Ameresco, Inc. (NYSE:AMRC)
Q2 2016 Earnings Conference Call
August 09, 2016 8:30 AM ET
Gary Dvorchak – Investor Relations, The Blue Shirt Group
George Sakellaris – Chairman, President and Chief Executive Officer
John Granara – Chief Financial Officer
Noah Kaye – Oppenheimer & Co.
John Quealy – Canaccord Genuity
Good day, ladies and gentlemen, and welcome to the Ameresco Incorporated Q2 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded.
I’d now like to turn the call over to Gary Dvorchak. You may begin.
Thank you, Destiny. Good morning, everyone. Thank you for joining us for Ameresco’s second quarter 2016 earnings conference call. I am joined today by George Sakellaris, Ameresco’s Chairman, President and Chief Executive Officer; and John Granara, the company’s Chief Financial Officer. On the call, management will review the operating and financial highlights of the second quarter of 2016, following the highlights; we will take questions from the audience.
Before I turn the call over to George and John, I’d 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. Ameresco cautions you that such statements are just predictions and actual results may differ materially as a result of risks and uncertainties that pertain to our business.
Ameresco refers you to the company’s press release issued this morning and its SEC filings specifically our Annual Report on Form 10-K and our quarterly report on Form 10-Q filed on May 05, 2016. Those documents discuss important factors that could cause actual results to differ materially from those contained in the company’s projections or forward-looking statements. Ameresco assumes no obligation to revise any forward-looking statements made on today’s call.
In addition, the company will be referring to non-GAAP financial measures during this call. These non-GAAP financial measures are not prepared in accordance with the Generally Accepted Accounting Principles. A GAAP to non-GAAP reconciliation as well as an explanation behind the use of non-GAAP financial measures is available in our press release as well as our prepared remarks.
I’ll now turn the call over to George Sakellaris. George?
Thank you, Gary, and good morning everyone. In the second quarter, we continue to build on our solid start for the year. Revenue was up 6.6%, gross margin was stable, and we again kept operating expenses under control. This resulted in a flat net income and a 15% improvement in adjusted EBITDA. Because our results are often lumpy, we also measure our progress by the year-to-date performance. This can smooth out timing differences and other fluctuations that we believe do not completely reflect our long-term performance. Year-to-date, our revenue is up 10.6%, net income is $3 million, up $5.2 million against a loss of $2.2 million last year and adjusted EBITDA is up 29.9%.
This quarter was outstanding in terms of selling activity, so I want to discuss that first. We have been investing heavily to create the business development infrastructure necessary to accelerate pipeline build. This effort is a key element of the four-point strategy we are executing this year to drive growth, and we are seeing immediate results. Demand has been building steadily in our core project business. New award and signed contract activity this quarter extended that trend.
Awarded backlog was up 18%, contracted backlog up 9% and total backlog up 16% year-over-year to $1.6 billion. We had over $270 million of new contracts, an amount that was 43% higher than the new awards we booked in the second quarter of 2015. That was our best performance since the third quarter of 2012. We converted $188 million of awards into contracts, an amount that was 67% higher than our conversions at this time last year. So in terms of being awarded new business and then converting it to contracted work, we are performing quite well. We expect to see the revenue impact in 2017 and beyond.
The new award performance was driven by Federal and the Eastern U.S., each of which was awarded approximately $100 million of new projects. Three projects in particular drove Federal awards: one, a project for Veteran’s Affairs; two, a project for the Navy, and three, we were able to increase scope over an existing awarded - project that went to contract in July. Based on our Federal group’s outstanding selling efforts, we now have at least three years of revenue visibility for this business.
