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Ameresco Inc (AMRC 2.38%)
Q3Â 2020 Earnings Call
Nov 2, 2020, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day ladies and gentlemen, thank you for standing by and welcome to the Ameresco Inc. Third Quarter Earnings Call.
[Operator Instructions]
I would now like to turn the conference over to your host, Mrs. Leila Dillon, Vice President, Marketing and Communications. Mrs. Dillon, you may begin.
Leila Dillon -- Vice President, Marketing and Communications
Thank you, Nica, 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 predictions 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. 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 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. I hope everyone is staying healthy and safe.
First, I would like to thank our employees, customers and partners who continue to effectively manage through the ongoing challenges facing all of us in this difficult COVID-19 environment. Our performance would not have been possible without them.
And the performance this quarter was indeed excellent. A robust 33% revenue growth with tight expense controls helped us drive outstanding earnings and record levels of EBITDA. We see demand for our services accelerating, given our customers' increasing need of solutions that combine cost savings with advanced technologies, this remote energy resiliency, infrastructure upgrades, the transition to low-carbon energy sources and healthy and safe environments, especially in light of the COVID-19 crisis.
Our core businesses continued to execute well during the third quarter, led by exceptional results from our Federal Solutions Group, which benefited from strong contract execution and improved access to work sites. They work hard, to pull in and execute on contracted backlog, given uncertainties around COVID-19 and future job sites access. Our renewable assets and operation and maintenance businesses continued to provide Ameresco with highly predictable long-term recurring revenue, which is especially important during this economically uncertain times. These two businesses support our visibility with a combined $2 billion backlog of contracted revenue and incentives, which will be generated over the next 15 years on average.
Our industry reputation, a strong financial profile puts us in excellent position to identify and pursue additional high-return renewable asset opportunities. During the quarter, we added 15 megawatts of assets, including a new RNG plant and a stand-alone battery storage system. Our renewable assets in development currently stands at a healthy 322 megawatts.
While we remain focused on project execution in the third quarter, we were particularly pleased to see a sequential increase in our total project backlog for the second consecutive quarter. Our ability to backfill our strong revenue execution with new awards gives us excellent visibility as our total project backlog grew to $2.25 billion. We are now seeing an uptick in proposal activity as we leverage our broad geographic footprint and deep long-term customer relationship to drive additional project opportunities, and we look forward to sharing more of this with you in the future.
Highlighting this effort is our recent project win with the city of Chicago Heights, involving the retrofit of over 2,000 street lights with LEDs. The contract is noteworthy as Ameresco made proposal to the city, which was accepted in less than 90 days. Interestingly, the installation will often [Phonetic] include an intelligent light and control system, showing how municipalities across the country are embracing smart city technologies. We anticipate global growth in similar contracts as cities upgrade their aging infrastructure with smart cost saving solutions. We see numerous opportunities for repeat customer business with our satisfied customer base.
Another example, a quick turn opportunistic win is our recent contract with Hamilton County in Ohio. Hamilton County is a valued long-term customer that we had -- had received stimulus funds under the CARES Act, which needed to be used by year-end. Ameresco team worked to identify quick turn, safety and efficiency projects that include touchless plumbing fixtures in the public restaurants of the county buildings that will help protect the staff and public as they reopen their facilities.
Also, many areas around the world, including large regions of the United States, are facing water scarcity issues. Water can no longer be viewed as a commodity available at the turn of a faucet. We have been seeing increased interest from municipalities across the country to deploy automatic meter infrastructure, or AMI, advanced technologies. AMI promotes a more efficient and effective water distribution system while enhancing transparency for customers into water consumption and costs. These systems not only save significant amounts of money versus manually reading meters, they also allow municipalities to capture lost water and sewer revenues. Our recent AMI projects in Texas with the city of Gatesville and Woodlands Water are two great examples of projects we are managing in this increasingly important area.
Ameresco's addressable market is rapidly expanded, driven by customer demand for comprehensive solutions, including advanced technologies such as cybersecurity, solar, battery storage, advanced light and controls and more. A good example of this type of project is our recent $36 million utility energy services contract at Fort Bragg in partnership with Duke Energy. Here, we will be deploying a number of advanced technologies, including a 1.1 megawatt of floating PV system and a 2 megawatt battery energy storage system. Ameresco will also implement a host of traditional energy conservation measures.
