Ameresco, Inc. — Q1 2024 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024. The interim financial statements are unaudited. Ameresco is a clean-technology integrator and renewable-energy asset developer, owner and operator serving commercial, industrial, educational, healthcare, utility and government customers, primarily in North America and Europe.
Financial Performance and Position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $298.4 million | $271.0 million | Up 10.1% |
| Gross profit / margin | $47.0 million / 15.7% | $49.9 million / 18.4% | Margin down 270 bps |
| Operating income / margin | $8.0 million / 2.7% | $9.1 million / 3.4% | Down 12.1% |
| Net income | $(6.2) million | $1.6 million | Decline of $7.7 million |
| Net loss attributable to common shareholders | $(2.9) million | $1.1 million | EPS declined to $(0.06) from $0.02 |
| Cash flow from operations | $20.8 million | $58.8 million | Down $38.0 million |
| Capital investment in energy assets | $105.6 million | $89.8 million | Up $15.8 million |
| Net decrease in cash, cash equivalents and restricted cash | $5.7 million | Net increase of $63.7 million | Adverse change of $69.4 million |
Revenue growth was driven primarily by a $21.1 million increase in project revenue and higher activity in Europe and Alternative Fuels. Cost of revenues increased faster than revenue, reflecting higher depreciation, a less favorable project mix, supply-chain and inflationary pressures, and lower contribution from the Southern California Edison battery-storage project. SG&A declined 4.2% to $39.6 million.
Other expenses increased to $14.2 million from $8.0 million, mainly because net interest expense rose by approximately $7.0 million as energy-asset borrowings and interest rates increased. This was partially offset by $2.4 million of derivative gains versus a $0.2 million loss in the prior-year quarter. The effective tax rate was 0.0%, compared with a 47.7% tax benefit in Q1 2023.
At March 31, 2024, total assets were $3.80 billion, including $1.79 billion of net energy assets. Cash and cash equivalents were $77.7 million, with total cash, cash equivalents and restricted cash of $148.0 million. Total debt and financing lease liabilities were $1.57 billion, including $539.2 million classified as current. The revolving credit facility had $27.3 million available.
Material Changes Versus Q1 2023 and Year-End 2023
- Revenue increased 10.1%, but gross margin declined from 18.4% to 15.7% and the company moved from net income to a net loss.
- Operating cash flow fell substantially, primarily because of higher unbilled revenue and working-capital timing, partially offset by higher accounts payable and accrued liabilities.
- Energy-asset capital expenditures increased, while major maintenance spending rose to $5.4 million from $0.6 million.
- Net debt and financing lease liabilities increased from $1.51 billion at December 31, 2023 to $1.57 billion at March 31, 2024. Current maturities increased from $322.2 million to $539.2 million.
- Energy assets, net increased from $1.69 billion at year-end to $1.79 billion, reflecting continued investment and project additions.
- Backlog increased to $4.02 billion from $2.97 billion at March 31, 2023, consisting of $1.46 billion of fully contracted backlog and $2.56 billion of awarded but unsigned projects. Approximately $774.9 million of project backlog was expected to convert to revenue within 12 months.
- Remaining performance obligations under contracted customer arrangements were $2.66 billion, of which approximately 32% was expected to be recognized within 12 months.
- Europe revenue increased 131.1% to $44.1 million, partly reflecting the Enerqos acquisition. Europe reported a $0.6 million loss before taxes and unallocated corporate activity.
- On January 12, 2024, Ameresco completed the second phase of its Bright Canyon Energy acquisition for an adjusted purchase price of $48.0 million, including $32.5 million financed through a seller note.
Liquidity, Financing and Outlook
Management stated that cash, working capital, revolver availability, potential increases to the revolving facility, asset sales, tax-equity transfers and access to credit and equity markets are expected to fund operations through at least May 2025. The company expects approximately $235 million to $285 million of additional capital expenditures and approximately $220 million to $270 million of additional project financings during the remainder of 2024.
On April 10, 2024, the maturity of the delayed-draw term loan A was extended to August 15, 2024. The amendment requires scheduled principal payments and changed the deadline for using commercially reasonable efforts to raise $100 million of equity or subordinated debt financing to May 15, 2024. On April 5, 2024, Ameresco also authorized new senior secured notes, with initial gross proceeds of approximately $95.6 million, used in part to repay the August 2023 construction credit facility.
The company was in default under a December 2020 master sale-leaseback agreement because of insurance and historical coverage-ratio requirements; a waiver was received May 3, 2024. A separate construction facility default arising from administrative errors was waived April 5, 2024. A project construction-loan conversion condition was extended to May 31, 2024.
Management Commentary, Risks and Unusual Items
- SCE battery-storage agreement: The three projects have aggregate capacity of 537.5 MW and an aggregate EPC price of approximately $892 million, including two years of O&M revenue. SCE notified Ameresco that it intends to withhold liquidated damages on one project. Ameresco disputes the claim; potential aggregate liquidated damages could reach $89 million. Two projects were in final substantial-completion activities and the third was expected to reach substantial completion in summer 2024.
- Supply chain and inflation: Delays, higher logistics, component and labor costs, and shortages of batteries, semiconductors and other equipment negatively affected Q1 results and may continue. Solar tariffs and trade investigations could further increase costs and disrupt supply.
- Seasonality: First-quarter revenue and operating income are typically lower, while the third and fourth quarters are typically stronger because of construction cycles, weather and government procurement timing.
- Interest-rate and leverage risk: Higher project financing balances and interest rates materially increased interest expense. Project-finance covenants include debt-service coverage and leverage requirements; noncompliance could restrict distributions or permit acceleration.
- Assets held for sale: Five energy projects under construction met the held-for-sale criteria at March 31, 2024, with carrying value of $58.7 million and directly associated liabilities of $13.1 million.
- Contingent consideration: A Plug Smart earn-out liability remained $1.5 million. A BCE-related earn-out could total up to $40 million over seven years, but no amount was considered probable and estimable at quarter-end.
- Macroeconomic and regulatory exposure: Results may be affected by inflation, geopolitical conflict, severe weather, government shutdowns, changes to Inflation Reduction Act interpretations, renewable-energy incentives, tariffs and federal procurement cycles.
Important Facts for Investors to Verify
- Whether the company completed the required equity or subordinated-debt financing and satisfied the accelerated term-loan payment schedule by the applicable deadlines.
- Whether the SCE projects reached substantial completion and whether SCE pursued or withheld liquidated damages, including any effect on receivables, revenue, margins or liquidity.
- Whether the sale-leaseback and construction-facility waivers fully resolved the reported defaults and whether additional covenant issues arose.
- Progress on the planned $235 million to $285 million of 2024 capital expenditures and the availability and terms of the anticipated $220 million to $270 million of project financing.
- Conversion of awarded backlog into signed contracts, project margin trends and the timing of the $774.9 million of 12-month project backlog.
- Cash collections and the reduction of the $652.4 million contract-asset balance, including exposure to unbilled SCE and federal ESPC receivables.
- Effects of supply-chain disruptions, solar tariffs, interest rates, tax-credit monetization and seasonal construction activity on full-year profitability and liquidity.