Ameresco, Inc. — Q2 2020 Form 10-Q Summary
Business context and reporting period
Ameresco provides energy-efficiency solutions, renewable-energy project development and construction, energy-asset ownership and operations and maintenance services across North America and Europe. This unaudited filing covers the three and six months ended June 30, 2020, compared primarily with the corresponding 2019 periods.
The company reported that COVID-19 had no material effect on first-half 2020 results, but warned that project-award conversions, construction activity, customer payments, supply chains and demand could be adversely affected as the pandemic continued.
Financial performance and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $223.0 million, up 12.5% | $435.4 million, up 25.0% |
| Gross profit | $39.5 million | $78.0 million |
| Gross margin | 17.7%, versus 21.8% | 17.9%, versus 21.8% |
| Operating income | $12.9 million | $22.4 million |
| Net income | $8.8 million | $15.5 million |
| Net income attributable to common shareholders | $4.4 million | $10.6 million |
| Diluted EPS | $0.09, versus $0.19 | $0.22, versus $0.28 |
| Operating cash flow | Not separately provided | $(73.6) million |
- Revenue growth was driven primarily by higher project revenue, including U.S. Federal project activity, and increased energy-asset and operations-and-maintenance revenue. Integrated photovoltaic and other revenue declined.
- Quarterly net income increased 3.9%, while six-month net income increased 36.0%, benefiting in part from a $2.5 million income-tax benefit in the first half of 2020 versus a $1.1 million provision in the prior-year period.
- Common-shareholder earnings declined despite higher consolidated net income because redeemable non-controlling interests recorded net income of $4.9 million in the first half of 2020 versus income of $2.0 million in the prior-year period, and $4.5 million in the second quarter versus income of $0.7 million in the prior-year quarter.
- SG&A declined 11.5% in the quarter and 1.1% year to date, primarily from lower salaries, benefits and travel expenses.
Cash flow, balance sheet, debt and liquidity
- Cash, cash equivalents and restricted cash totaled $66.9 million at June 30, 2020, down from $77.3 million at December 31, 2019. Cash and cash equivalents were $41.9 million, with $15.2 million of short-term restricted cash and $9.9 million of long-term restricted cash.
- Operating activities used $73.6 million in the first half, compared with $109.3 million used in the prior-year period. The cash use included an $89.8 million increase in Federal ESPC receivables and a $45.3 million reduction in accounts payable, accrued expenses and other current liabilities.
- Investing activities used $78.7 million, including $77.2 million for energy assets, compared with $50.7 million used in the prior-year period.
- Financing activities provided $142.4 million, including $133.6 million of proceeds from Federal ESPC projects and $16.0 million of net proceeds from the senior secured credit facility.
- Total debt and financing lease liabilities were $346.1 million at June 30, 2020, including $295.0 million classified as long-term after current maturities and deferred financing fees. The company also had $334.7 million of Federal ESPC liabilities.
- The senior secured credit facility had a total commitment of $185.0 million, with $35.7 million available for borrowing at June 30. A separate $100.0 million construction revolver entered into in June 2020 had no borrowings at quarter-end and matured in November 2020.
- The company was not in compliance with certain financial covenants on one project-financing facility at June 30, 2020, but received a waiver in July 2020 effective as of June 30.
- Management stated that available cash, revolving-credit capacity and access to credit markets were expected to fund operations for at least the next twelve months. It was limiting discretionary spending and reprioritizing capital projects.
Material changes versus the prior comparable period
- Six-month revenue increased $87.2 million, or 25.0%, primarily from an $83.8 million increase in project revenue.
- Gross margin declined materially to 17.9% from 21.8% year to date. Management attributed the decline to a greater mix of design-build and other lower-margin projects.
- U.S. Federal revenue increased 56.2% year to date to $153.2 million, while U.S. Regions revenue increased 20.6% to $173.4 million. Canada revenue increased 35.9% to $20.4 million.
- Non-Solar Distributed Generation revenue increased 3.1% year to date, but segment income before taxes declined 4.4% because of lower project margins.
- All Other revenue declined 9.3% year to date, primarily because of lower integrated-PV revenue; the prior-year period also included a $2.2 million gain from deconsolidation of a variable-interest entity.
- Backlog increased: fully contracted backlog was approximately $1.018 billion versus $788.7 million, awarded but unsigned backlog was $1.202 billion versus $1.237 billion, and 12-month backlog was $612.4 million versus $431.4 million.
- Operations-and-maintenance backlog increased to approximately $1.134 billion from $906.5 million. Assets in development increased to $752.5 million from $518.4 million.
Guidance, outlook, risks and unusual items
- The company planned approximately $110 million to $160 million of additional capital expenditures and project financings during the remainder of 2020, principally for construction or acquisition of renewable-energy plants.
- Management expected seasonal strength in the third and fourth quarters, but noted that government procurement cycles, construction timing and weather can cause substantial fluctuations.
- COVID-19 was expected to delay project-award conversions and potentially slow construction. The ultimate effect on 2020 results, liquidity and cash flows remained uncertain.
- The CARES Act was expected to provide approximately $2.0 million of discrete tax benefit, a $1.7 million refund of prior-year taxes and approximately $3.6 million of Alternative Minimum Tax credit refunds. Approximately $5.0 million of employer payroll taxes was expected to be deferred, with repayment split between 2021 and 2022.
- The company extended and expanded a solar sale-leaseback funding arrangement through November 24, 2020, with up to $150 million of funding; $131 million remained available at June 30.
- Interest-rate swap liabilities increased to approximately $11.7 million from $6.2 million at December 31, 2019, contributing to a $4.1 million year-to-date unrealized loss recognized in other comprehensive income.
- The company reported no material legal proceedings, no goodwill or long-lived-asset impairment trigger related to COVID-19, and no material changes to previously disclosed risk factors.
- In July 2020, the company entered into a $30 million construction revolver, potentially expandable by another $20 million, maturing in July 2022.
Most important facts for investors to verify
- Whether COVID-19 causes additional delays in project awards, construction schedules, collections or supply chains.
- Whether the lower gross-margin trend persists as the project mix shifts toward design-build and other lower-margin work.
- The company’s ability to convert awarded backlog into signed contracts and recognize its $2.151 billion of reported backlog.
- Compliance with all debt covenants after the June 30 violation and the terms and duration of the related waiver.
- Funding availability and refinancing needs for the planned $110 million to $160 million of second-half capital expenditures.
- The sustainability of positive net income and liquidity given negative operating cash flow, significant Federal ESPC receivables and continued energy-asset investment.
- The impact of redeemable non-controlling interests on earnings attributable to common shareholders.