Ameresco, Inc. 2023 Form 10-K Summary
Business context and reporting period
Ameresco is a clean-technology integrator and renewable-energy asset developer, owner and operator serving government, education, healthcare, commercial and industrial customers across the United States, Canada and Europe. Its offerings include energy-efficiency projects, renewable-energy assets, battery storage, microgrids, operations and maintenance, energy supply, integrated photovoltaic products and consulting.
The filing covers the fiscal year ended December 31, 2023, with comparisons primarily to fiscal 2022. The filing is an annual report rather than a quarterly report for the fourth quarter. Ameresco had approximately 1,503 employees, 185 owned and operated renewable-energy plants and approximately 508 MWe of operating capacity at year-end.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $1.375 billion | $1.824 billion | Down 24.7% |
| Gross profit | $246.4 million | $290.8 million | Down 15.3% |
| Gross margin | 17.9% | 15.9% | Up 2.0 percentage points |
| Operating income | $82.2 million | $133.0 million | Down 38.2% |
| Operating margin | 6.0% | 7.3% | Down 1.3 percentage points |
| Net income | $63.9 million | $98.5 million | Down 35.2% |
| Net income attributable to common shareholders | $62.5 million | $94.9 million | Down 34.2% |
| Diluted EPS | $1.17 | $1.78 | Down $0.61 |
| Cash flow from operations | $(70.0) million | $(338.3) million | Improved by $268.3 million |
| Capital investment in energy assets | $538.4 million | $304.6 million | Up $233.8 million |
Revenue declined primarily because project revenue decreased by approximately $480.0 million, or 32%, reflecting the timing of revenue recognition based on costs incurred relative to expected total costs, including the Southern California Edison battery-storage project. Gross margin improved because the prior-year period included a greater contribution from the lower-margin SCE design-build project.
Net income benefited from a $25.6 million income-tax benefit, compared with a $7.2 million tax provision in 2022. The effective tax rate was negative 67.0%, principally due to Section 179D energy-efficiency deductions, investment tax credits and deferred state tax benefits. This tax rate is not necessarily indicative of future periods.
Liquidity, debt and balance-sheet considerations
- Cash and cash equivalents were $79.3 million at December 31, 2023, compared with $115.5 million at year-end 2022. Cash, cash equivalents and restricted cash totaled $153.7 million.
- Working capital was $227.0 million, compared with $189.3 million in 2022.
- Availability under the revolving credit facility was $37.5 million, compared with $0.3 million in 2022.
- Total debt and financing leases were $1.514 billion, compared with $915.7 million in 2022. Long-term debt and financing lease liabilities, net of current amounts and issuance costs, were $1.170 billion.
- Debt maturities totaled $324.4 million in 2024, $298.6 million in 2025 and $340.1 million in 2026.
- The senior secured credit facility had $279.9 million outstanding and $37.5 million available at year-end. The delayed-draw term loan had $35.0 million due April 15, 2024 after scheduled payments.
- The company stated that liquidity sources were expected to fund operations through at least February 2025, but this assessment depends on refinancing, additional financing, project cash flows and other funding sources.
- The company planned approximately $350 million to $400 million of 2024 capital investments and approximately $300 million to $350 million of additional 2024 financings, principally for renewable-energy plants.
Material changes versus the prior comparable period
- U.S. Regions revenue fell 50.4% to $557.1 million, primarily due to project timing and lower SCE-related revenue.
- U.S. Federal revenue increased 2.8% to $402.9 million, Canada increased 19.7% to $70.1 million, Alternative Fuels increased 2.3% to $117.1 million and Europe increased 147.9% to $152.8 million.
- Europe benefited from the March 2023 acquisition of Enerqos, which contributed $52.2 million of revenue after closing, and increased activity in Greece.
- Project backlog increased to $3.879 billion from $2.640 billion, including $1.324 billion of fully contracted backlog and $2.555 billion of awarded but unsigned projects. Twelve-month project backlog was $718.6 million.
- Fully contracted O&M backlog was $1.222 billion, modestly below $1.231 billion in 2022.
- Assets in development increased to approximately $2.446 billion from $1.626 billion.
- Asset impairments of $3.8 million were recorded, including a $2.2 million after-tax goodwill impairment and impairments of two landfill-gas assets.
- Other expenses increased to $43.9 million from $27.3 million, driven by higher interest expense, increased project debt, $5.8 million of Italian factoring fees and lower government incentives.
- Stock-based compensation declined to $10.3 million from $15.0 million, partly because approximately $5.1 million of previously recognized expense was reversed after performance-award vesting became unlikely.
- Cash used in investing increased to $566.9 million from $328.4 million, largely because of higher energy-asset investment. Financing cash inflows were $640.8 million.
Guidance, outlook, commentary and unusual items
Management views the Inflation Reduction Act as favorable for clean-energy demand through expanded investment and production tax incentives. However, uncertainty regarding eligibility, regulatory interpretation, future policy changes and customer financing may lengthen sales cycles. The company expects continued demand for distributed energy assets, storage and microgrids, but also expects competition and costs for labor, equipment and commodities to remain elevated.
The SCE agreement covers three battery-storage projects totaling 537.5 MW with an aggregate engineering, procurement, construction and maintenance price of approximately $892.0 million. The projects missed the August 1, 2022 guaranteed completion date because of supply-chain delays, weather and other events. SCE notified Ameresco in February 2024 that it intends to withhold liquidated damages for at least one project. The maximum aggregate liquidated damages exposure is $89 million. Two projects were approaching substantial completion and the third was expected to reach substantial completion in summer 2024.
The December 2023 credit agreement amendment requires commercially reasonable efforts to raise and close at least $100 million of equity or subordinated debt financing by April 15, 2024 because an SCE site had not achieved the required milestone. Failure to comply could result in a default and potential acceleration of debt. The filing states that Ameresco was pursuing subordinated debt financing, but no assurance was provided that it would be completed on favorable terms or at all.
Key operating risks include project-cost and revenue-estimate changes, supply-chain and logistics disruptions, inflation, interest rates, extreme weather, permitting and regulatory delays, customer credit risk, government-contract funding and termination rights, performance guarantees, renewable-energy certificate and renewable-fuel-credit pricing, cybersecurity, competition and access to surety bonds and letters of credit.
On January 12, 2024, Ameresco completed the second phase of its Bright Canyon Energy acquisition for a purchase price of $39.1 million, including $6.6 million paid at closing and a $32.5 million seller note. On February 9, 2024, the company agreed to sell a 40% interest in Ameresco Roxana RNG LLC for $28.9 million.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Critical audit matters included goodwill impairment and project-revenue recognition, both of which depend on significant management estimates.
Most important facts for investors to verify
- Whether the company completed the required $100 million equity or subordinated-debt financing and refinanced or repaid the April 2024 debt maturity.
- The final resolution of the SCE force-majeure claims, liquidated-damages exposure and completion status of the three battery-storage projects.
- Conversion of backlog and awarded projects into signed contracts, including customer financing, cancellations, delays and expected timing of revenue recognition.
- Whether project-cost estimates, supply-chain constraints, labor costs and weather-related delays create additional margin reductions or impairments.
- The sustainability of the unusually favorable 2023 effective tax rate and the availability and timing of tax credits and Section 179D deductions.
- Cash generation relative to planned 2024 capital expenditures and the company’s ability to access project, construction and corporate financing.
- Exposure to government customers, with 71.8% of 2023 revenue derived from federal, state, provincial or local entities, and the concentration represented by the U.S. federal government.
- Operating performance and offtake pricing for renewable-energy assets, including revenue from RECs, SRECs, RINs and other environmental attributes.