Energy efficiency and renewable distribution generation continued to benefit from their resilience and low-carbon qualities, but it's their ever-improving economics that creates the large and rapidly growing long-term market opportunity. In the end, our solution provides substantial cost savings and healthy returns for our customers often with no upfront costs.
COVID-19 and the ongoing economic pressures it has created has stressed the financial health of companies, institutions and governments around the world. This impact will more certainly be felt for years to come. Against this backdrop, Ameresco is seeing increased interest in providing our solutions under an innovative Energy-as-a-Service financial structure. In this structure, Ameresco will deliver energy-related infrastructure improvements, energy conservation measures and related technologies directly to a customer under a long-term service agreement with no upfront capital. Our customers benefit by maximizing their financial resources, while Ameresco gains another highly visible long-term recurring revenue stream. We look forward to announcing upcoming Energy-as-a-Service contracts in the near future.
In summary, Ameresco continues to overcome challenges in this difficult COVID-19 environment. We are expanding our expertise and offerings to create comprehensive and flexible solutions for our valued customers. At the same time, we maintain our entrepreneurial spirit and approach, allowing us to creatively serve our customers and opportunistically seek out additional revenue opportunities.
I will now turn the call over to Doran to provide some comments on our great financial performance. Doran?
Doran Hole -- Senior Vice President and Chief Financial Officer
Thank you, George, and good afternoon, everyone. I'm pleased to review the company's third quarter financial performance. Please refer to our press release and supplemental slides posted on our website for additional financial information.
In the third quarter, we achieved strong double-digit revenue growth and increased operating leverage, leading to record EBITDA levels and accelerating earnings growth. Revenue grew 33% year-on-year, with growth across our core businesses led by the exceptional performance of our Federal Solutions Group as we executed on a number of new projects and pulled forward some existing contracts, thanks to improved site access in many locations.
Gross margin of 18.2% remained consistent with our year-to-date performance as revenue and mix of projects remained similar. We anticipate our gross margins to remain at these levels for the rest of the year. Ameresco continued to benefit from our past investments and the highly scalable nature of our business model. Revenue growth, higher utilization and reduced spending levels, including travel-related expenses, were key drivers of our strong net income and EBITDA performance. And while SG&A expenses will increase in a post-pandemic environment, we believe a portion of the savings are permanent and will benefit our operating leverage in the future.
Net income attributable to common shareholders was $20 million. Non-GAAP net income was $18.5 million, an increase of 117%. Adjusted EBITDA, also a non-GAAP financial measure, was the highest we have achieved in the company's history and earnings per share more than doubled year-on-year. Even with our strong project revenue, we continued to replenish and grow our contracted backlog. We ended the quarter at over $1 billion in our contracted backlog, representing 1% sequential and 31% year-over-year growth. Our total project backlog now stands at $2.25 billion at quarter-end despite the pandemic-related slowdown in new business development activity. Our high-margin recurring revenue businesses, which accounted for 70% of our year-to-date EBITDA, have approximately $2 billion in long-term contracted revenue and incentives between O&M and renewable assets. These businesses will provide us with annuity quality revenue streams for years to come.
Ameresco's cash flows and liquidity remain strong, with ample cash and available credit to execute on our asset development pipeline. We ended the quarter with cash on hand of $45 million after paying down $10 million on our line of credit. Despite the pandemic challenges, our continued focus on cash collections during the quarter further reduced our DSO to 88 days from 97 at the end of Q2. In addition to strong working capital, we have broad access to project financing and tax equity, and we also have the ability to monetize development assets.
As noted in our release, we received a request for information from the SEC concerning the timing of revenue recognition in our SaaS businesses. While these businesses contribute a relatively small amount of revenue to our business as a whole, for the sake of transparency to our stakeholders, we want to emphasize that we are taking this matter very seriously. In the short time since we received this SEC request, we have spent considerable time and effort investigating and assessing these matters using outside counsel and an external forensic accountant, all under the supervision of our Audit Committee. To date, we have found no material revenue recognition errors.
Now turning to our outlook, we're very pleased to be increasing our 2020 full year guidance as detailed in our press release. We now estimate revenues in the range of $960 million to $1 billion, adjusted EBITDA of $107 million to $115 million, and non-GAAP EPS of $0.94 to $1.00. The midpoint of our revised guidance now represents a very robust 13% growth in revenue, 22% growth in adjusted EBITDA, and 17% growth in non-GAAP EPS. This assumes we will have the same level of access to our work sites and does not account for discrete items. We will be providing a more detailed 2021 outlook during our Q4 earnings report.