In the Eastern U.S., we increased our awarded backlog by over 40% from Q1, an increase of $83 million to $280 million. This is a net number of course. Our gross new awards in the Eastern U.S. were $106 million. The $106 million was driven by $20 million urban community college project, as well as winning phase 2 of the large Northeastern city housing authority we mentioned last quarter. In general, housing is an active market for us. In addition to this very large project, we have identified other housing opportunities. Efficiency upgrades solve a real problem for housing authorities, namely how to upgrade aging housing work at low cost. Our upgrades are a self-funding mechanism that results in refreshed homes that operate less expensively in a more environmentally friendly manner.
I should point out that the Federal and Eastern U.S. were not alone in doing an excellent job in driving business. Around the country, the majority of regions grew their awarded backlog by double-digits. The U.S. overall grew awarded backlog by 28% during the quarter. We are encouraged that these results reflect effort being undertaken to achieve greater penetration in areas of the country in which we are underrepresented, especially the Southwest. This effort is another of the four elements of our growth strategy for this year.
The pipeline starts with awards, of course, but we make an equally intense effort to convert them into contracts. And during the quarter, we performed well. Our net contracted backlog increased over 20% sequentially. The biggest contributor to this growth was the Federal group, which doubled its contracted backlog. The surge in conversions came from two large awarded projects that were part of the GSA National Deep Energy Retrofit program. We believe that we can deliver excellent results under that program.
For example, as part of this program, the GSA is partnering with Ameresco to upgrade four federal buildings in DC, including the EPA headquarters. The project is designed to reduce electricity consumption by 40% and water consumption by over 50%. The Deep Retrofit program is intended to be quite large and will stretch out over many years. We look forward to more bid opportunities under this program.
Of course, the Federal group was not the only one to grow its contracted backlog. The U.S. regions grew contracted backlog 2% during the quarter, and two regions in particular posting substantial percentage gains.
As you can see, our visibility and outlook are very good. Let’s now turn back to revenue and earnings. Our core project business performed well in the quarter, with revenue up 11%. As we regularly highlight, projects are the core growth driver but, we are also focused on building our higher margin, recurring revenue sources. Specifically, over the long-term, we want to drive more revenue from operations and maintenance and energy sales. Especially in 2016, building the portfolio of energy-producing assets is another focus area of our four-point strategy. Both energy sales and O&M saw a double digit increase over a year-to-date basis. What is important is that these revenue streams are meaningful contributors to our profitability. In fact, those two lines of business generally contribute over half of our earnings.
In that regard, at this time market trends are in our favor. The project work we are pursuing usually includes an increased amount of renewable energy as part of a comprehensive solution.
So we are installing more solar, we are developing assets to sell power under long-term contracts to credit-worthy customers. We placed 5.2 megawatt of solar into service in the quarter, and invested another $16 million in energy-producing assets. John will provide more details on our operating asset portfolio. In addition to the assets, we are developing to own and operate. We are continuing to see the integration of distributed generation into our core projects. Especially in Federal, the bids are now what we call “fence to fence”.
Not only do they want us to provide solutions to reduce power usage, they want a renewable energy supply and better reliability via storage, load shedding and cogeneration. This is driving up the average size of projects we are pursuing, and winning. Other end-markets are equally interested in distributed generation. We have done a number of projects in Massachusetts, installed solar in Minneapolis-St Paul Airport and Knox County Tennessee municipal buildings and schools, and are working on installations for hospitals and community solar gardens across the country
At this point, I want to address innovation, because it’s such an important driver of our industry leadership. All across the U.S., customers are choosing Ameresco for not only traditional energy solutions; we’re also chosen for our innovative offerings and proven expertise in solar power, landfill gas, water reclamation, LED street lighting, smart metering, intelligent micro-grids, battery storage, and central plant optimization. LED street lighting is blossoming as a market opportunity. We have meaningful expertise in this type of project from working on LED streetlight and upgrades in Washington state, Arizona, and others. The value to the customer of these upgrades is easy to quantify, and we are detecting growing interest around the country. To more effectively pursue this opportunity, we have created a national LED business development position and appointed one of our leaders from the Washington state project. We believe this will result in a more focused and coordinated effort to win these opportunities.
