As we have stated, design/build contracts typically yield gross margins in the high-single digit range. We have included the estimated impact from this contract for the remainder of this year in our raised 2021 guidance ranges. We will not be commenting on the 2022 impact yet as it will be factored into our 2022 guidance ranges when we release that information early next year.

Given our strong year-to-date performance, the addition of the SCE contract, a lower-than-anticipated tax rate, plus an increased investment in our people, new resources and growth strategies, we are pleased to be increasing our 2021 guidance as detailed in our press release. With these factors, we are increasing the revenue midpoint by $80 million and the EBITDA midpoint estimate by $5 million.

Now, I'd like to turn the call back over to George for closing comments.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thank you, Doran. In closing, I want to again take a moment to thank our employees for their dedication and outstanding execution, as well as our customers and stockholders for their continued support. I believe that the prospects we see in front of us have never been more exciting. Our portfolio of innovative solutions and our track record of execution and delivering top quality products makes Ameresco the industry's preferred partner for the most complex and comprehensive advanced energy projects.

Our recent battery storage contract win is a tremendous achievement for the Company, and we believe it's also indicative of the types of opportunities that are rapidly evolving in the market, as we focus on a clean resilient future.

Finally, I'm excited to announce that Ameresco will be holding its first Investor Day in New York City on January 13. We will provide analysts and investors with an opportunity to gain their [Phonetic] insights into our compelling long-term opportunities.

Operator, I would like now to open the call to questions.

Questions and Answers:

Operator

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

Noah Kaye -- Oppenheimer -- Analyst

Good afternoon, and thanks so much for taking the questions, everyone.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Hi, Noah.

Doran Hole -- Senior Vice President and Chief Financial Officer

Hi, Noah.

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

Hi there.

Noah Kaye -- Oppenheimer -- Analyst

So first of all, congrats on contract win with South Cal Edison. This is very significant. And so I'd like to ask a couple of questions related to it. I guess number one is a housekeeping matter. Is it possible to do a simple bridge to the $80 million increase in revenue guidance? I think you mentioned that you expect revenue recognition on this project fairly rapidly over the life of the contract. Maybe you could kind of help put a little bit of a finer point on it for us. And I guess, as [Indecipherable] at it, we could also ask a little bit about your mentioning the increased investment in people to support growth, if there's any details you can provide there?

Mark Chiplock -- Vice President and Chief Accounting Officer

Hey, Noah, this is Mark. Maybe I can start just talking about the guidance. So, on the $80 million, I don't think we're going to talk about specifics there. There are a number of puts and takes going into those increased estimates. Certainly, on the revenue side, we took into account an estimate of additional revenue coming from the battery contract. But as we talked about in the prepared remarks and as we saw in Q3, we still are anticipating the impact of various supply chain and COVID-related impacts to the revenue. I think we feel really confident in that revised range, just given the visibility that we have coming out of our project backlog for sure. We anticipate greater than 85% coming from our contracted backlog on the project revenue line and certainly a high percentage overall coming from contracted revenue sources.

If we work our way down the P&L, I think the expected contribution from that contract and the adjustments we made to revenue, when you combine those with some of the investments that we're going to make, I think it's a combination certainly on the human capital side as we focus on retaining our people, as well as the investments we're going to make in new resources to support the growth. We're also expecting to see some increases on the project development side as we continue to focus on the robust pipeline of projects. So we're going to see those investments continue to impact OpEx, and I think that's what's flowing down to the adjusted earnings guidance.

Noah Kaye -- Oppenheimer -- Analyst

Good, Mark. Thank you for that color. Yeah, go ahead please.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

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

Noah Kaye -- Oppenheimer -- Analyst

Right. And as you pointed out I think in your prepared remarks, that increase in order backlog didn't reflect this contract. So you had significant growth in your other projects business. And we will see that...

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Yeah. And that's what got us excited about the performance of the third quarter, the fact we've been waiting. We said the proposal activity is more than double for what we had the previous years. And finally, we're beginning to see the results. The awards -- and then, as our timing works through the backlog, get the awards, and then six months to a year later, you get the actual contracts. But if you get the Southern Cal, it went from proposal to award to contract within a few months in the proposal stage, and then about 10 days, in the award to contract the stage.

Noah Kaye -- Oppenheimer -- Analyst

Right. So that's...

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

That's why we like this contract, by the way.