When evaluating our year-over-year comparisons in Q4, keep in mind that our results are variable from quarter-to-quarter. And last year, our fourth quarter results were exceptionally strong due to contract timing.
Now I would 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.
Our unique business model and value proposition to our customers will allow Ameresco to continue to thrive for years to come. Our project backlog and recurring revenue streams give us excellent visibility into what should be another record year of growth and profitability for Ameresco in 2021.
The entire Ameresco team hopes you and your family stays safe. Operator, I would now like to open the call to questions. Thank you.
Questions and Answers:
Operator
[Operator Instructions]
Your first question comes from the line of Noah Kaye from Oppenheimer. Your line is now open.
Noah Kaye -- Oppenheimer -- Analyst
Good afternoon, everyone. And I know you mentioned the 4Q year-over-year comps to be aware of, but certainly, I think it's good to be going into 4Q, with the strong results that you've had already in hand and not dependent so much on contract revenue timing. So with that, the first question is on capital structure. I think here on an adjusted basis, you produced really strong free cash flow year-to-date. You've been able to finance most of the energy project capex with operating cash flow. As you look at the energy projects in development and what that will mean for your recurring EBITDA and cash flow profile over time, how should we be thinking about your view of an optimal capital structure, target leverage and how you want to be financing the growth going forward?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Good question, Noah. I will let Doran follow up on that.
Doran Hole -- Senior Vice President and Chief Financial Officer
Yeah, Noah. Thanks. So I think while we're not making any particular statements about our leverage levels or any specific plans, the truth is, as a public company and with the track record we have, we have a lot of tools at our disposal. We continue to pursue creative project financing. As you mentioned, strong cash flow has allowed us to continue to fund that expansion. And we'll continue to monitor the project finance markets, the tax equity markets, M&A, capital markets for ideas and opportunities.
Noah Kaye -- Oppenheimer -- Analyst
Okay. That's very helpful. Thinking about the development, particularly on the RNG side, certainly, RINs coming back here nicely over the course of 2020, I'm sure helps with your view of future project economics. Just how are you taking advantage of the current increase in RIN prices? And in general, can you talk about the bankability of RNG projects at this time?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Yeah. As you probably -- you are aware, the RNG prices -- they've been relatively constant around the $150 to $165. And as you might recall, we have hedged 70% of our output for the year, and for the balance of the year, we are about 60% hedged. The other thing that we have done for the new plant that we -- the McCarty Road that's going to be in operation early next year, the first quarter of next year. We have we have long-term contracts for about 50% of the output of that plant, and I would say, 50% of the output of our Woodland plant and a little bit more of the San Antonio plant. So we are hedged for 2020, I would say, close to 50% of our output.
And as far as going beyond that, we look -- we are working with various good creditworthy off-takers to execute long-term contracts. So for the two plants that will probably come into service, and we have indicated so, next year, we are looking to execute some kind of a long-term contract, hopefully, longer than the ones that we have right now with the two plants as a contract. And then for 2022 and beyond where we plan to bring three plants into operation, again, where this -- the market is evolving into long-term contracts. I think we might have to sacrifice a little bit on the return in order to execute long-term contracts. But the bottom line is that these projects, even under those conditions, they are very profitable, much better return on equity and larger [Phonetic] return than anybody else. And so far... [Speech Overlap]
Noah Kaye -- Oppenheimer -- Analyst
Sorry. Go ahead, George. Go ahead.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
And so far, we were able to finance, on a project finance basis, all the plants that we have developed and executed. The leverage, of course, is probably not as good as we would like it, unless we get seven to 10-year contracts because of the ones we have right now, they are three-year contracts.
Noah Kaye -- Oppenheimer -- Analyst
Right. You think that some of those future contracts, whether it's for the projects next year or the ones in 2022, you think you'll be able to bundle the incentive streams along with the other revenue streams? Is that how you're thinking about these contracts, or they still be decided... [Speech Overlap]?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Yes. Noah, we are looking that we will -- bottom-up, and we will be able to get some pretty good terms in financing as long -- and I feel very confident very comfortable with that. We will be able to execute longer-term contracts because so far, even colleges and universities that are approaching us because many of them, as you know, they have combined hidden power plants, right? And they want to do 100% carbon neutral. The only way they can do it is by replacing the natural gas with this green gas. And we are talking to some of them. But quite a few of them, they have not stepped up to the prices that we would like them to do. And in some of the gas utilities. It's coming down the pike that the next evolution -- originally, we started with the electric utilities, now it's going to be with the gas utilities to reduce their carbon footprint. And again, we are talking to some of them, but we are not in a position that we can announce any specific contracts yet.