We are also doing far more in water, which is important since sustainable use of resources extends beyond just energy. We are currently working on several water reclamation and waste water treatment projects across the nation. Water reclamation and conservation is more often included as part of our comprehensive solutions, such as the Deep Retrofit project in DC that I mentioned earlier. These examples clearly demonstrate the basis of our industry leadership. We are a resource efficiency company that is a true sustainability partner to our customers.
Now, let me turn the call over to John to provide more details about our financial results and guidance. John?
Thank you, George, and good morning, everyone. As we get started with the financials, please note that, unless otherwise stated, all the amounts I reference relate to Q2 2016, and the comparisons are for the year-over-year changes. In reviewing results, our prepared remarks on our website offer both lines of business and our traditional segment reporting. This will keep the time series comparable for you. Total revenues of $162.6 million were up 6.6%. Solid growth in revenue was due primarily to Federal segment. The total revenue performance matched our expectation that Canada and integrated PV would be flat and down respectively. Optimizing Canada and other underperforming business units is one of the four strategies we are implementing in 2016.
Gross margin was 19.6%, down 20.3% last year. The 70 basis point reduction resulted from the timing of revenue recognition in a Federal project, and the timing of sales of solar renewable energy certificates. SG&A expense was $27.1 million. That amount included $2 million of charges related to the restructuring and reorganization of our Canadian operations. We elected to reserve additional amounts of accounts receivables that we believe may not be collectible due to the restructuring and wind down of certain operations in Canada.
Without this reserve, SG&A would have been $25.1 million and 15.4% of revenue, lower than last year on both a dollar and percent of revenue basis. As a result of the additional charge in the quarter, we are revising our estimate of restructuring charges in Canada to $2.5 million to $3.5 million for the year. In addition, the restructuring actions related to our enterprise energy management software business are substantially complete, with that group integrated into our core business.
Operating income was $4.7 million, which compares to operating income of $5.1 million last year. The decline was due to the slightly lower gross margin and impact of the reserve. Below the operating line, other expenses were $1.9 million. This includes approximately $1.6 million of interest expenses. Our effective tax rate in the quarter was approximately 27%. Net income was $2 million and earnings per diluted share were $0.04, both essentially flat. Non-GAAP diluted earnings per share were $0.08. Adjusted EBITDA was $13.2 million, up 15%. Adjusted EBITDA margin in the quarter was 8.1% compared to 7.5% in the same quarter last year. Keep in mind that we continue to invest meaningfully to expand into and strengthen our presence in new areas of the U.S., especially the west and southwest.
Now let’s turn to our balance sheet. I will describe what happened during the quarter, so all of the comparisons are sequential, meaning against figures as of the end of Q1 2016. Cash and equivalents including restricted cash was $27.7 million, down $569,000. Accounts receivable, including retainage, increased by $10 million to $102.4 million. Project assets were up $8.8 million net to $256.6 million. We invested $16 million of CapEx into projects that we plan to own and operate.
As George mentioned, we placed 5.2 megawatts of solar assets into service during the quarter adding to our portfolio of distributed generation assets. That revenue is recurring and high margin, and creates a great foundation for the company. As of the end of the quarter, we have 162 megawatt equivalent of assets in operation, consisting of approximately 122 megawatt equivalent of landfill gas plants and approximately 40 megawatt of solar assets. The majority of the portfolio is backed by long-term PPA contracts with credit worthy off-takers. This provides high visibility of revenue and earnings for many years. The weighted average remaining term for our solar PPAs is nearly 22 years, while the non-solar PPAs are just over 13.5 years. Only 5.75 megawatt equivalent of assets are operated on a merchant basis.
