Business Context and Reporting Period
Ameresco, Inc. is a clean-technology integrator and renewable-energy asset developer, owner and operator. Its offerings include energy-efficiency projects, renewable-energy plants, energy infrastructure, operations and maintenance services, energy supply, integrated photovoltaic products and consulting. The company serves government, education, healthcare, commercial and industrial customers primarily in North America and the U.K.
This Form 10-K covers the fiscal year ended December 31, 2021, filed March 1, 2022. Although the request references 2021 Q4, the filing is an annual report rather than a standalone quarterly filing.
Approximately 67% of 2021 revenue came from federal, state, provincial or local government entities. The U.S. federal government represented 32.3% of revenue, while one other customer represented 10.2%.
Financial Performance and Key Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1,215.7 million | $1,032.3 million | +17.8% |
| Gross profit | $230.4 million | $187.5 million | +22.8% |
| Gross margin | 18.9% | 18.2% | +70 bps |
| Operating income | $95.4 million | $71.5 million | +33.5% |
| Operating margin | 7.9% | 6.9% | +100 bps |
| Net income | $80.2 million | $56.9 million | +40.9% |
| Net income attributable to common shareholders | $70.5 million | $54.1 million | +30.4% |
| Diluted EPS | $1.35 | $1.10 | +$0.25 |
Revenue growth was driven by a $139.4 million increase in project revenue, including the SCE battery-storage project; a $33.1 million increase in energy-asset revenue; and a $6.3 million increase in O&M revenue. Margin expansion reflected a greater mix of higher-margin recurring energy-asset and O&M revenue.
SG&A increased 16.3% to $134.9 million, primarily due to higher salaries, benefits and stock-based compensation. Stock-based compensation increased to $8.7 million from $1.9 million.
Cash and cash equivalents were $50.5 million at year-end, compared with $66.4 million in 2020. Working capital increased to $164.4 million from $107.6 million. Total cash, cash equivalents and restricted cash were $87.1 million.
| Cash flow | 2021 | 2020 |
|---|---|---|
| Operating activities | $(172.3) million | $(102.6) million |
| Investing activities | $(205.3) million | $(181.0) million |
| Financing activities | $365.5 million | $305.2 million |
Operating cash flow was negatively affected by a $132.7 million increase in unbilled revenue, including amounts related to the SCE project, and a $22.7 million increase in federal ESPC receivables. The company invested $178.1 million, net of grants, in renewable-energy assets and paid $14.9 million, net of cash acquired, for the Plug Smart acquisition.
Total debt and financing leases were $471.5 million at December 31, 2021, including $97.8 million outstanding under the senior credit facilities and $249.8 million of construction and project-financing loans. Availability under the revolving credit facility was $121.2 million. The senior credit facilities mature in June 2024 and require a maximum total-funded-debt-to-EBITDA ratio of 3.5 to 1.0 and a minimum debt-service-coverage ratio of 1.5 to 1.0.
Material Changes Versus the Prior Comparable Period
- Revenue increased 17.8%, with particularly strong growth in U.S. Regions and Non-Solar Distributed Generation.
- Gross margin, operating margin and net income improved, supported by a higher contribution from recurring energy assets and O&M services.
- Project backlog increased to $3.05 billion from $2.21 billion, including $1.51 billion of fully contracted backlog and $1.54 billion of awarded but unsigned projects.
- O&M backlog was broadly stable at $1.13 billion; 12-month project backlog increased to $1.30 billion from $593.9 million.
- The company completed its acquisition of Plug Smart in December 2021 for total consideration of $21.2 million, including contingent consideration.
- Ameresco completed a March 2021 equity offering that generated $120.1 million of net proceeds. It used $80.0 million to repay the outstanding U.S.-dollar balance on its revolving credit facility.
- Operating cash flow deteriorated despite higher earnings, primarily because of project timing, unbilled revenue and federal ESPC receivables.
- The company recorded a $1.9 million impairment charge on an energy-asset group after an environmental permit was discontinued.
Guidance, Outlook, Commentary and Risks
The company did not provide a specific consolidated revenue or earnings outlook in the filing. Management stated that it expected cash, working capital, revolver availability and access to capital markets to fund operations for at least twelve months after filing.
Ameresco expects to invest approximately $225 million to $275 million in 2022, principally in renewable-energy plants, and plans additional financing of approximately $175 million to $225 million for those investments. The company also expects significant capital and operating expenditures for the SCE battery-storage project during the first half of 2022.
The SCE agreement has an aggregate engineering, procurement and construction price of approximately $892.0 million, including two years of O&M revenue. The facilities were required to reach substantial completion by August 1, 2022, subject to extensions. Delays or failure to meet availability and capacity guarantees could result in liquidated damages or termination rights.
- COVID-19 and supply-chain disruptions delayed project execution, material deliveries and construction; management expected disruption to continue into 2022.
- Project revenue is recognized over time using cost-to-cost estimates. Changes in estimated costs, construction timing, penalties or liquidated damages could materially affect reported revenue and gross profit.
- Government customers and contracts create exposure to appropriations, termination, contract modification, regulatory and procurement risks.
- Renewable-energy earnings depend partly on renewable energy certificates, RINs and other environmental attributes whose prices and availability can fluctuate.
- Construction and project-financing debt includes financial covenants, and certain project debt is non-recourse but secured by project assets and contracts.
- The SEC continued to investigate revenue recognition and compensation practices in the company’s software-as-a-service businesses. Management’s review had not identified material misstatements, but the inquiry was not complete and could result in restatement, penalties, remediation costs or litigation.
- Ameresco is party to a customer lawsuit involving alleged property damage and project-design defects. Trial was scheduled for April 2022; the company had accrued a reasonable estimated loss and a probable insurance recovery.
- The company’s Class B shares have five votes per share. George P. Sakellaris and affiliates controlled approximately 74% of combined voting power, limiting other shareholders’ influence.
Important Facts for Investors to Verify
- Verify completion status, profitability, cash requirements and any liquidated damages exposure under the SCE battery-storage agreement.
- Reconcile reported backlog with signed contracts, customer financing, expected conversion rates and timing of revenue recognition; awarded but unsigned backlog is subject to cancellation or scope changes.
- Monitor operating cash flow, unbilled revenue, federal ESPC receivables and working-capital needs as project activity expands.
- Review debt maturities, covenant compliance, refinancing needs and the availability of the revolving and construction facilities.
- Track the status and outcome of the SEC inquiry, including any restatement, control remediation, penalties or shareholder litigation.
- Assess exposure to supply-chain inflation, labor availability, permitting, renewable-attribute pricing, customer concentration and government funding.
- Confirm the sustainability of the unusually favorable effective tax rate, which was a negative 2.6% in 2021 and benefited from energy-efficiency incentives, investment tax credits and other tax items.