Noah Kaye -- Oppenheimer -- Analyst
All right. Well, thanks very much for taking the questions. Nice quarter.
Doran Hole -- Senior Vice President and Chief Financial Officer
Thank you.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you very much, Noah.
Operator
Your next question comes from the line of Eric Stine from Craig-Hallum. Your line is now open.
Eric Stine -- Craig-Hallum Capital Group LLC -- Analyst
Hi everyone. Thanks for taking the question.
Doran Hole -- Senior Vice President and Chief Financial Officer
Hi Eric.
Eric Stine -- Craig-Hallum Capital Group LLC -- Analyst
Maybe I'll just stick with RNG. I'm just curious, when you think about your pipeline longer term, and I guess some of the projects that may be in California, any thoughts on the breakdown there between dairy versus landfill? And obviously, I'm getting that to the much better CI score and the LCFS revenues, which were quite a bit higher and would be a pretty nice component, depending on what that looks like in your pipeline.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
That's a very good question. And right now, I think we -- if you total all the plants that we have in development, RNG plants, it's about 12 of them. And they represent a very good chunk of our development pipeline in megawatts. But -- you hit the nail on the head. We are looking at besides landfill, other sites, but -- at least a couple of them. But I cannot talk about -- we don't have the agreements in place yet in order to be able to discuss them. But I agree with you, we have higher value. And the other thing, don't be surprised that down the road, some of these plants, even the landfill plants that we have developing right now, we might go into hydrogen and have a higher value.
Eric Stine -- Craig-Hallum Capital Group LLC -- Analyst
Got it. Okay. I guess we'll stay tuned on that. Maybe just thinking about fourth quarter, and I know you took up the guide. It was a very good third quarter. But with COVID and concerns about another wave and conditions worsening in some areas, are you seeing any change to work in conditions now? I know your guidance is predicated on -- that it roughly stays the same, but just curious what you're seeing early in the quarter.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Yeah. And I will add some -- I will provide some color and Doran might want to add something to it. Look, we are in a very good position as to where we are as far as the total backlog, and we are executing the teams very, very well. And unless they shut us down a good number of sites for prolonged periods of time, then I will say there will be some disruption. But I do not anticipate it. Based on what we have seen in the past, even going back in March, if you remember when they did shut down, and we did have some shutdowns on some of our sites. But it was a week or maybe a few more days than that, we clean up the site, then we start up again. So I don't envision any problems. And then Doran might want to add something to that because that's a great question. And we think a lot about it and try to be prepared as much as possible. And that's why we say the sites we've been available for this last third quarter. So we pushed to accelerate as much revenue as we possibly had. That's why we some revenue from the fourth quarter to this quarter because we have the access to the various sites, especially in the military bases and actually, some schools as well. So we took advantage of the opportunity. We will continue to that. And now I might as well say, we are one month into the fourth quarter, and I haven't seen any interruptions. Doran, do you want to say?
Doran Hole -- Senior Vice President and Chief Financial Officer
I think it's all about monitoring the infection rates and how things are going in the various states where we're operating and where our projects are located, which, as you can imagine, are all over the country, and being able to react to that. I think our experience from earlier in the year will allow us to react to any situations that arise. But as George said, we haven't seen anything thus far.
Eric Stine -- Craig-Hallum Capital Group LLC -- Analyst
Yeah. Okay. Thanks for that. And then last one for me. Just, George, you mentioned the military opportunity. And clearly, a number of awards this year announced over the last couple of months, and that was a big driver of third quarter. How do you think about that opportunity? Is there any way to size that opportunity? It would seem like what you're seeing right now is a very sustainable trend for you.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
No question about it. And this is -- that's why I made the remark. Our market is expanding. The opportunities are expanding. Because each and every base that we go into now, they are more concerned about -- not only infrastructure upgrade, but resiliency. Then not only about resiliency, but some kind of renewables, reduction of their carbon footprint. So that's why we think it's very sustainable. And that's why you see -- we did a talk on a couple of projects that we have announced, and they combine solar, microgrids, distributed generation and so on. And the other thing that's happening too, regardless of what administration we have in place, the economics are driving more and more of this business because the distributed generation, solar and so on, and microgrids, they pencil out. Otherwise, they make good economic sense for the client. And to me, that's the best driver that you can have in this business. And I've been in it for 40 years or so, and my biggest amazement is the cost reduction and the technological improvements that we have seen.