Consolidated debt of $119.7 million was up $14.9 million. The increase was due to draws on the line of credit that we use to fund assets in development and construction. The line is used before we close on permanent financing, which normally occurs after the assets are placed into commercial operation. Non-recourse project debt is $96 million, representing most of our total debt. During the quarter, we repurchased 418,000 shares of common stock for $1.95 million. We have approximately $8 million still authorized in this program. At the halfway point of the year, our solid results underpin our continued confidence in our annual guidance. For the full year, we continue to expect revenues to be in the range of $645 million to $680 million. This outlook reflects growth in our core project business, coupled with solid growth in energy sales.
We continue to expect Canada to be at least flat, and integrated PV revenue to be down approximately $10 million for the year.
We expect gross margin in the range of 19% to 20% and operating expenses to be around 15.5% to 16.5% of revenue. We expect EPS in the range of $0.25 to $0.30, and adjusted EBITDA to be in the range of $51 million to $57 million. For the third quarter of 2016, we expect revenues to be within the range of $170 million to $180 million, and EPS in the range of $0.09 to $0.13. This revenue guidance reflects the fact that some of the revenue we expected in Q3 was recognized in Q2. Despite the shift in revenue, we expect to improve our profitability in Q3. Finally, the guidance we provide excludes the impact of any non-controlling interest activity and any additional charges related to the SunEdison bankruptcy or our restructuring activities.
So with that, we would now like to open the line of questions. I’ll turn the call back over to our coordinator, Destiny to run the Q&A session.
Thank you. [Operator Instructions]. And our first question comes from Noah Kaye of OpCo. Your line is open.
Yes, thanks. This is Noah Kaye from Oppenheimer Company. So the Federal segment just continues to look very strong for you guys. Understanding that this business is somewhat lumpy, but kind of given commentary from some competitors, you are clearly taking share here. I guess what would be very helpful to understand is we are approaching an administration turnover heading into 2017. In these awards, was there any sense there was some sort of a lush of words or as you look at the -- what might be in queue and what’s being talked about in the pipeline for Federal? How sustainable do you think this level of growth is?
We think the Federal market is quite sustainable because their program whether it’s GSA or other federal agencies, they have developed a program they know where they have X amount of RFPs that they will be issuing this year and next year and so on. So that’s one of the good things that has happened in the Federal government the last couple of years especially the last year or so that they have identified which projects they are going to go out for request for proposal they could develop a schedule. So they are actively pursuing the opportunity associated with the Federal facilities and that’s why we feel very strong and we are working very closely with the various agencies to make sure that the program is continuing if let’s say we have a change in administration.
But we feel whatever the change in administration might be based on what we hear from the -- as you said we are working with but there’s a sustainability to the Federal program, because they have realized that it’s a great program for them, Federal government does not have to put up the money, somebody also provides the guarantee that the [indiscernible] will be there, performance will be there. So the less capital appropriation that the government has for this kind of programs, the better these programs are because they are self-funded. And they expanded them because they view them as a mechanism not only to upgrade their facilities in addition to that to provide the risk resiliency and security and that’s why we see the project expand where they include core generation and storage and micro-grids. We have done several projects already for the federal government right now, but pretty much they can be 100% of the grid if necessary. And they do that [indiscernible]
Okay, thank you. So, second question for you is around the recurring revenue from the operating assets and the O&M. As I kind of compare the year-over-year, it looks to me like you are up significantly those businesses combined something on the order of 30% or more 35% revenue chunk. And I guess it would be helpful to understand how you are able to kind of move the needle a little bit on the – I’m sorry not 35% may be double digits, but how are you getting higher O&M revenues? What is changed if anything about the nature of the negotiations to you get those O&M contracts and how do you think about the margin profile on this?
I will talk a little bit but I will let John provide more details regarding the annuity based revenue. But the O&M, they generally come behind contracts that we have aggregated[ph] performance contracts, we have aggregated for the customers. In addition to that, we might build the solar plant or we might build the landfill gas plants for somebody else, and even though we don’t own it, we have operation and maintenance contracts or some core generation facilities for [indiscernible] which lately we have taken over to operate and maintain their plant. And so, that’s an integral part of strategic elements that we focus this year, and I’ll let John talk a little bit about the assets but on the O&M, generally comes behind the performance contracts or the plants that we built for others. And so -- especially the East and the Federal because we have started the process long time ago, it’s going pretty quickly.
