Ameresco, Inc. Form 10-Q Summary
Business context and reporting period
Ameresco provides energy-efficiency solutions, renewable-energy projects, operations and maintenance services, consulting, and photovoltaic products in the United States, Canada and Europe. This unaudited filing covers the three and six months ended June 30, 2013, compared with the restated comparable periods in 2012.
Key financial metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $126.3 million | $164.1 million | $236.4 million | $310.7 million |
| Gross profit | $23.4 million | $31.2 million | $44.9 million | $60.4 million |
| Gross margin | 18.5% | 19.0% | 19.0% | 19.4% |
| Operating income (loss) | $(1.9) million | $8.3 million | $(4.0) million | $11.7 million |
| Net income (loss) | $(1.8) million | $4.8 million | $(3.7) million | $6.6 million |
| Basic and diluted EPS | $(0.04) | $0.11 basic; $0.10 diluted | $(0.08) | $0.15 basic; $0.14 diluted |
| Cash flow from operations | $6.9 million | $6.3 million | $(18.8) million | $39.5 million |
Energy-efficiency revenue declined 28.9% in the second quarter and 33.5% year to date. Renewable-energy revenue declined 7.4% in the quarter but increased 5.0% year to date. Operating expenses were $25.3 million in the quarter and $48.9 million year to date, representing 20.0% and 20.7% of revenue, respectively.
At June 30, 2013, cash and cash equivalents were $17.6 million, restricted cash was $26.2 million, total assets were $619.9 million and stockholders’ equity was $262.0 million. Current assets were $242.2 million versus current liabilities of $114.4 million. Accounts receivable, retainage and costs and estimated earnings in excess of billings totaled approximately $154.1 million.
Total debt, based on current and long-term debt reported on the balance sheet, was approximately $200.3 million, including $13.9 million classified as current. The company had $28.6 million outstanding under its senior secured term loan, $15.0 million under its revolving facility and $95.2 million of aggregate construction and term project financing. The senior secured facility matures June 30, 2016. The company was in compliance with its financial and operational covenants; the minimum EBITDA covenant was suspended for interim periods during 2013.
Material changes versus the prior comparable period
- Second-quarter revenue fell 23.1%, while six-month revenue fell 23.9%, primarily because awarded projects took longer to convert into signed contracts.
- U.S. federal revenue declined 40.2% in the quarter and 39.9% year to date; other U.S. regions declined 37.5% and 33.6%, respectively. Canada increased 51.7% in the quarter and 5.4% year to date.
- Gross margin declined 50 basis points in the quarter and 40 basis points year to date. Renewable-energy margin was affected by project costs exceeding budget and lower revenue.
- Operating expenses increased as a percentage of revenue, despite lower salaries and benefits, because project-development and general, administrative and other expenses increased relative to the reduced revenue base.
- Cash from operations changed from $39.5 million provided in the first six months of 2012 to $18.8 million used in the first six months of 2013, principally reflecting working-capital uses and lower earnings.
- Investing cash use increased to $40.9 million year to date, including $31.6 million for project assets and $9.3 million for acquisitions. Financing activities provided $13.6 million, including $15.0 million of revolver borrowings and $9.4 million of project debt financing.
- The company acquired Ennovate in February 2013 and ESP, a United Kingdom energy-management business, in June 2013. The 2013 acquisitions added $6.0 million of goodwill and $3.7 million of intangible assets in the first six months.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management expected customer approval processes and lengthened sales cycles to continue through 2013. Fully contracted backlog was approximately $324 million at June 30, 2013, compared with approximately $391 million at June 30, 2012. Awarded but unsigned projects totaled approximately $1.113 billion, compared with $909 million a year earlier; awarded backlog remains subject to conversion risk.
- The 2012 comparison periods were restated because a 2010 interest-rate swap had been incorrectly designated for hedge accounting. The restatement affected earnings and derivative accounting but not cash flows or debt covenant calculations. Effective March 29, 2013, the swap was designated using the long-haul method.
- The company had material weaknesses in internal control over financial reporting relating to financial-reporting personnel and review procedures, and income-tax provision controls. Management stated that these weaknesses had not yet been remediated and could result in material misstatements.
- The company estimated potential exposure of up to approximately $3.3 million for U.S. solar-module antidumping and countervailing duties and had recorded a reserve for its current estimate.
- FAME sellers could receive up to an estimated $865,000 of additional consideration, for which no accrual had been recorded at June 30, 2013. AEG sellers could receive up to $5.0 million; $1.1 million had been recorded as a liability.
- Interest-rate swaps had a net liability fair value of approximately $4.2 million at June 30, 2013. The company is exposed to interest-rate, foreign-currency, project-performance, construction-cost and customer-approval risks.
- The company stated that available cash, revolving-credit availability and access to credit markets were expected to fund operations through 2014 and thereafter, but six-month operating cash flow was negative and cash declined by $45.7 million from year-end 2012.
- Seasonality is significant: revenue and operating income are typically higher in the third quarter and lower in the first quarter, with government procurement cycles and project timing contributing to volatility.
Most important facts for investors to verify
- Conversion of the $1.113 billion awarded backlog into signed contracts and the sustainability of the $324 million fully contracted backlog.
- Liquidity after the sharp year-to-date cash decline, planned project investment and required debt payments.
- Progress toward remediating the two disclosed material weaknesses in internal control over financial reporting.
- Compliance with the senior secured facility and the status of the temporarily suspended minimum EBITDA covenant.
- Final exposure from solar tariffs, acquisition-related contingent consideration and project-performance obligations.
- Whether renewable-energy project costs, gross margins and operating expenses improve sufficiently to restore positive operating income.