Eric Stine -- Craig-Hallum Capital Group LLC -- Analyst
Yeah. Okay, thanks a lot.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
You're welcome. Thank you.
Doran Hole -- Senior Vice President and Chief Financial Officer
Thank you.
Operator
Your next question comes from the line of Jed Dorsheimer from Canaccord Genuity. Your line is now open.
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Hi. Thanks. Congratulations on the quarter and the strength.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you, Jed.
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Couple of questions. You're welcome. First -- I guess, first question on the -- it seems that you're continuing to execute really well in the municipality, in military and universities. I didn't see anything noted on the commercial side, which I know is under pressure right now from an end market dynamic and also a relatively small portion of your revenues. But I'm just curious in terms of any activity that you'd call out in that business. Yeah, let's start there.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
No, very good question. Actually, we didn't call it out. I wanted to get approval from some couple -- actually, one, two, three large C&I customers that I wanted to talk about, but I did not get the approval in a timely fashion. But -- that's what makes me feel very, very good about this business. That market finally is beginning to move. And it's beginning to move because I think it's economic driven. In addition to that, the carbon and sustainability reduction and many of them, as you probably know, they have ESG programs. And finally, they're beginning to talk to us, and we are seeing some very good projects, good implementation. It's -- I've been in it for a long time, and I said, the next major of catalyst that can happen to this business is get the C&Is to move.
On the other hand, though, you know that many of them, they want us to develop the project, design the project, and then we built them for them. So they squeeze the margins a little bit. But they have a quick turnaround, and they move much faster than the federal or the state on the mass market that we've been so successful. And it's encouraging. That's all I can say right now.
And the other thing, that's why you see us develop the Energy-as-a-Service agreement because many of them, they will have some financial constraints. They have approached us for some kind of a different type of financing that the performance contract, and we said sure. And that's why you see us talking. And in the near future, we'll be able to announce some of those deals.
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Got it. Well, you hit the second question that I was going to ask you in terms of the Energy-as-a-Service. So should we be thinking of that as a separate line item breakout? I recognize it's relatively small at this stage. But I'm just thinking of that is kind of a separate business, and it seems like that may start and kind of focus on the C&I side of your business. Is that the right way to think about that?
Doran Hole -- Senior Vice President and Chief Financial Officer
I'll jump in here. So I'm not sure that it's exclusive to the C&I for sure. Certainly, the desire for Energy-as-a-Service financial structure is coming from all of our customer bases. I would also probably think about it a little bit more like another category of the energy assets in development. We're going to be exploring those situations with our customers. Those will become assets that are on our balance sheet that will generate the long-term recurring revenue streams.
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Got it. That's helpful.
Doran Hole -- Senior Vice President and Chief Financial Officer
So I think that's probably the best way to think about those.
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Okay. And then, I guess, George, if you -- do you feel as if there are any constraints in the business? And what I mean by that is, it seems as if there's -- the work-from-home dynamic as well as the pressure on tax revenues has kind of created this perfect storm for your business, as well as a focus on reducing carbon footprint. And I'm just wondering, as it relates to headcount and your ability to expand the business, do you feel like there's any limitations that you now have with respect, or do you feel like that you're well balanced?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Well, right now, I would say that we are well balanced. But as the business accelerates, especially on the distributed generation side, the green gas plants, whether it's hydrogen down the road and things like that, we are looking for additional help there. But the rest of the business, whether it's from the administrative side, legal side, accounting, financing and so, and then generally engineering on the energy services side, I think we have very good -- actually, we have a little bit -- little bit extra room, I would say. We've actually just a little bit more business than we've been doing in the past. And that's why we're getting a little bit of leverage from the operations. And -- but I said this before, we've been lucky. And the fact that we are technology independent and non-affiliated with a large utility or a large manufacturer, and we approach the solution from diagnostic -- technology diagnostic, what makes good sense for the customer, we have people that have the passion for this business. And we've been able to attract the talent. And the fact that we're independent, and -- it helps us a lot.
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Great. I'll jump back in queue. Thank you.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you.
Doran Hole -- Senior Vice President and Chief Financial Officer
Thanks, Jed.
Operator
Your next question comes from the line of Craig Irwin from ROTH Capital. Your line is now open.
Craig Irwin -- ROTH Capital Partners -- Analyst
Good evening. Congratulations on the really strong performance this quarter. Really knocking it out of the park.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
We're trying.
