Ameresco, Inc. 2017 Form 10-K Summary
Business context and reporting period
Ameresco provides energy-efficiency, infrastructure, renewable-energy, operations and maintenance, and energy-asset services across North America and Europe. The filing covers the fiscal year ended December 31, 2017, with quarterly information through December 31, 2017. The company had 1,049 employees, owned and operated 73 renewable-energy plants and solar installations with aggregate capacity exceeding 191 megawatt equivalents, and generated approximately 77% of revenue from government entities.
Financial performance and key metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Revenue | $717.2 million | $651.2 million | 10.1% increase |
| Gross profit | $144.2 million | $134.3 million | 7.3% increase |
| Gross margin | 20.1% | 20.6% | 50 basis-point decrease |
| Operating income | $36.6 million | $23.8 million | 53.9% increase |
| Net income | $33.5 million | $12.0 million | 179.3% increase |
| Net income attributable to common shareholders | $37.5 million | $12.0 million | 211.5% increase |
| Diluted EPS | $0.82 | $0.26 | Increase of $0.56 |
| Operating margin | 5.1% | 3.7% | 140 basis-point increase |
| Cash flow from operations | $(136.6) million | $(58.1) million | Greater use of cash |
| Capital expenditures | $88.4 million | $76.0 million | Increase |
Revenue growth was led by the U.S. Federal segment, which increased 28.7% to $229.1 million. U.S. Regions revenue rose 4.9% to $290.2 million, Non-solar Distributed Generation revenue rose 6.5% to $79.2 million, and Canada revenue declined 13.2% to $43.8 million. Project revenue was $506.6 million, energy-asset revenue was $69.2 million, O&M revenue was $60.6 million, and integrated-PV revenue was $38.8 million.
Cash and cash equivalents were $24.3 million at year-end, compared with $20.6 million in 2016. Current assets were $287.1 million and total assets were $984.0 million. Federal ESPC receivables increased to $248.9 million from $158.2 million, with corresponding Federal ESPC liabilities of $235.1 million. Reported operating cash flow was materially depressed because project expenditures are classified as operating outflows while related investor advances are classified as financing inflows.
Total long-term debt and capital lease liabilities were $195.6 million before current maturities and deferred financing fees, including $49.99 million outstanding under the senior secured credit facility and $117.8 million of project financing loans. The $75 million revolving facility had $38.9 million of availability at year-end and matures in June 2020. The company was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue increased $65.9 million, primarily from larger and more numerous U.S. Federal projects.
- Gross margin declined because of a greater mix of lower-margin U.S. Regions projects.
- SG&A declined 2.7% to $107.6 million, partly because 2016 included restructuring, bad-debt and bankruptcy-related charges.
- Canada returned to pretax profitability of $1.8 million versus a $2.3 million pretax loss in 2016, despite lower revenue.
- U.S. Regions pretax income declined 30.0% to $13.9 million; Hurricane Harvey caused an estimated $12.5 million revenue shortfall and $5.5 million earnings shortfall.
- Backlog increased to $572.5 million from $534.1 million, while awarded projects not yet under signed contracts increased to $1.199 billion from $957.6 million. Twelve-month backlog rose to $348.0 million from $309.6 million.
- Energy assets, net, increased to $356.4 million from $319.8 million, reflecting continued renewable-energy investment.
- The company formed a second renewable-energy investment fund in 2017 and received $7.5 million of investment from redeemable non-controlling interests.
- The company repurchased 574,848 Class A shares for $3.4 million during 2017; $5.3 million remained under the authorization at year-end.
Guidance, outlook, commentary, risks and unusual items
- Management planned approximately $60 million to $85 million of 2018 capital expenditures, principally for renewable-energy plant development or acquisitions, and anticipated additional financing of $100 million to $110 million.
- Management stated that cash, revolving-credit availability and access to credit markets were expected to fund operations through at least March 6, 2019.
- In the first quarter of 2018, the company entered agreements to acquire two solar projects for total consideration of $55 million; $21 million had been paid by the filing date. Commercial operation was expected in late 2018 or early 2019.
- In February 2018, the company entered into a $28.5 million non-recourse financing agreement for a renewable natural-gas asset.
- The 2017 Tax Cuts and Jobs Act generated an approximately $13.9 million tax benefit, primarily from remeasuring deferred tax liabilities. The resulting negative effective tax rate was not representative of underlying operating profitability. The company also recorded approximately $6.3 million of investment-tax-credit benefit.
- Adoption of ASC 606 on January 1, 2018 was expected to reduce stockholders’ equity by approximately $4.7 million, net of tax. The filing identified potential delays in recognizing revenue from uninstalled materials and renewable-energy credits.
- Approximately 25% of fiscal 2017 earnings were attributed to sales of renewable-energy certificates and other environmental attributes, exposing results to regulatory changes, production shortfalls and market-price volatility.
- Key risks include government-contract dependence, appropriations and termination rights, lengthy sales cycles, backlog conversion and financing risk, project execution and performance guarantees, renewable-energy output and offtake risk, tax-credit changes, interest-rate and foreign-currency exposure, customer concentration and debt covenant compliance.
- Government customers represented more than 77% of revenue, and the U.S. federal government represented 32.0% of consolidated revenue, increasing exposure to government budgets, procurement rules and contract actions.
- Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Reconcile the strong reported net income and EPS improvement to the $13.9 million tax-law benefit, investment-tax-credit benefits and redeemable non-controlling-interest allocation.
- Assess operating cash conversion separately from accounting earnings, including the effect of Federal ESPC receivables, investor advances and project construction spending.
- Review the maturity and refinancing requirements for project debt, the $1.7 million construction loan due June 2018, the senior facility maturity in 2020 and the company’s planned 2018 financing.
- Validate backlog quality and conversion assumptions, particularly the $1.199 billion of awarded but unsigned projects and the stated historical conversion rate of approximately 90%.
- Monitor gross-margin trends, especially the U.S. Regions mix and the performance of large fixed-price projects.
- Evaluate exposure to government funding, renewable-energy incentives, SRECs and other environmental attributes, including potential changes in tax credits and renewable-fuel programs.
- Review the actual effects of ASC 606 adoption on revenue timing, equity, backlog conversion and operating cash flow in subsequent filings.
- Consider the voting-control structure: Class B shareholders have five votes per share, and the founder and affiliates control approximately 80% of combined voting power.