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Table of Contents
<br />We are exposed to the credit risk of some of our customers.
<br />Most of our revenues are derived under multi -year or long-term contracts with our customers, and our revenues are therefore dependent to a large extent on the creditworthiness
<br />of our customers. For example, some of our large projects are with subsidiaries of Hawaiian Electric Industries and the impact of the August 2023 wildfires on Hawaiian
<br />Electric Industries financial condition could have a negative impact on these projects and our financial condition and ability to complete such projects. During periods of
<br />economic downturn, our exposure to credit risks from our customers' increases, and our efforts to monitor and mitigate the associated risks may not be effective in reducing our
<br />credit risks. Our reliance on one or a few customers for a material portion of our revenue further exacerbates this risk. In the event of non-payment by one or more of our
<br />customers, our business, financial condition and operating results could be adversely affected.
<br />Our business is affected by seasonal trends and construction cycles, and these trends and cycles could have an adverse effect on our operating results.
<br />We are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather during the winter months, such as the northern United
<br />States and Canada, and climates that experience extreme weather events, such as wildfires, storms, or flooding, or at educational institutions, where large projects are typically
<br />carried out during summer months when their facilities are unoccupied. In addition, government customers, many of which have fiscal years that do not coincide with ours,
<br />typically follow annual procurement cycles and appropriate funds on a fiscal -year basis even though contract performance may take more than one year. Further, government
<br />contracting cycles can be affected by the timing of, and delays in, the legislative process related to government programs and incentives that help drive demand for energy
<br />efficiency and renewable energy projects. As a result, our revenues and operating income in the third and fourth quarter are typically higher, and our revenues and operating
<br />income in the first quarter are typically lower, than in other quarters of the year. As a result of such fluctuations, we may occasionally experience declines in revenue or earnings
<br />as compared to the immediately preceding quarter, and comparisons of our operating results on a period -to -period basis may not be meaningful.
<br />Failure of third parties to manufacture quality products or provide reliable services in a timely manner or at prices that are acceptable to us could cause delays in the
<br />delivery of our services and completion of our projects, which could damage our reputation, have a negative impact on our relationships with our customers and adversely
<br />affect our growth.
<br />Our success depends on our ability to provide services and complete projects in a timely manner, which in part depends on the ability of third parties to provide us with timely
<br />and reliable products and services at acceptable prices. In providing our services and completing our projects, we rely on products that meet our design specifications and
<br />components manufactured and supplied by third parties, as well as on services performed by subcontractors. We also rely on subcontractors to perform substantially all of the
<br />construction and installation work related to our projects; and we often need to engage subcontractors with whom we have no experience for our projects. We, our
<br />subcontractors and other third parties have been impacted by the global supply chain delays and challenges. This has resulted in and may continue to result in delays in our
<br />ability to provide our services and complete our projects in a timely manner. In addition, some of the third parties we engage for our design, construction and operation projects
<br />operate internationally and our reliance on their products and services may be impacted by economic, political, and labor conditions in those regions as well as the uncertainty
<br />caused by the evolving relations between the United States and these regions, including China and the Middle East.
<br />If any of our subcontractors are unable to provide services that meet or exceed our customers' expectations or satisfy our contractual commitments, our reputation, business and
<br />operating results could be harmed. In addition, if we are unable to avail ourselves of warranty and other contractual protections with providers of products and services, we may
<br />incur liability to our customers or additional costs related to the affected products and components, which could have a material adverse effect on our business, financial
<br />condition, and operating results. Moreover, any delays, malfunctions, inefficiencies, or interruptions in these products or services could adversely affect the quality and
<br />performance of our solutions and require considerable expense to establish alternate sources for such products and services. This could cause us to experience difficulty
<br />retaining current customers and attracting new customers, and could harm our brand, reputation, growth, and operating results.
<br />We may have liability to our customers order our ESPCs if our projects fail to deliver the energy use reductions to which we are committed under the contract.
<br />For our energy efficiency projects, we typically enter into ESPCs under which we commit that the projects will satisfy agreed -upon performance standards appropriate to the
<br />project. These commitments are typically structured as guarantees of increased energy efficiency that are based on the design, capacity, efficiency, or operation of the specific
<br />equipment and systems we install. Our commitments generally fall into three categories: pre -agreed, equipment -level and whole building -level. Under a pre -agreed efficiency
<br />commitment, our customer reviews the project design in advance and agrees that, upon or shortly after completion of installation of the specified equipment comprising the
<br />project, the pre -agreed increase in energy efficiency will have been met. Under an equipment -level commitment, we commit to a level of increased energy efficiency based on
<br />the difference in use measured first with the existing equipment and then with the replacement equipment upon completion of installation. A whole building -level commitment
<br />requires future measurement and verification of increased energy efficiency for a whole building,
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