Ameresco, Inc. — Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Ameresco is a clean technology integrator providing energy-efficiency, renewable-energy, energy-storage, operations and maintenance, consulting, and enterprise energy-management solutions. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021. Results are seasonally weighted toward the third and fourth quarters, and first-quarter results are not necessarily indicative of the full year.
Financial Performance and Key Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $474.0 million | $252.2 million | Up 87.9% |
| Gross profit | $68.4 million | $46.9 million | Up 45.8% |
| Gross margin | 14.4% | 18.6% | Down 4.2 percentage points |
| Operating income | $28.7 million | $18.3 million | Up 56.7% |
| Operating margin | 6.1% | 7.3% | Down 1.2 percentage points |
| Net income | $19.3 million | $12.4 million | Up 55.2% |
| Net income attributable to common shareholders | $17.4 million | $11.2 million | Up 55.6% |
| Diluted EPS | $0.32 | $0.22 | Up $0.10 |
| Operating cash flow | $(276.1) million | $(38.7) million | Outflow increased $237.4 million |
| Investing cash flow | $(57.7) million | $(56.5) million | Outflow increased $1.3 million |
| Financing cash flow | $355.4 million | $112.4 million | Up $243.0 million |
Revenue growth was driven primarily by a $212.7 million increase in project revenue, including the Southern California Edison battery-energy-storage project. Energy-asset revenue increased $5.1 million, supported by portfolio growth, renewable-gas production, and higher renewable identification number pricing. O&M revenue increased $1.8 million.
Gross margin declined because the SCE battery-storage project generated lower margins. SG&A increased 38.8% to $39.7 million, primarily from higher headcount, salaries and benefits, stock-based compensation, and legal-settlement-related costs. Other expenses increased to $7.1 million from $3.7 million, reflecting derivative losses and higher interest expense.
At March 31, 2022, cash and cash equivalents were $68.3 million and total cash, cash equivalents, and restricted cash were $108.4 million. Total debt and financing lease liabilities were $756.9 million, compared with $471.5 million at December 31, 2021. The senior secured revolving facility had $121.0 million outstanding and $47.3 million available. Total assets were $2.53 billion and stockholders’ equity was $736.2 million.
Operating cash flow was significantly negative primarily because of a $154.3 million increase in costs and estimated earnings in excess of billings, a $46.3 million increase in the Federal ESPC receivable, a $40.9 million increase in accounts receivable, and lower accounts payable and accrued liabilities. Capital investment in energy assets was $56.8 million. Management planned approximately $170 million to $220 million of additional capital expenditures and approximately $160 million to $205 million of additional project financings during the remainder of 2022.
Material Changes Versus the Prior Comparable Period
- Revenue increased 87.9%, led by project timing and the SCE battery-storage project.
- U.S. Regions revenue increased 252.4% to $314.5 million, while U.S. Federal revenue decreased 26.0% to $75.6 million because project timing was affected by supply-chain delays.
- Gross margin decreased from 18.6% to 14.4%, primarily due to lower margins on the SCE project.
- Operating income increased 56.7%, but operating margin declined because cost of revenues and SG&A grew faster than gross profit.
- Debt increased by approximately $285.4 million from year-end, primarily reflecting senior secured term loans, revolver borrowings, and project financing.
- Operating cash outflow increased substantially as project costs and unbilled revenue preceded customer billings.
- Backlog increased: fully contracted project backlog was $1.34 billion, awarded but unsigned project backlog was $1.75 billion, and total project backlog was $3.10 billion at March 31, 2022. Fully contracted O&M backlog was $1.21 billion.
- The company changed its internal organization and reclassified prior-period segment amounts for comparability.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that a material portion of 2022 revenue and expenditures would relate to the approximately $892 million SCE agreement covering three grid-scale battery-storage systems. The contractual substantial-completion deadline was August 1, 2022, subject to specified extensions. Because of COVID-19 lockdowns in China and transportation-policy changes affecting battery deliveries, Ameresco issued SCE a force majeure notice and was discussing the applicability and scope of relief. Failure to meet milestones or availability and capacity guarantees could result in liquidated damages and, in certain circumstances, termination rights for SCE.
Supply-chain disruptions, component shortages, inflation, logistics constraints, and COVID-19-related workforce and operational effects negatively affected first-quarter results and were expected to continue through the remainder of 2022. Ameresco also disclosed risks from limited battery-cell suppliers and volatility in lithium, nickel, cobalt, and other raw-material costs. The U.S. Department of Commerce was investigating potential circumvention of solar-cell and panel trade duties involving Malaysia, Vietnam, Thailand, and Cambodia; management did not expect a material near-term effect but stated that resulting duties could increase costs or disrupt supply.
The March 4, 2022 amended senior secured credit facility increased total commitments from $245 million to $495 million, extended certain maturities to March 2025, added a delayed-draw term loan of up to $220 million, and temporarily relaxed the funded-debt-to-EBITDA covenant. Management believed available liquidity, financing capacity, and access to capital markets were sufficient to fund operations through at least May 2023.
In April 2022, Ameresco entered into a battery-equipment framework agreement requiring a $10 million deposit credited against future purchases. In April, a subsidiary also borrowed $9.8 million under a construction revolver for a solar and storage project. One non-recourse term loan had been in default at March 31, 2021 for a debt-service-coverage-ratio failure; the company received a waiver in April 2022.
The company settled a legal proceeding during the quarter and adjusted its accrued loss for the net amount after insurance proceeds. Management did not believe other pending proceedings would have a material adverse effect. Stock-based compensation expense increased to $3.5 million from $0.8 million, and unrecognized compensation expense was $46.3 million at March 31, 2022.
Important Facts for Investors to Verify
- Progress, cost performance, supplier deliveries, force majeure relief, and potential liquidated damages under the SCE battery-storage agreement.
- Conversion of unbilled contract assets into billings and cash, including the $460.2 million costs-and-estimated-earnings balance.
- Debt covenant compliance, borrowing availability, maturity extensions, and planned project-financing execution.
- Whether gross margins recover after the lower-margin SCE project and amid inflation and supply-chain pressures.
- Execution of the planned $170 million to $220 million of remaining 2022 capital expenditures and associated funding.
- Potential effects of solar-panel trade investigations, tariffs, battery-cell shortages, and raw-material prices.
- The filing’s reported diluted EPS values versus the MD&A narrative, which contains an apparent inconsistent statement regarding the year-over-year change.