AMRC

Ameresco, Inc. 2010 Annual Report (10-K) Summary

Business Context and Reporting Period

This report covers the fiscal year ended December 31, 2010. Ameresco, Inc. is a leading provider of energy efficiency solutions and renewable energy services in North America. The company designs, engineers, and installs projects to reduce energy consumption and operating costs for governmental, educational, utility, and commercial customers. In 2010, Ameresco completed its Initial Public Offering (IPO) in July, transitioning from a private to a public company. The company operates through four segments: U.S. Federal, Central U.S. Region, Other U.S. Regions, and Canada.

Key Financial Metrics

Note: Revenue grew 44.3% year-over-year. Net income per share (basic) was $1.12 in 2010 compared to $1.99 in 2009, primarily due to a significant increase in the weighted-average number of shares outstanding following the IPO.

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased by $189.7 million (44.3%) driven by a 33.7% increase in energy efficiency revenue and an 85.4% increase in renewable energy revenue. The U.S. Federal segment revenue more than doubled to $177.5 million.
• Capital Structure: The company completed an IPO in July 2010, raising approximately $63.4 million in gross proceeds. Proceeds were used to repay $26.9 million of the revolving credit facility, pay off a subordinated note, and fund acquisitions.
• Debt Levels: Total debt increased significantly due to project financing for renewable energy plants and Federal ESPC receivable financing, which grew from $33.4 million in 2009 to $159.6 million in 2010.
• Acquisitions: Ameresco acquired Quantum Engineering and Development in 2010 for approximately $6.3 million to expand its footprint in the Pacific Northwest.

Guidance, Outlook, and Risks

Management Commentary: Management expects to continue growing through organic expansion and strategic acquisitions. The company plans to open three to four new offices in 2011 and increase recurring revenue from Operations and Maintenance (O&M) contracts and renewable energy supply agreements. The company aims to improve gross and operating margins over time by focusing on higher-quality backlog.

Risks and Contingencies:

• Internal Controls: The company disclosed a material weakness in its internal control over financial reporting due to a lack of personnel with appropriate experience in complex GAAP and SEC reporting requirements. Remediation efforts are underway.
• Government Dependence: Approximately 87% of revenue is derived from government entities. Changes in government funding, legislation, or procurement cycles could materially impact results.
• Financing: The company relies on third-party financing for projects. Disruptions in credit markets could delay project execution. The $50 million revolving credit facility matures in June 2011.
• Performance Guarantees: Under Energy Savings Performance Contracts (ESPCs), Ameresco guarantees energy savings. While historical payments for underperformance have been minimal (less than $100,000 aggregate), future liabilities could be material.

Investor Verification Checklist

• Verify the status of the material weakness in internal controls and the timeline for remediation.
• Confirm the renewal terms and availability of the $50 million revolving credit facility maturing in June 2011.
• Monitor the conversion rate of the $483 million in awarded projects (not yet fully contracted) into signed backlog.
• Review the impact of the U.S. Department of Energy Savannah River Site project, which accounted for 11.5% of total revenue in 2010.
• Assess the sustainability of renewable energy margins, which decreased from 24.4% in 2009 to 20.5% in 2010 due to a shift in project mix.