Craig Irwin -- ROTH Capital Partners -- Analyst
And succeeding. George --
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you.
Craig Irwin -- ROTH Capital Partners -- Analyst
Can you remind us the timing of your next couple cellulosic plants, when you expect those to come online? How firm are those approximate start dates? Do we -- do we maybe have some ribbon cuttings coming up?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Yeah. That's a good question. McCarty, the one down in Texas, we helped that to getting -- basically commissioning the plant this quarter. And because of the various storms down there and a little bit of COVID-19, but not as much on some delivery of equipment, but primarily from the storms, that will flip -- delay it by a couple of months, so that plant will start the first quarter of next year. Then in addition to that, we have two plants that supposed to start by the end of next year. One of them definitely will start by the end of next year. The other one might flip to the first quarter of 2022. And in that particular year, we have three more. But correct -- so you understand. The primary bottleneck in developing these plants, especially in California, they are more valuable there, of course, but permitting them, and especially with what's going on, for getting the right-of-ways for the gas pipelines and getting the utilities attention because of what's going on with the fires and everything else, and then COVID-19, it has bottled up the permitting process.
Craig Irwin -- ROTH Capital Partners -- Analyst
Understood.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
But we do it as much as we can, and we have our local people, and we're hiring more and more local talent in order to help us in California to expedite those plants. Because we want to build this, to be able to do at least three plants a year. And I would wait and we will wait and until we see the light at the end of the tunnel to be able to execute long-term contracts. And it's going to happen. It's really a matter of time that will happen. And therefore, we are building up.
Craig Irwin -- ROTH Capital Partners -- Analyst
So then as we look at the project EBITDA in the third quarter, it was up almost 80% sequentially, increased by $5.6 million on an EBITDA basis. That's well above any peak prior performance for your project business. Can you talk about any specific items in there? Is this really the debugging of some of your plants and maybe some of the RINs in there. What were the contributing items to the strength that we saw both sequentially and year-over-year there?
Doran Hole -- Senior Vice President and Chief Financial Officer
Yeah. Craig, I'll start. Mark might jump in. But I think as we talked about the performance of the Federal Group, was quite strong in the quarter. And when we look at operating leverage, I think that's a business that actually operates extraordinarily efficiently. So the EBITDA contribution is a bit stronger even versus some of our other businesses. So I don't know that I could actually isolate any particular items there. Mark?
Mark Chiplock -- Vice President, Controller and Chief Accounting Officer
Yeah. I don't think there's much more to add. There were no real unusual -- it was really just come down to the mix of those several projects in the overall project revenue across the company. So it was just a stronger mix and continued execution that led to the contributions.
Craig Irwin -- ROTH Capital Partners -- Analyst
That's excellent. That's excellent. So the other business that was particularly strong in the quarter was O&M, $5.8 million [Phonetic] in EBITDA, up $4 million sequentially, that's again a big chunky number. Were there any maybe project closeouts in the quarter, or any other items that lifted that and get that strength?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
No.
Craig Irwin -- ROTH Capital Partners -- Analyst
Or is it really just a steady state number based on the number of projects that Ameresco has built into its book that runs off over many, many years?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Yeah. No, that's why we love that business. That's why -- when we say we want to improve or increase our recurring revenue base, and the O&M is one that basically doesn't require any capital. But it comes after the large energy savings performance contracts that we implement. And then it's lumpy, but once we get going on them, they add quite a bit [Phonetic]. It's a great, great little business line. And that's the one that we focus a lot, that maybe we will find some niche players that will fit in our gearbox and maybe we acquire a small company and grow that business more. It's a great opportunity for us. And it's sticky. Many of the federal contractors we have, they are 18 to 22-year contracts, O&M agreements.
Craig Irwin -- ROTH Capital Partners -- Analyst
A great business to be in. So my last question is about the environment for cellulosic plants. I understand there are actually a couple of plants that are being offered for sale right now. They're definitely not cheap given the value on these properties. But should we be surprised if Ameresco maybe chooses to acquire one of these plants in the market, particularly given that your equity has a much more fair valuation than it has for the last several years, and investors seem to understand this business and the long-term profit potential pretty well right now?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Yeah. Look, we are looking at all kinds of opportunities if they make sense to us. Otherwise, the price is right and we will do it. But on the other hand, we're very, very cautious. And I know the expectations out there on the Street, they are very, very high. And I think you know me a little bit better than that, Craig. I like the deals that I can make money.