Yeah, I’ll just follow up on a couple of points. On the revenues, we are double digit year-over-year for both the O&M and energy assets and you can get that from the prepared remarks. It’s not as high as the amounts that you had stated Noah, it’s actually -
Double digits, yeah, yeah.
It’s double digit growth, I mean more meaningful part of that is that the earnings profile for that revenue is a lot higher than our traditional core projects. So I mean each incremental amounted revenue we get from O&M will result in 25% to 30% EBITDA and the projects or the assets are going to be in the 40% to 50% range with the landfill gas closer to 40% and the solar assets closer to 50%, due to the fact that it’s a lighter touch asset. So when we’re looking ahead by shifting and having a higher proportion of revenue related to those two lines of business, that’s where we think we are going to get our margin expansion for earnings. With relation to the current year, I mean we’ve been saying that we expect energy asset and O&M to both be up double-digits year-over-year, and that is driving the EBITDA expansion that we’re expecting for the year.
Yes, yes. And can you update us on the selling progress that you’re seeing in solar? I know that you have been making efforts to train the regions to build that out, how is that translating so far from the lead to pipeline basis?
We have and John can talk more specifically about the numbers to the extent we have disclosed them, but all regions have been trained and all the developers they have been trained and we are seeing some pretty good activity across the board.
Yeah, I would say we have a pretty -- the portfolio is more diverse than it has been historically. We - looking out we have projects in Canada, California, New Jersey, Connecticut, so good amount of non-Massachusetts related projects that in development pipeline. The Massachusetts solar PV is still about half of what we are developing, but I think it’s more diverse than it has been historically. And more importantly, our pipeline is more diverse than it has been.
Okay. Thanks. And you mentioned that you’ve been starting to add storage at some of the project as they grow more complex. Right now is that storage incremental to payback in a federal yet -- is that supportive of the average payback, or how should we think about the payback there? It should be very helpful to understand because there’s obviously a lot of talk about how to make energy storage - work.
It depends which utility territory you are and what kind of rates especially demand reduction price you will get associated with the battery storage. But in several cases that we have incorporated is part of what I call micro-grid, there is some core generation, there is some solar and there is some storage and we were able to take the facility especially [indiscernible] totally off the grid as part of the task and we have couple of applications even on commercial buildings where the owners they would like to have some storage and the payback dependent again on the territory we work, the economics were reasonable and actually, the owner of the facility is funding the project and Pennsylvania is another state PGM territory. We have couple of project there. Again, the paybacks are reasonable, it depends where you are and how you incorporate the storage with other things rather than by itself. We have couple places where it’s just storage, but primarily it’s incorporated as part of the offering.
Alright. Thank you.
But we’ve seen the cost coming down considerably and we even have actually couple contracts that we have won with the particular utilities that we will be installing them and selling back the output during the demand reduction under long-term PPA contract.
Okay, thank you. And then I guess just the last one from me, you’ve got -- you’ve invested as you said in your regions, that is going up - renewable assets, taking on additional competencies now what is the -- is there a best use of cash right now as you see it George, across the business or best usage, where are your priorities just from a spending perspective?
The priority is on assets, owned assets but on the other hand, because of the performance contract is low risk business generates very good cash flow and we want to make the cash flow there and invest it in assets. And we were underrepresented in some key regions and we did make some very good investments you might call it expense side, but we do see the traction and that’s why we feel very good of where we are. Now the awards, especially the backlog in the Southeast region it grew by 17% and that’s the first time it grew for the last three years. The leadership we have in California and Texas, we have several contracts that we have won in that particular region. And we have two, three other states in the Midwest that we try to develop again, we’re investing and in one of them we already have one…
Great. Thank you very much for taking the questions.