Noah Kaye -- Oppenheimer -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Yeah. Sure. Southern Cal, they [Indecipherable] an RFP. We were monitoring the situation, what they were doing with the PUC and so on. And we were one of the first companies to respond to the RFP, and there were a few others as well. But in addition to that, we are doing another project for Southern Cal, a smaller size project which is -- so we got to know them very good and recognized that we have tremendous capabilities in that area. Actually I visited them, I would say, three months ago or so. And then, we went after very aggressively. We did line up suppliers and EPC contractors and so on because one of the key issues of course is getting the batteries there, and so on and so forth. So we had lined up the suppliers for all the key equipment for the project, transformers and so on, and as well somebody to wrap it and build this for us.

And the other thing I want to point out to everybody -- to our investors as well as the analysts is the fact that when you take the contract -- it's a single contract, it's a very large-sized contracts for us. But if you break it down, they are three contracts, three different sites. And if you think we did the Savannah River back in 2010 with one-third of the size of the company and we did a $200 million contract and it was -- that was biomass, much more complicated than this particular one. But what makes them challenging is the schedule and some of the supply issues we have to -- we're developing contingency plans to make sure that we get everything there on time.

The other one, the opportunities, that's where I focus my remark a lot, it's going to be more and more of an issue. Microgrids and battery storage and so on, it's going to be the way of the future because as I said in my remarks, more solar, more wind and of course, they are intermittent and they depend on weather. As you get [Indecipherable] or a hurricane or whatever, all those things, you've got to make up that difference sometime. So that's the need for a backup power energy storage, whatever the technology is down the road.

Noah Kaye -- Oppenheimer -- Analyst

Right. Thank you very much for the color. I'll jump back in queue.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thanks.

Doran Hole -- Senior Vice President and Chief Financial Officer

Thanks, Noah.

Operator

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

Anya Shelekhin -- Bank of America -- Analyst

Hey guys, this is Anya stepping in for Julien.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Hi, Anya.

Doran Hole -- Senior Vice President and Chief Financial Officer

Hey.

Anya Shelekhin -- Bank of America -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

I will talk about it a little bit and then Mark could [Indecipherable] into it day-in and day-out more. On the RNG projects, we had a slight delay toward the project that we were executing in order to turn around, but no major hiccup. It impacted a little bit the economics, but not that much. For example, some of the materials for the LED controls we got from a factory in Vietnam, it was shut down for three weeks and so on. So, that impacted pretty much all of our LED projects, and a good thing, and that's why it didn't impact us as much on the profitability of the Company. So that's why I mentioned on my call, the project mix. Some of those projects were lower margin projects, so they didn't have as much impact.

The other thing that -- it surprised me a little bit with this vaccinated -- not vaccinated, especially in the Northwest region, some of our subcontractors, because they had maybe one or two employees not vaccinated, they wouldn't have access to some of the facilities. Or before, we used -- the schools were not open or even in the past, we used to do work at night in some of the schools. And now because they were open and they were concerned in case somebody was -- went in there that was unvaccinated, so they wouldn't allow us to do night work. So, then PVC, some roof tiles. Anyway, Mark?

Mark Chiplock -- Vice President and Chief Accounting Officer

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

Anya Shelekhin -- Bank of America -- Analyst

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

Mark Chiplock -- Vice President and Chief Accounting Officer

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

Anya Shelekhin -- Bank of America -- Analyst

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

Operator

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

Eric Stine -- Craig-Hallum -- Analyst

Hi, everyone.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Hi, Eric.

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

Hi there.

Eric Stine -- Craig-Hallum -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Well, this one moved very fast because, like I said, it's an emergency situation that's happening in California. I will say this much, we are working on quite a few of them. Generally, they are smaller than this particular project. And I think you will find out that the market is moving more and more battery storage, microgrids and so on.

Eric Stine -- Craig-Hallum -- Analyst

Got it. Okay.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

[Speech Overlap] to get away with that echo there.

Eric Stine -- Craig-Hallum -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

No, those are landfill sites, all four of them. But I will say this much, in the dairy, we are working on some sites and some other potential deals. I will call -- still put them in a proposal category right now. But I think in the near future, you'll see us moving more -- we'll be able to put them in, what I call, assets in development. But right now, they are in medium stages, I would call them. But because [Speech Overlap] much lower, the value proposition is much better for them and so on. We are looking at very aggressively.

Eric Stine -- Craig-Hallum -- Analyst

Okay. I appreciate it.