Craig Irwin -- ROTH Capital Partners -- Analyst
And I like you cautious, as do most of your investors. So congratulations on another [Speech Overlap].
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
On the other hand, there are some opportunities that you might not be aware, that we are looking that if they are not as expensive as other things might be. So I wouldn't be surprised that we might acquire something, but it's going to meet with our key criteria, make great economic sense for the company and strategic fit.
Craig Irwin -- ROTH Capital Partners -- Analyst
Would you consider buying maybe one of the portfolios? There was a portfolio that was up for sale, that a bulge bracket bank butchered the transaction, didn't know really who to go to on. Would you consider maybe a portfolio of multiple plants?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
That's a little bit beyond our reach. I will look at it. But like I said, that we're extremely careful because some people, they want some crazy prices out there. And I'm not -- look, we're a developer. We develop our own assets, we know our own assets, and we build -- last time, you brought it up that we operate in a little bit better than some of our competitors, we build these plants to last. And it has helped us that strategy so far, we'll continue it. On the other hand, I did say somewhere opportunistically, we'll be opportunistic. But we will continue. And look, we have 12 plants that we want to develop, execute on them and then we have a couple that -- they will be different than landfill gas, so there is no shortage.
Craig Irwin -- ROTH Capital Partners -- Analyst
That's good to hear. Congratulations on the progress.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you very much, Craig.
Doran Hole -- Senior Vice President and Chief Financial Officer
Thanks, Craig.
Operator
Your next question comes from the line of Pavel Molchanov from Raymond James. Your line is now open.
Pavel Molchanov -- Raymond James -- Analyst
Thanks for taking the question. In your portfolio that's in operation, solar is exactly 50% of the megawatts. In the development portfolio, solar, I believe, is 65%. Is there a mix that you're aiming for, or does it not matter either way as long as the economics make sense?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Doran?
Doran Hole -- Senior Vice President and Chief Financial Officer
Yeah. Pavel, thanks for the question. I think it's more of the latter, really. You'll see, as we talked about, Energy-as-a-Service asset opportunities started appearing and developing those in the proposal stage, it's all going to be down to risk reward and what makes sense economically and what the returns look like. Solar, in the last 12 to 18 months for the company, I think, grew pretty substantially because the opportunities were available and we were finding good deals. At the same time, that doesn't necessarily mean that that's what's going to continue to happen.
Pavel Molchanov -- Raymond James -- Analyst
One more on... Yeah, please.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
What I might add there, one of the advantages of the solar is the fact that across the country, all of our offices now they can develop the solar plants. And of course, many of them, they are behind some customer accounts, like schools, colleges, universities and so on. So you will see us developing, what I will say, the smaller scale sites for solar. They're 5 kilowatts to 5 megawatts happening a lot, where the green gas plants, there's much more specialized item. And we have one group basically that does that for across the country, all the plants. So we have a little bit limitations as to how many green gas plants we can do, where there -- and that's why we're building the capabilities up on that side, whether the solar plants, they are easier to develop. And hopefully, everybody around the company will be able to do that, and that will help us -- but accelerate that as much as possible.
Doran Hole -- Senior Vice President and Chief Financial Officer
Yeah. I guess I would also -- sorry, Pavel, I'll just add that solar plus storage is certainly something that's starting to emerge a lot in our development pipeline here. You're not seeing that actually in this metric. I think, as we've talked about before, we're relatively conservative in terms of putting things in this metric in terms of milestones that our projects have to reach before they actually get recorded here. But there's certainly plenty of activity there as well.
Pavel Molchanov -- Raymond James -- Analyst
In that context, since we're a day away from the election. So let's suppose that the ITC for solar expires or drops to the statutory 10% at the end of '21. Is it fair to assume that for your development efforts, if that's the scenario, you're going to pull in as many projects as possible for solar into next year, and then perhaps take your, kind of, foot off the accelerator in '22 and beyond?
Doran Hole -- Senior Vice President and Chief Financial Officer
Foot off the accelerator is a little bit of an extreme reaction. I think that like any other developer, we will be reasonable in terms of our desire to safe harbor equipment in order to preserve '26 [Phonetic] in '22 [Phonetic]. Costs, as we all know, costs should come down, they'll continue to come down. We have to continue to strive to increase efficiencies and bring down balance of systems. And then keep in mind that a lot of the work that we do in solar and battery storage is in our project business. So I don't think we're necessarily going to slow down as a contractor in the sector.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
No, what I might add, solar is here to stay. And even if all the incentives go away, let's say, three years from now, by that time, I think the -- the drive, whether it's from the mass market or the C&I, they will be happening.
