Ameresco, Inc. — Form 10-Q Summary
Business context and reporting period
Ameresco is a clean-technology integrator providing energy-efficiency, renewable-energy, distributed-generation, integrated photovoltaic, consulting, and operations and maintenance services, primarily in North America and the United Kingdom. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the same periods in 2020, and presents financial position at September 30, 2021 versus December 31, 2020.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $273.7 million | $282.5 million | $799.8 million | $718.0 million |
| Gross profit | $58.8 million | $51.4 million | $159.0 million | $129.3 million |
| Gross margin | 21.5% | 18.2% | 19.9% | 18.0% |
| Operating income | $23.6 million | $24.5 million | $63.4 million | $46.9 million |
| Operating margin | 8.6% | 8.7% | 7.9% | 6.5% |
| Net income | $20.3 million | $17.7 million | $50.6 million | $33.2 million |
| Net income attributable to common shareholders | $17.4 million | $20.0 million | $42.3 million | $30.6 million |
| Diluted EPS | $0.33 | $0.41 | $0.81 | $0.62 |
- Q3 revenue declined 3.1%, while nine-month revenue increased 11.4% year over year.
- Q3 gross profit increased 14.5% and gross margin expanded 330 basis points, primarily because of a greater mix of higher-margin energy-asset revenue.
- Q3 operating income decreased 3.5% as SG&A increased 30.9%, including higher salaries and benefits, professional fees, and impairment charges.
- Nine-month operating income increased 35.1%, and net income increased 52.6%.
- The nine-month effective tax result was a $0.9 million benefit versus a $0.6 million provision in 2020, reflecting investment tax credits, Section 179D deductions, and compensation-related tax deductions.
Liquidity, cash flow, debt, and balance sheet
- Cash, cash equivalents, and restricted cash totaled $93.8 million at September 30, 2021, compared with $98.8 million at December 31, 2020. Cash and cash equivalents alone were $57.1 million versus $66.4 million.
- Operating cash flow was negative $116.3 million for the first nine months of 2021, compared with negative $83.8 million in 2020. The principal use was a $188.0 million increase in Federal ESPC receivables.
- Investing cash flow was negative $150.1 million, including $148.0 million of energy-asset investment, compared with $125.5 million invested in 2020.
- Financing cash flow was positive $261.3 million, including $120.1 million of net equity-offering proceeds, $118.2 million of long-term debt-financing proceeds, and $114.2 million of proceeds from Federal ESPC projects.
- Total debt and financing lease liabilities were $416.2 million, compared with $391.8 million at year-end 2020. Current maturities were $74.9 million and long-term debt and financing lease liabilities, net of discounts and issuance costs, were $325.3 million.
- The amended senior secured revolving credit facility had $151.2 million available at September 30, 2021. The commitment was increased from $115.0 million to $180.0 million, and the funded-debt-to-EBITDA covenant maximum was increased from 3.25 to 3.50.
- Management stated that cash, working capital, revolving-credit availability, and access to credit markets were expected to fund operations through at least November 2022.
- Management expected approximately $70 million to $120 million of additional capital expenditures and approximately $30 million to $80 million of additional project financings during the remainder of 2021.
Material changes versus the prior comparable period
- Q3 project revenue fell $21.4 million, or 10%, primarily because of COVID-related construction delays and supply-chain disruptions. Energy-asset revenue increased $8.9 million, or 29%, and O&M revenue increased $2.1 million.
- Nine-month project revenue increased $51.2 million, or 10%, and energy-asset revenue increased $22.2 million, or 25%.
- Nine-month Non-Solar Distributed Generation revenue increased 34.6% to $99.8 million; U.S. Regions revenue increased 10.6% to $297.8 million. Q3 U.S. Federal revenue declined 18.3% because of project timing.
- SG&A increased to $35.2 million in Q3 and $95.7 million for the nine months, compared with $26.9 million and $82.4 million, respectively, in the prior-year periods.
- The March 2021 equity offering issued 2.875 million Class A shares and generated $120.1 million of net proceeds. $80.0 million was used to repay the outstanding U.S.-dollar balance under the revolving facility, increasing the weighted-average share count and reducing EPS.
- Backlog at September 30, 2021 included $778.3 million of fully contracted project backlog, $1.585 billion of awarded but unsigned projects, and $1.115 billion of fully contracted O&M backlog. Separately, remaining performance obligations under signed contracts were $1.894 billion, with approximately 33% expected to be recognized within 12 months.
Guidance, outlook, risks, contingencies, and unusual items
- Management expected supply-chain disruption and related delays to continue into 2022. The filing does not provide formal full-year revenue or earnings guidance.
- COVID-19, employee and subcontractor availability, federal vaccine requirements, supply-chain interruptions, delayed customer payments, and uncertain demand could adversely affect operations and liquidity.
- A customer lawsuit involving alleged property damage and project defects is scheduled for trial in April 2022. Ameresco believes a loss is probable and has accrued a reasonable estimate, together with a probable insurance recovery. The filing does not disclose the accrued amounts.
- In July 2021, two projects missed scheduled commercial-operation dates under a construction revolver. The lender granted a limited waiver and extension, curing the resulting default retroactively.
- In October 2021, after quarter-end, Ameresco entered into an approximately $892 million agreement to design and build three battery-energy-storage facilities totaling 537.5 megawatts. Substantial completion is required by August 1, 2022, subject to specified extensions; failure to meet completion, availability, or capacity requirements may result in liquidated damages.
- The company recorded a $1.9 million impairment charge related to a landfill-gas plant whose environmental permit was discontinued. Derivative losses were $1.9 million for the nine months, and derivative liabilities totaled $16.2 million at September 30, 2021.
- Redeemable non-controlling interests were $44.9 million. In September 2021, Ameresco paid $1.0 million to exercise an investment-fund call option and reclassified the remaining related balance to paid-in capital.
- The filing identifies forward-looking risks related to an SEC investigation into revenue recognition and compensation practices in the company’s software-as-a-service businesses, but the supplied text does not provide a clear status, scope, or potential financial impact.
Most important facts for investors to verify
- Whether supply-chain constraints, federal vaccination requirements, and workforce availability affect project schedules, margins, backlog conversion, and 2022 results.
- The collectability and timing of the $498.1 million Federal ESPC receivable and the effect of receivable growth on operating cash flow.
- Debt maturities, covenant compliance, availability under revolving and construction facilities, and the company’s ability to finance planned energy-asset investment.
- Conversion and timing of the $1.585 billion awarded-but-unsigned backlog, including the risks associated with the $892 million battery-storage contract and its liquidated-damages provisions.
- The ultimate cost and insurance recovery associated with the April 2022 litigation trial.
- The status and potential consequences of the referenced SEC investigation, which are not clearly quantified in the filing text provided.