Ameresco, Inc. 10-Q Summary: Period Ended September 30, 2010
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Ameresco, Inc., a provider of energy efficiency solutions and renewable energy services in North America. The report covers the three and nine months ended September 30, 2010. The period is notable for the Company's Initial Public Offering (IPO) completed in July 2010, which resulted in a dual-class capital structure and significant changes to the balance sheet and share count.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenue | $191.9 million | $438.9 million |
| Gross Profit | $34.9 million | $79.4 million |
| Operating Income | $18.9 million | $33.5 million |
| Net Income | $12.0 million | $21.0 million |
| Diluted EPS | $0.28 | $0.53 |
| Cash and Cash Equivalents | $29.3 million | $29.3 million (Balance Sheet) |
| Total Debt (Current + Long-term) | $185.6 million | $185.6 million (Balance Sheet) |
Note: Debt figures include Federal ESPC receivable financing and long-term project loans. The Company repaid its $50 million revolving credit facility and subordinated debt using IPO proceeds during the quarter.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 45.1% year-over-year for the quarter and 48.7% for the nine-month period, driven by higher volumes in both energy efficiency and renewable energy projects.
- Profitability: Net income rose 46.9% for the quarter and 103.5% for the nine-month period compared to the prior year.
- Capital Structure: The Company completed its IPO, issuing Class A common stock and converting preferred stock. This significantly increased the weighted average shares outstanding (diluted shares increased 21.9% for the quarter and 13.5% for the nine months).
- Acquisitions: The Company acquired Quantum Engineering and Development, Inc. in August 2010 for approximately $6.15 million.
- Other Income/Expense: Net other expense increased to $2.0 million for the quarter (from income of $0.9 million) and $4.1 million for the nine months (from income of $1.5 million), primarily due to the absence of a $2.5 million derivative gain recognized in the prior year and increased interest expenses.
Guidance, Outlook, and Risks
- Backlog: As of September 30, 2010, the Company reported a backlog of approximately $593 million in signed contracts and an additional $531 million in awarded but unsigned projects.
- Internal Controls: Management identified a material weakness in internal control over financial reporting due to a lack of personnel with sufficient expertise in complex GAAP issues and SEC reporting requirements. Remediation plans include hiring additional technical staff.
- Legal Proceedings: A dispute exists with a customer regarding a default termination of a construction contract. The Company has claims of approximately $3.0 million outstanding but has not recognized revenue or profit on these claims pending resolution.
- Seasonality: The Company notes that revenue and operating income are typically higher in the third quarter and lower in the first quarter due to construction cycles and government procurement timing.
Investor Verification Checklist
- Internal Control Remediation: Verify the progress of hiring and training to address the disclosed material weakness in financial reporting controls.
- Customer Concentration: Monitor the U.S. Department of Energy (Savannah River Site), which accounted for 11.3% of revenue in the nine-month period.
- Legal Contingency: Track the status of the $3.0 million claim dispute regarding the terminated construction contract.
- Debt Covenants: Confirm continued compliance with financial covenants, particularly the minimum EBITDA requirement for the revolving credit facility (though currently paid down).
- Derivative Hedging: Review the impact of interest rate swaps designated as cash flow hedges on future earnings volatility.