Operator

Thank you. And our next question comes from Chris Souther from B. Riley.

Chris Souther -- B. Riley -- Analyst

Thanks for taking my question here, guys, and congrats on the SCE deal. Maybe to start for me, talk about the uptick in Energy Asset development pipeline. You saw strong additions of both solar and storage demand, also renewable gas. Can you talk about the types of solar and storage where you're seeing strength here? And then, it looked like you had a pure kind of battery added to -- added during the quarter here. I wanted to get a sense of within the pipeline and kind of current assets, [Technical Issues] kind of pure battery versus hybrid or solar only, if you could kind of give us like a breakdown of where things stand and the momentum between those, then the timeframe for the renewable gas plants that were added before, would be great as well.

Doran Hole -- Senior Vice President and Chief Financial Officer

Sure. I'll try to hit all of those questions in one fell swoop. So you will notice that we kind of label the solar and battery in the supplemental slides now. Out of the figure that you see for solar and battery, 39 megawatts of that represents the battery capacity. Some of that is stand-alone. Some of that is combined with solar. The one that's being added is a battery that's being added to an existing solar project that we've already got in our operating portfolio. So, that's kind of a great example of being able to go back and figure out how battery resiliency can be a supplement to the things that we already own and operate.

I think on the RNG side, there hasn't been really any change to the cadence of implementation. So, we've talked in the past about the 2021, the single asset that's placed in service already; 2022, three assets; and 2023, four assets. The four that have been added, I think clearly when we talk about 17 assets in development and the '21 through '23 don't add up to 17. So you can kind of see the time frame is going to stretch beyond that 2023 mark to get the rest of these in operation.

Chris Souther -- B. Riley -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

Yeah. Chris, it's hard to say the number of actual projects being pushed. We're kind of looking at it from a total revenue standpoint. And certainly, we would see some of the revenue that got pushed out of Q3 spill into Q4. But in terms of pushing out into next year, again, we continue to anticipate that we're going to see these challenges through Q4 and into next year. And so, we'll continue to pull revenue out of this year and into 2022.

Chris Souther -- B. Riley -- Analyst

So how much was kind of pushed out for the full year for some of these...

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

I wouldn't just say that. And it's rather than common [Phonetic] project delays, that's why I said revenue delays. For example, take some of the street light jobs, and we're going to get the control, but we could do some other work. So otherwise, you delay some of the revenue associated with a particular project. And that's why we made the remark, I said, delays -- that the revenue will be recognized but at a little bit later time.

Chris Souther -- B. Riley -- Analyst

I understood. Okay, thanks guys.

Operator

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

Samuel Kusswurm -- William Blair -- Analyst

Hey, this is Sam filling in for Tim. Thanks for taking our questions here, guys. Congrats on the quarter, first of all.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thanks, Tim.

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

Thank you.

Samuel Kusswurm -- William Blair -- Analyst

You've discussed in the past the ongoing shift toward more comprehensive and complex projects. I was curious if you had any stats to help us understand the magnitude of that shift? Like maybe the average size of the project 5 or 10 years ago versus the average size of project today. Or even a range, just anything to really kind of help frame the issue for us.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Yeah, it's a good question. We go back into one of my favorite projects that use -- that its size change dramatically, Paris Island. When we won that contract, it was through the RFP process. It was about $48 million contract. And some of the measures, it was changed out some boilers, some killer works, some lights and steam upgrades and hot water heater and so on. Otherwise it's difficult, HVAC boiler retrofit. And then the client of the project say, you know, we have many storms down here. We need resiliency. And also we have a requirement by the Federal Government to have 30% renewables by, I forget the year right now. So we went back to the drawing boards and we designed a project that we had the combined heat and power plant of 8 megawatts, an emergency generator, a battery storage, a solar plant, and of course in order to match the load with the generation that you have on your system, instantaneously one you get off the grid, you need a microgrid. You need a computer in order to control and see what's going on. And that became [Indecipherable] a number of project. It's been up and running very successfully.

