Ameresco, Inc. 2019 Q3 SEC Filing 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 Form 10-Q covers the three and nine months ended September 30, 2019, compared with the corresponding 2018 periods.
Financial Performance and Key Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $212.0 million | $205.4 million | $560.3 million | $569.8 million |
| Gross profit | $44.7 million | $46.2 million | $120.5 million | $124.4 million |
| Gross margin | 21.1% | 22.5% | 21.5% | 21.8% |
| Operating income | $13.5 million | $17.3 million | $33.1 million | $39.5 million |
| Net income | $8.3 million | $10.7 million | $19.7 million | $26.9 million |
| Net income attributable to common shareholders | $8.9 million | $10.7 million | $22.2 million | $26.4 million |
| Diluted EPS | $0.19 | $0.23 | $0.47 | $0.57 |
Q3 revenue increased 3.2%, but operating income declined 22.2% and net income declined 22.1%. For the nine-month period, revenue declined 1.7%, operating income declined 16.4% and net income declined 26.8%. Selling, general and administrative expense increased 8.2% in Q3 and 3.0% year to date.
Operating cash flow was negative $120.7 million for the first nine months of 2019, compared with negative $32.0 million in 2018. Investing cash flow was negative $79.9 million, including $72.1 million for energy assets. Financing cash flow was positive $172.9 million, principally from Federal ESPC project proceeds, credit-facility borrowings and project financings. Cash, cash equivalents and restricted cash totaled $70.4 million at September 30, 2019, down from $97.0 million at December 31, 2018.
Total debt and financing lease liabilities were $285.2 million at September 30, 2019, compared with $253.9 million at year-end 2018. The company reported $46.5 million available under its revolving credit facility. The amended senior secured facility increased revolving commitments to $115.0 million, increased the term loan to $65.0 million, extended maturity to June 2024 and increased the maximum funded-debt-to-EBITDA covenant ratio to 3.25.
Total assets were $1.17 billion, including $507.8 million of net energy assets. Contract assets, consisting primarily of costs and estimated earnings in excess of billings, increased to $124.7 million from $86.8 million at December 31, 2018. Backlog was approximately $1.70 billion, including $787.2 million of fully contracted backlog and $1.43 billion of awarded but not yet contracted projects. Approximately 29% of total backlog was expected to be recognized as revenue within twelve months.
Material Changes Versus the Prior Comparable Period
- U.S. Federal revenue increased 14.2% in Q3, while U.S. Regions revenue declined 2.7%; nine-month U.S. Regions revenue declined 8.8%.
- U.S. Regions and Non-Solar Distributed Generation profitability weakened due to project timing, higher direct costs, increased depreciation and higher personnel and development expenses.
- Gross margin declined because of lower-margin U.S. Federal projects and higher depreciation from the expanded energy-asset base.
- Canada returned to pretax profitability, reporting $1.5 million of pretax income for the first nine months versus a $2.0 million pretax loss in 2018.
- The company recognized a $2.2 million gain from deconsolidating a variable-interest entity into an equity-method investment.
- Adoption of the new lease standard added $32.5 million of operating lease assets and $34.7 million of operating lease liabilities at September 30, 2019; it had no reported impact on income or retained earnings at adoption.
- Redeemable non-controlling interests increased to $32.1 million from $14.7 million at year-end 2018, primarily reflecting third-party investment-fund contributions and related activity.
Guidance, Outlook, Risks and Unusual Items
Management stated that available cash, revolving-credit capacity and access to credit markets should be sufficient to fund operations for the next twelve months and thereafter. The company planned approximately $40 million to $50 million of additional 2019 capital expenditures, principally for renewable-energy plants, and approximately $20 million to $30 million of additional project financings during the remainder of 2019.
Results are subject to significant seasonality and construction cycles, with typically higher revenue and operating income in the third and fourth quarters. Key risks include project execution and cost-estimate risk, customer termination or deferral rights, long sales cycles, government procurement and funding timing, dependence on financing, interest-rate and commodity exposure, tax-credit availability, foreign-currency movements, and the collectability and timing of Federal ESPC receivables.
The company reported $110.4 million of cash usage from increases in Federal ESPC receivables. It explains that related customer-revenue inflows are recorded as financing cash flows until project acceptance, which makes reported operating cash flow materially negative during construction. Interest-rate swap liabilities were $7.6 million at September 30, 2019, compared with $3.2 million at December 31, 2018.
Legal proceedings were described as ordinary-course matters that management does not believe will have a material adverse effect. No material changes to previously disclosed risk factors were reported. The board increased the Class A share-repurchase authorization to $17.6 million; the company repurchased 10,000 shares for $139,000 during the quarter, leaving approximately $5.9 million authorized.
Most Important Facts for Investors to Verify
- Reconcile the reported Q3 diluted EPS: the financial statements show $0.19, while the MD&A text states $0.23; the filing text does not provide a clear explanation for this discrepancy.
- Assess the sustainability of negative operating cash flow and the extent to which it reflects Federal ESPC receivable growth and construction timing rather than recurring operating losses.
- Review debt maturities, covenant compliance, variable-rate exposure and the availability and terms of project financing.
- Evaluate backlog quality, including the conversion risk of the $1.43 billion of awarded but unsigned projects and the timing of the $1.70 billion total backlog.
- Monitor gross-margin pressure from lower-margin projects, higher depreciation and direct-cost inflation.
- Verify assumptions supporting renewable-energy tax credits, project development costs, contingent consideration and fair values of derivatives.
- Consider redemption and put-option obligations associated with redeemable non-controlling interests, although the filing states that put options are not expected to become exercisable before 2022.