Doran Hole -- Senior Vice President and Chief Financial Officer
Just think about where solar module pricing is today versus the wattage of modules, the standard module you can get and the increases in efficiency that you're seeing. If that's going to keep going in that direction, there are going to be ways to make these deals penciled.
Pavel Molchanov -- Raymond James -- Analyst
Thank you, guys.
Doran Hole -- Senior Vice President and Chief Financial Officer
Thanks, Pavel.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you.
Operator
Your last question comes from the line of Christopher Souther from B. Riley. Your line is now open.
Christopher Souther -- B. Riley -- Analyst
Hi guys, thanks for taking my question. Congrats on the quarter. To piggyback on that last point, when you're talking about solar and additional -- the addition of storage, which seems to be continuing to be an opportunity there. Could you just talk about within that mix, do you have a sense of what the percent that includes storage, or -- and then I think you also mentioned a stand-alone battery system in the prepared remarks. Could you talk -- provide a bit more color on that project maybe?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Right now, the percentage that has storage on the basis, the military basis, the ones that we have done recently, I want to say just about every one of them, is some kind of form of storage. But as far as the other applications, the sites, I would say, a very small percentage, maybe 10%, if not. But the storage is evolving right now. We are -- I will say, in the first inning, if at that, and as far as the cost is concerned and as far as the acceptability of various customers out there. But like the state of Massachusetts, many schools right now that we did solar installations a couple of years back, they want us to go back and put some battery storage, and we have a couple of examples of that. So we're at the early stages of storage. So it doesn't represent a large portion of our portfolio. And then Doran, might have it.
Doran Hole -- Senior Vice President and Chief Financial Officer
I think as those projects start going into the asset and development metric, we'll talk more about it and talk about how the -- how the volumes are looking versus the rest of the categories of assets and the stand-alone storage is actually small utility contract, I don't think we're in a position to disclose anything further about that.
Christopher Souther -- B. Riley -- Analyst
Okay. Understood. I appreciate the color. And then just on this past quarter, you discussed having improved access to work sites, which probably allowed some pull forward. And then new projects popping up during the quarter, which seemed to be kind of the delta with the full year guidance. I just wanted to get a sense of how many of these projects are COVID-related upgrades, like the UV disinfectant, HVAC upgrades you talked -- you mentioned being a strength last quarter. Were these -- what kinds of projects were the incremental types of projects you're seeing?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
It wasn't that many projects. But I will say we have -- about five projects that I know, the catalyst was the fact that they had to do something because of the COVID-19. But the other thing that's happening though, we incorporate COVID-19 measures, so we get the customers to talk to us and get moving. So it's we look -- but I know four projects, at least, that the catalyst was COVID and the customer ended up moving ahead. And one of them, as I mentioned that, Columbus, they had gotten some money out of the CARES Act, and they need to do something.
Christopher Souther -- B. Riley -- Analyst
Got it. And then just maybe an update on kind of some of the hospital business, which should seem like had seen a slowdown earlier in the kind of virus pandemic outbreak. Is that business starting to come back, or are there any other -- beyond the federal strength that we should kind of be monitoring here?
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
No. Actually, they -- no. Recently, we haven't seen any slowdown in the hospital business at all. And we are moving full speed ahead, I might say. And we are doing a couple of large hospitals and institutions. We did experience some delays early on, but not lately. The other thing that just happened, the COVID-19 cases in the hospitals has dropped substantially even with the uptick. And we haven't seen any slowdowns.
Christopher Souther -- B. Riley -- Analyst
Well, that's good to hear. I'll hop in the queue. Thanks.
Doran Hole -- Senior Vice President and Chief Financial Officer
Thank you.
George P. Sakellaris -- Chairman of the Board, President and Chief Executive Officer
Thank you.
Operator
[Operator Closing Remarks]
Duration: 55 minutes
Call participants:
Leila Dillon -- Vice President, 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, Controller and Chief Accounting Officer
Noah Kaye -- Oppenheimer -- Analyst
Eric Stine -- Craig-Hallum Capital Group LLC -- Analyst
Jed Dorsheimer -- Canaccord Genuity -- Analyst
Craig Irwin -- ROTH Capital Partners -- Analyst
Pavel Molchanov -- Raymond James -- Analyst
Christopher Souther -- B. Riley -- Analyst