You’re very welcome.
Thank you. And our next question comes from John Quealy of Canaccord Genuity. Your line is open.
Hey good morning folks.
Good morning, John.
Hey guys, couple of questions for you I’ll get the detailed quantitative ones out of the way first. May be for you John, the reserve you bumped up, I know the range in the guidance to about $3 million. Just break that out again for me, that was additional receivables in Canada you might not recoup, and does that include SunEdison, just clear that up if you wouldn’t mind.
Sure. That is, so in Q4 when we implemented and announced the restructuring or reorganization of Canada, we had taken an initial reserve for amount that we believe we’re not going to be collectible based on the fact that we are winding down operations in a certain locations. So there’s about 10-15 projects there we are working on and addressing to basically wind down a transition. And so, over the last few months, in negotiations with customers and discussions with them it became apparent that we needed to reserve the additional $2 million this quarter, so that’s what we had done. That amount does not include a potential $3 million that we have of exposure for SunEdison.
So in Q1, we did write-off $1 million for SunEdison but we’re holding the remaining $3 million until it became a little bit more clear in terms of the recoverability. So there hasn’t been any additional information that came out this quarter that would provide us anymore clarity as to what the potential exposure there is on the $3 million. And so, at some point over the next three to six months, we’ll probably get more visibility but I can say that, we have been contacted and they are very much interested in the assets that we’re working on, some of which are pretty much close to completion. So, we believe that there are assets that SunEdison or someone else would want and there will be some value to the estate there. So we’re still hoping that we’re going to be able to recover a good amount of that.
Okay. And then what about the net amount as to your point, three to six to maybe even nine months with the bankruptcy and the debtor side, we’ll just call that out in the P&L when you charge it off right?
We will, just for comparison purposes, I mean the $1 million in Q1 that in it by itself wasn’t enough but certainly I think if we add additional $3 million, I think that would make it meaningful and that we would at least let you know what those amounts are when we break them out.
Okay. That’s fine. And then I don’t know for you or George, so fully contracted backlog, popped nicely over the 400 mark and Q3 up sequentially, that’s just normal cadence in timing obviously supports the backhalf outlook as you guys mentioned. But can you comment on that, we haven’t seen that figure up there for a while.
Yeah, so a lot of that was driven by the Federal group that converted close to $100 million of projects from awarded backlog to contracted, and they also backfilled $100 million of new awards. So they kept their backlog flat which was nice to see sequentially. But yeah, normal cadence I would say John, I mean so just to provide a quick refresher, I mean typically we expect to convert projects from awarded in 12 to 18 months. I think the average this quarter was about 17 months. So we’re still in line with that estimate and so, we would expect to continue to convert along those timelines in the near future. So that’s what we’re expecting.
Okay, thanks. Now perhaps George, so I think yesterday Massachusetts formalized their new energy legislation, water infrastructure and hydro and offshore wind. But they also I think they tightened up some commercial pace requirements in efficiencies, can you comment -- do you guys play in that area? Is that an opportunity for you? How did you think that worked out for Ameresco?
We will see how it truly evolves, but we did like the old program better than the new one I might say, but I think we’ll take advantage of it. And as the market shapes out and I think the expectation from the whether it’s the customers or the municipalities wherever they might be, the pricing would be adjusted otherwise. I think because of our relationship and the strong presence in the area, we will take great advantage of this program.
And then George, how do you think, you guys gave a good outlook, Canada seems to be a special situation that is now sort of coming back to a baseline business. LED, solar, some of the newer initiatives, we see so many different competitors looking at that market. Can you talk about, are we not done yet with competitive shakeouts or how do you think the competition is for Ameresco?
