Ameresco, Inc. 2020 Form 10-K Summary
Business context and reporting period
Ameresco is a clean-technology integrator providing energy-efficiency, renewable-energy, operations and maintenance, energy-asset, solar, consulting and enterprise energy-management services across North America, the United Kingdom and other markets. The filing covers the fiscal year ended December 31, 2020, rather than a standalone fourth quarter.
Approximately 71.5% of 2020 revenue came from federal, state, provincial or local government entities. The company owned and operated 130 renewable-energy plants and solar installations with aggregate capacity of 282 MWe at year-end, with an additional 351 MWe in development or construction.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $1,032.3 million | $866.9 million | +19.1% |
| Gross profit | $187.5 million | $168.1 million | +11.6% |
| Gross margin | 18.2% | 19.4% | Down 1.2 percentage points |
| Operating income | $71.5 million | $51.6 million | +38.5% |
| Operating margin | 6.9% | 6.0% | Up 0.9 percentage points |
| Net income | $56.9 million | $40.3 million | +41.2% |
| Net income attributable to common shareholders | $54.1 million | $44.4 million | +21.6% |
| Diluted EPS | $1.10 | $0.93 | +$0.17 |
| Cash flow from operations | $(102.6) million | $(196.3) million | Improved by $93.7 million |
| Cash flow from investing | $(181.0) million | $(142.2) million | Higher investment |
| Cash flow from financing | $305.2 million | $317.4 million | Down $12.3 million |
Revenue growth was driven primarily by a 25% increase in project revenue and a 21% increase in energy-asset revenue. Integrated-PV revenue declined 18%, mainly because of weaker sales to oil and gas customers. Gross margin declined because of a higher mix of lower-margin projects, while operating margin improved as selling, general and administrative expense declined modestly.
At December 31, 2020, cash and cash equivalents were $66.4 million, restricted cash was $32.4 million, working capital was $107.6 million and availability under the revolving credit facility was approximately $50.0 million. Total debt and financing lease liabilities were $391.8 million, including $110.8 million outstanding under the senior secured credit facility and $224.9 million of project-financing construction and term loans. Federal ESPC liabilities were $440.2 million.
Energy-asset capital investments, net of grant proceeds, were approximately $178.7 million in 2020. Management planned approximately $200 million to $250 million of capital investment and $150 million to $200 million of additional financing in 2021, principally for renewable-energy plants.
Material changes versus the prior comparable period
- Project revenue increased to $764.6 million from $611.1 million, and energy-asset revenue increased to $118.2 million from $98.0 million.
- U.S. Federal revenue grew 31.5% to $377.9 million and U.S. Regions revenue grew 9.7% to $400.5 million. Non-Solar DG revenue grew 25.7% to $106.4 million.
- Backlog declined modestly overall: fully contracted project backlog fell to $895.7 million from $1,107.6 million, while awarded but unsigned project backlog increased to $1,318.7 million from $1,160.4 million. O&M backlog was $1,131.1 million versus $1,142.3 million.
- Assets in development increased to $1.02 billion from $681.0 million.
- Operating cash outflow improved substantially, but remained negative, while investing outflows increased because of renewable-energy asset development and acquisitions.
- The company recorded a $1.0 million impairment charge on a landfill-gas-to-energy asset after an engine failed to achieve emissions compliance.
- Other income included $1.9 million of government incentives. The 2020 tax benefit reflected, among other items, the release of a Canadian valuation allowance, tax benefits from employee stock options, CARES Act net operating loss carrybacks and energy-related tax benefits.
- Ameresco launched its first owned and operated wind project in Ireland and completed one energy-project acquisition; no business acquisitions were completed during the year.
Guidance, outlook, commentary and risks
Management stated that COVID-19 caused project-award delays and construction slowdowns during the first half of 2020, but the overall impact on 2020 results and liquidity was not material. The company continued to experience a lengthened sales cycle and stated that the future impact remained uncertain.
Management believed available cash, working capital, revolving-credit availability and access to credit markets would fund operations through at least March 2022. The company also stated that it was in default on one project-financing term loan for failing to maintain a projected 1.20-to-1.00 debt-service-coverage ratio; a limited waiver was received in January 2021. The senior facility requires a debt-service-coverage ratio of at least 1.50-to-1.00 and a total-funded-debt-to-EBITDA ratio that reverted to 3.25-to-1.00 on March 31, 2021.
- COVID-19 may continue to delay sales, project completion, collections and supply chains.
- More than 71% of revenue and a substantial majority of backlog depend on government customers, exposing the company to appropriations, contract termination, procurement and government-credit risks.
- Backlog includes awarded projects without signed contracts and depends on financing, final scope, customer acceptance and execution; customers may defer or terminate certain contracts.
- Project revenue is recognized over time using cost-to-cost estimates. Changes in expected project costs, subcontractor performance, delays or construction conditions could materially affect revenue and profit recognition.
- A substantial portion of earnings depends on renewable-energy certificates, renewable-identification numbers and other environmental attributes, whose prices and availability may fluctuate with regulation and market conditions.
- Renewable-energy assets face operating, output, permitting, offtake, commodity-price and impairment risks.
- The SEC was investigating revenue recognition and compensation practices in the company’s software-as-a-service businesses for periods beginning January 1, 2014. The company’s review had not identified material misstatements as of the filing date, but the investigation was incomplete and could result in restatement, remediation costs, penalties or litigation.
- Debt agreements contain financial and operating covenants, acceleration provisions and restrictions on dividends, acquisitions, additional debt and investments. Certain borrowings are exposed to LIBOR transition risk.
- The filing identifies government-policy, tax-credit, regulatory, environmental, cybersecurity, foreign-exchange, customer-credit, competition and key-personnel risks.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Critical audit matters included project-revenue recognition and goodwill impairment.
Important facts for investors to verify
- Reconcile reported operating cash flow with project growth and the financing structure of Federal ESPC advances, including the $440.2 million ESPC liability.
- Review debt maturities, covenant compliance, the January 2021 waiver and available borrowing capacity after the March 31, 2021 covenant reset.
- Assess the conversion rate and timing of the $1.32 billion awarded but unsigned project backlog, as well as customer termination and financing assumptions.
- Evaluate the sustainability of the 2020 tax benefit and the effect of renewable-energy tax credits, Section 179D and CARES Act benefits on normalized earnings.
- Monitor the SEC SaaS investigation and any subsequent restatement, control remediation, regulatory action or related litigation.
- Analyze exposure to renewable-energy certificate and RIN prices, merchant energy sales and expiring or non-existent long-term offtake agreements.
- Verify planned 2021 capital expenditures and financing needs against cash generation, debt capacity and project-level funding availability.
- Consider the effect of lower gross margin, construction-cost estimates and the $1.0 million energy-asset impairment on future profitability.