Portsmouth Naval Shipyard, that's where they maintain the nuclear submarines, similar situation. During the ice storms that we had in the last couple of winters, it's the only places that had power. And the same with Paris Island, they got one of the storms, the hurricanes that came by, they maintained power. So -- and that's expanding more and more. I think, I said it before, back when I was in New England Electric and we were doing the planning for generation and transmission, we used to design a system for lots of load probability, 1 and 100, 1% otherwise. And we had come up that to achieve that, we needed about 10% of the outstanding load to spinning reserve, and that spinning reserve will be the batteries. So, as you think of, we go -- we go down the road, let's say, you have a 30%, 40% between solar and wind, a single event with weather can take out both. So, you need some backup, you need microgrids and the data centers out there. The banks, they're beginning to realize, hospitals and of course the federal government was the first to realize that we have to get some backup. And so, the project is expanded, so the smart sensors are included, and all the element [Phonetic] technology.

Samuel Kusswurm -- William Blair -- Analyst

Awesome. Appreciate the color there. Maybe pivoting back to the battery technology a little bit, but more so on the distributed energy front, when we look at LED lighting technology and just how did -- it matured, it helped lower the cost of the technology by 9% [Phonetic] and that ushered in a way that retrofits and mass adoption. When we look at the state of distributed energy now and just got battery storage, where do you think we're at on the technology maturity curve here? And then how much the costs need to come down from where they're currently at to kind of see maybe a similar mass adoption of it?

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

In quite a few cases, they make economic sense even right now because they take into consideration interruption of service. If you are a hospital, for example, you cannot afford to lose power. If you're a university or a data center, what they're doing -- you don't want to lose -- everybody worries about cyber security. Losing power sometimes is going to be much, much worse than that. So -- and the cost, I think they have come down some. And that's why the market has expanded, for example, the sensors -- the smart sensors or the LED, and of course the solar, the panels and everything else. Wind has come down tremendously. The batteries, we are making progress but not as much as eventually, I think, we will be able to see. And the microgrids that -- they're gearing to a point that they make economic sense.

Samuel Kusswurm -- William Blair -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

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

Samuel Kusswurm -- William Blair -- Analyst

Perfect. Appreciate it.

Operator

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

Jed Dorsheimer -- Canaccord Genuity -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Yeah. Look at it this way. The four-hour battery storage for this particular application came from, looking at the load profile of the utility, that's what basically they went out and requested. So with that, they thought in order to bid -- actually [Indecipherable] peak that they were worried a lot about. But ultimately, with a microgrid, such thing and that's why I said in my comments, we will need firm renewable supplies. And for example, go back to the Paris Island that we use natural gas right now. It has a combined heat and power, and the battery storage has been used to bridge the gap because even though you have your own generation, you cannot bring it up to maximum load instantaneously. The battery can. And then, you have the battery, it bridges -- it keeps you up and running for the next two, three hours until your load picks up. But now, 20 years from now, we're going to be net zero. That natural gas, we have to fire the turbine with either hydrogen, some clean fuel. That's why I say ultimately, we will need firm renewable resources.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Yeah. I'm curious about -- yes, go ahead.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Go ahead.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

I agree.

Jed Dorsheimer -- Canaccord Genuity -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Sure.

Operator

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

Stephen Gengaro -- Stifel -- Analyst

Thanks. Good afternoon, everybody.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Hi, Stephen.

Doran Hole -- Senior Vice President and Chief Financial Officer

Hi, Steve.

Stephen Gengaro -- Stifel -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

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

Stephen Gengaro -- Stifel -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

Stephen Gengaro -- Stifel -- Analyst

Okay, great. Thank you. This is helpful.

Mark Chiplock -- Vice President and Chief Accounting Officer

Thanks, Steve.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thanks, Steve.

Operator

Thank you. And our next question comes from Ben [Indecipherable] from Piper Sandler. Your line is now open.

Ben -- Piper Sandler -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

Ben -- Piper Sandler -- Analyst

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

Mark Chiplock -- Vice President and Chief Accounting Officer

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

Ben -- Piper Sandler -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

Ben -- Piper Sandler -- Analyst

Alright. Thank you.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

I wouldn't assume that we're staying that way. We are actively looking. We haven't changed our [Speech Overlap]. It does have to fit our metrics where we're looking for.

Ben -- Piper Sandler -- Analyst

Thank you. Congrats on the quarter.

Doran Hole -- Senior Vice President and Chief Financial Officer

Thanks.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Ben Kallo from Baird. Your line is now open.

