Ameresco, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. The interim financial statements are unaudited and should be read with the company’s 2014 Form 10-K. Ameresco provides energy-efficiency solutions, renewable-energy projects, operations and maintenance services, and photovoltaic equipment in the United States, Canada and Europe. First-quarter results are typically seasonally lower because of weather, construction cycles and government procurement timing.
Financial Results and Key Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $115.4 million | $100.7 million | 14.6% increase |
| Gross profit | $19.6 million | $17.6 million | 11.9% increase |
| Gross margin | 17.0% | 17.4% | 40 basis-point decline |
| Operating loss | $4.4 million | $6.8 million | Improved by $2.4 million |
| Adjusted EBITDA | $1.8 million | $(0.9) million | Improved by $2.7 million |
| Loss before taxes | $7.1 million | $8.5 million | Improved by $1.4 million |
| Net loss | $4.2 million | $8.3 million | Improved by $4.1 million |
| Loss per diluted share | $0.09 | $0.18 | Improved by $0.09 |
| Operating cash flow | $(22.9) million | $2.4 million | Declined by $25.3 million |
| Adjusted cash from operations | $(4.9) million | $5.9 million | Declined by $10.8 million |
- Revenue growth was driven primarily by the U.S. Federal segment, up 92.0% to $24.1 million, and U.S. Regions, up 18.2% to $47.1 million.
- Canada revenue declined 33.2% to $10.9 million and generated a $5.0 million pretax loss, reflecting project cost-budget revisions, a reserve for potential future losses and unfavorable foreign exchange.
- SG&A declined 1.1% to $24.1 million, partly because the prior-year period included severance and acquisition-related costs.
- The $2.9 million income-tax benefit reflected a 40.9% estimated annual effective tax rate, compared with a $0.2 million benefit and 2.8% estimated rate in the prior-year period.
Cash Flow, Liquidity and Debt
- Cash and cash equivalents were $17.7 million at March 31, 2015, compared with $23.8 million at December 31, 2014. Restricted cash was $13.6 million.
- Operating activities used $22.9 million, primarily due to a $13.1 million increase in Federal ESPC receivables, a $21.4 million decrease in accounts payable and accrued liabilities, and a $1.7 million decrease in income-tax payables.
- Federal ESPC proceeds of $18.0 million were classified as financing cash inflows. Management’s adjusted cash-from-operations measure includes these proceeds but remained negative at $4.9 million.
- Investing activities used $6.2 million, including $5.9 million for renewable-energy project assets. Management planned 2015 capital expenditures of $75 million to $90 million, principally for renewable-energy plants.
- Financing activities provided $20.7 million, including $18.0 million of Federal ESPC proceeds and $7.6 million from sale-leaseback financing, offset by $2.5 million of long-term debt payments, $2.0 million of net revolver repayments and $0.9 million of financing-fee payments.
- Total reported debt and capital-lease liabilities were approximately $100.8 million, excluding Federal ESPC liabilities of $80.8 million. The senior secured facility had $3.0 million outstanding on the revolver, $18.6 million on the term loan and $37.0 million of revolver availability.
- The senior secured credit facility matures June 30, 2016. Ameresco was in compliance with all financial and operational covenants at March 31, 2015 and stated that it did not expect covenant noncompliance during the next twelve months.
- Aggregate contractual obligations were $225.1 million, including debt, Federal ESPC liabilities, interest, capital leases and operating leases.
Material Changes Versus the Prior Comparable Period
- Revenue increased $14.7 million, but cost of revenues increased faster, causing gross margin to decline from 17.4% to 17.0%.
- Operating and net losses narrowed substantially, aided by higher U.S. Federal and U.S. Regions activity, lower SG&A and a larger tax benefit.
- Adjusted EBITDA improved from a $0.9 million loss to $1.8 million of income.
- Operating cash flow shifted from $2.4 million of cash provided to $22.9 million used, and adjusted cash from operations shifted from $5.9 million positive to $4.9 million negative.
- Fully contracted backlog was $387.4 million, down from $395.1 million at March 31, 2014. Awarded but unsigned projects were $868.0 million, down from $905.7 million. Assets in development increased to $148.4 million from $62.1 million.
- During the quarter, Ameresco sold two solar photovoltaic projects under a new sale-leaseback arrangement and received $7.6 million. The arrangement permits up to $50 million of combined funding through December 31, 2015.
Outlook, Commentary and Risks
- Management stated that cash, revolving-credit availability and access to credit markets should be sufficient to fund operations through 2015 and thereafter.
- Management expects first-quarter results to be seasonally weak relative to later quarters, particularly the third quarter.
- Backlog conversion depends on long sales and contracting cycles. Awarded projects typically take 12 to 18 months to become signed contracts, and fully contracted projects generally recognize revenue over 12 to 24 months.
- Key operating risks include project execution and cost estimates, fixed-price contract exposure, subcontractor reliance, government funding and procurement cycles, foreign exchange, interest rates, access to financing, and the ability to convert awarded backlog into signed contracts.
- The Canadian project cost revision and loss reserve were material unusual items in the quarter and warrant monitoring for further cost overruns.
- Ameresco continued to carry approximately $3.7 million of gross unrecognized tax benefits. It also awaited a final U.S. Customs bill related to one remaining solar-module shipment subject to antidumping duties; a reserve had been established for the estimated exposure.
- Legal proceedings were described as ordinary-course matters that management did not believe would have a material adverse effect. No material changes were reported to the risk factors in the 2014 Form 10-K.
- The company reported no material changes in market-risk exposure and concluded that disclosure controls and procedures were effective at a reasonable level of assurance.
Important Facts for Investors to Verify
- Reconcile the significant negative operating cash flow and adjusted cash from operations with Federal ESPC financing proceeds and working-capital requirements.
- Monitor the Canadian project reserve, future contract-margin revisions and the effect of foreign exchange on Canadian results.
- Assess the timing and quality of backlog conversion, particularly the $868.0 million of awarded but unsigned projects.
- Evaluate liquidity ahead of the June 30, 2016 senior-credit-facility maturity and the company’s ability to meet covenant requirements.
- Verify the funding pace and economics of the solar sale-leaseback program, including lease obligations and guarantees.
- Review the planned $75 million to $90 million of 2015 capital expenditures against cash generation and financing capacity.