On the energy services side I would say the performance contract I think it’s very, very strong especially in the Federal sector that’s why we are winning a good percentage of the projects and across the country with the Eastern or the Southwest, we’re winning a good percentage of projects when we respond to the RFPs. But what also happened here because of our strong presence on the performance contracting, we have very good relationships with other potential customers and we integrate the solar as part of our offering for an extension of our offering you might say, and I think we have better chance of being successful in the long-term that somebody that might be doing let’s say dollar for the C&I, you might see a great bump for a while, but not sustainable. Like might happen for example for the solar and fight for the short-term and then the vision goes away. So I think the broad expertise that we have it’s an advantage.
Okay. And then…
And the fact that we have a cash flow generating business now, whether it’s the projects or the existing that they are in operation, again it helped us from a capital point of view otherwise having our own capital to deploy in projects or assets that we own.
And so, the last question I had back to the assets, in the return on assets, and I know in the past you don’t like to give exact figures on what your target and hurdles are. But for the most part, are you seeing enough opportunities obviously with all this competition going towards asset-based recurring revenues? Are you seeing pricing there where you can hit your hurdles that you want George? I know, you always buy right so I’m interested in your thoughts.
I don’t know about that I’ve made enough mistakes but look, that’s why some people may say well you should be growing the solar business much faster than you are because there are some returns that we will not have chased when people go down and write 6% IRR investments, I’ll live with that, I will not go to those levels. And sometimes we lose because of pricing but on the other hand, we win lot of projects because of execution. But many people they would win projects and then they cannot fund it, and I can tell you several projects that we have, we were the second but after that projects didn’t happen, we went back and got the projects. And the other thing that’s happening, for example, the landfill gas energy prices they have considerably higher IRR than the solar. I gave a pretty much, how can I quote, - answer, but there are some levels of IRR that we will not compete at those levels.
And then for you so the bigger picture, are you happy with the returns right now, net margins in the backhalf of the year, they can be 3%, 4%, 5% and then they get skinnier as you guys contract out and try to win proposals in the first half of the year. But generally for the whole entity George, are you happy with this financial performance? Are you more focused on share versus cash flow? How do you think about the next couple of years?
No, our goal that we said before, we want to get to EBITDA about 10% of our supply and we went from 7.5% to 8.1%. So until we get it up to 10% I’m not happy or better. And I think it would probably take us another year to get to that level, couple of years.
But what I feel good about that the momentum is beginning to return, may be you have seen the bottom of – the down of the business you might say for us cleaning up the under-performance in the company and start growing again. And I think that’s what we are as I think, you might call it an inflexion point but I’d like to see two three more quarters of that but the last two three quarters that we have seen, we are continuously improving and that’s a good trend.
Alright. Thank you guys.
Thank you. [Operator Instructions] And I’m showing no further questions at this time. I would like to turn it back for closing remarks.
Thank you, Destiny. To summarize, I want to relate our results back to the four growth strategies we presented at the beginning of the year. Our results show clearly that we are executing the strategy and driving progress. The first strategic element was investing to accelerate our pipeline. You can see the results in our backlog growth. We are starting to see substantial rates of growth in new awards and contracts. The second element was growth in under-represented areas in the U.S., especially California and Texas. You can see the results here by considering our new award performance in the Southwest, where the backlog grew 17%. We intend to further accelerate growth in that region, and have hired leadership and staff to drive it.
The third strategy is to continue to build our higher margin recurring revenue streams, specifically energy-producing assets and operations and maintenance. We placed 5.2 megawatt of solar into service in the quarter, invested $16 million in renewable energy, and grew our O&M revenue. We believe these numbers will continue to grow. The final strategic element was to optimize under-performing business units. We are well along in Canada, and the software business is now fully integrated into our project selling effort.
Before we end though, I want to thank our employees for their hard work and dedication in providing industry-leading services to our customers. I want to thank our customers for choosing Ameresco as their trusted sustainability partner. With that we will close the call. Thank you for your attention and interest. We will look forward to updating you on our progress again in November.
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