Ben Kallo -- Baird -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Yeah. No, it's -- we've been hiring, and once in a while we lose you people, and that's why we have made some, I would say, strategic investments to make sure we keep our good employees. And -- but one of the good things about Ameresco, we always have been able to hire the talent that we need. And for example, all the units, maybe they are looking for people, but they are no short of people. I don't know if we can disclose how many people we hired. But we've been very, very active in the last two months and the -- two months in the last quarter and this -- first month of this quarter because we are building up, especially the RNG facility unit and now the battery storage, the microgrid, all these advanced markets. If you recall, back in 2018, 2019, we made huge investment in order to get to these advanced technologies. And now, because we're coming out of COVID-19, again, we're making some good investments. And I think it's going to help us very, very well going down the road. So, it hasn't been an issue.

Ben Kallo -- Baird -- Analyst

Thank you. And there is a lot of talk in the marketplace about your software layering onto all types of technologies, from smart meters, whatever. How are you thinking about that and what you're doing in their -- the M&A question was already asked. But how do you think about where software fits and what you can do? Thank you.

Mark Chiplock -- Vice President and Chief Accounting Officer

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

Operator

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

Chip Moore -- EF Hutton -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Yeah. And that's about every one of them. We are in some kind of competitive process, so it's very hard to talk about specifics regarding that.

Chip Moore -- EF Hutton -- Analyst

Yeah, understood. And this is probably more for the January day, right, in New York. But George, just love to get your thoughts on -- for both funding and the reconciliation bill and how it could be positioned there? Thanks guys.

Doran Hole -- Senior Vice President and Chief Financial Officer

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

Chip Moore -- EF Hutton -- Analyst

Thanks guys.

Operator

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

Pavel Molchanov -- Raymond James -- Analyst

Thanks for taking the question. Let me go back to actually the very last one about build back better. Given that, one of the, I suppose, high profile provisions of build that better is opening the investment tax credit to stand-alone power storage for the very first time. This $800 million plus project, which you're working on, will that qualify for the tax credit if it is already getting build and will presumably continue to be built after the bill passes?

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

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

Mark Chiplock -- Vice President and Chief Accounting Officer

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

Pavel Molchanov -- Raymond James -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

No. The latest estimate and the information we get from the people that we have in Washington is sometimes in December. But they said before like you said, but -- so we don't know. It depends. But on the other hand, we know what the supply is. I think the demands for the RINs will continue to be great, because there is -- the market is undersupplied.

Pavel Molchanov -- Raymond James -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

We're seeing very, very good activity, especially in our UK office. And usually the UK office, we're looking at some opportunities in, I would say, the eastern parts of -- southeast part of Europe, but we are not disappointed that we can't talk about it yet. We're taking some additional leadership like to hire over there and expand. The opportunities are mainly there. But I want to focus a lot and point out that the United States continues to have tremendous opportunity. And what makes me excited about it, the market is expanding.

Pavel Molchanov -- Raymond James -- Analyst

Okay. Thanks very much.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

And of course we get the legislation, it will be even better for us.

Pavel Molchanov -- Raymond James -- Analyst

Yeah, indeed. Thank you.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thank you.

Operator

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

Greg Wasikowski -- Webber Research -- Analyst

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

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Sure, Greg.

Greg Wasikowski -- Webber Research -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

Greg Wasikowski -- Webber Research -- Analyst

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

Doran Hole -- Senior Vice President and Chief Financial Officer

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

Greg Wasikowski -- Webber Research -- Analyst

Got it. Understood. Alright. That's all I've got. Thanks guys.

Doran Hole -- Senior Vice President and Chief Financial Officer

Thank you.

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

Thank you.

Operator

And thank you. And I'm showing that is our last question. [Operator Closing Remarks]

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

Thank you.

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Thank you, all.

Duration: 67 minutes

Call participants:

Leila Dillon -- Senior Vice President, Corporate Marketing and Communications

George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer

Doran Hole -- Senior Vice President and Chief Financial Officer

Mark Chiplock -- Vice President and Chief Accounting Officer

Noah Kaye -- Oppenheimer -- Analyst

Anya Shelekhin -- Bank of America -- Analyst

Eric Stine -- Craig-Hallum -- Analyst

Chris Souther -- B. Riley -- Analyst

Samuel Kusswurm -- William Blair -- Analyst

Jed Dorsheimer -- Canaccord Genuity -- Analyst

Stephen Gengaro -- Stifel -- Analyst

Ben -- Piper Sandler -- Analyst

Ben Kallo -- Baird -- Analyst

Chip Moore -- EF Hutton -- Analyst

Pavel Molchanov -- Raymond James -- Analyst

Greg Wasikowski -- Webber Research -- Analyst

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