Ameresco, Inc. 2018 Second-Quarter Form 10-Q Summary
Business Context and Reporting Period
Ameresco provides energy-efficiency, renewable-energy, operations and maintenance, consulting, and photovoltaic solutions in North America and Europe. This unaudited Form 10-Q covers the three and six months ended June 30, 2018, compared with the corresponding 2017 periods.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $197.0 million, up 18.2% | $364.4 million, up 20.9% |
| Gross profit | $42.8 million; 21.7% margin | $78.2 million; 21.5% margin |
| Operating income | $14.0 million; 7.1% margin | $22.2 million; 6.1% margin |
| Net income | $8.7 million | $16.2 million |
| Net income attributable to common shareholders | $8.7 million; diluted EPS $0.19 | $15.7 million; diluted EPS $0.34 |
| Operating cash flow | Not separately provided | $(57.1) million |
| Investing cash flow | Not separately provided | $(62.3) million |
| Financing cash flow | Not separately provided | $124.0 million |
- Six-month gross margin improved from 20.4% to 21.5%; operating margin improved from 2.7% to 6.1%.
- Cash, cash equivalents, and restricted cash totaled $64.5 million at June 30, 2018, including $28.0 million of unrestricted cash.
- Total debt and capital lease liabilities were $256.3 million, including $27.5 million classified as current, compared with $202.2 million at December 31, 2017. Long-term debt, net of current maturities and financing fees, was $221.3 million.
- Availability under the revolving credit facility was $67.3 million. The amended credit facility increased revolving commitments to $85.0 million, increased the term loan to $46.0 million, and increased the total commitment to $136.0 million. The company was in compliance with all financial and operational covenants.
- Total assets increased to $1.04 billion from $984.0 million at year-end 2017, largely reflecting growth in energy assets, receivables, and project activity.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by U.S. Regions, which increased 49.5% for the six-month period, and Non-Solar Distributed Generation, which increased 23.3%.
- U.S. Federal revenue declined 1.0% for the six-month period, but segment income before taxes increased 11.0% due primarily to a favorable mix of higher-margin projects.
- Canada revenue declined 8.8% and the segment reported a $2.6 million pretax loss versus $0.1 million of pretax income in the prior-year period, due to lower project revenue, higher development costs, and unfavorable foreign exchange effects.
- Non-Solar DG results benefited from increased energy and incentive revenue from a renewable natural gas plant placed in service during the first half of 2018.
- Operating cash flow remained substantially negative, worsening from $(51.4) million to $(57.1) million, primarily because of increased accounts receivable, Federal ESPC receivables, and working-capital requirements.
- Investing outflows increased as the company spent $26.2 million on energy assets and $34.0 million on acquisitions, compared with $51.4 million of energy-asset purchases and $2.4 million of acquisitions in the prior-year period.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method, reducing beginning retained earnings by $4.5 million. The adoption reduced reported six-month operating income by $0.2 million and net income by $0.2 million versus amounts calculated under the prior revenue-recognition guidance.
Outlook, Commentary, Risks, and Unusual Items
- Management stated that cash, revolver availability, and access to credit markets should be sufficient to fund operations for the next twelve months and thereafter.
- Management planned approximately $70 million of additional capital expenditures, principally for energy-asset acquisitions and construction, during the remainder of 2018, and approximately $50 million of additional project financing in the second half of 2018.
- At June 30, 2018, fully contracted backlog was approximately $679.1 million, awarded but unsigned projects were approximately $1.30 billion, and 12-month backlog was $354.7 million. Approximately 26% of total remaining performance obligations of $1.575 billion was expected to be recognized within twelve months.
- Results are seasonal and affected by construction cycles, government procurement timing, legislative delays, and project timing. Revenue and operating income are typically stronger in the third and fourth quarters.
- The six-month tax benefit of $1.5 million included a $4.6 million benefit from the retroactive extension of the Section 179D deduction and investment tax credits. Tax benefits may fluctuate with renewable-energy investment and production levels.
- Redeemable non-controlling interests increased to $12.3 million from $10.3 million. Management noted that allocations under the HLBV method can create significant quarter-to-quarter volatility in income attributable to common shareholders.
- The company entered into new project debt, including a $28.5 million renewable natural gas term loan and additional June 2018 project financings. In August 2018, it repaid the loan associated with the 5.58% variable-rate term loan originally due December 2024.
- During the third quarter, the company closed the acquisition of three solar projects for total consideration of $40.1 million, with $35.3 million paid as of the filing date.
- The company reported no material changes to the risk factors in its 2017 Form 10-K, no material adverse pending legal proceedings, and no reportable off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Reconcile negative operating cash flow with reported earnings, particularly the treatment and timing of Federal ESPC receivables and financing inflows.
- Assess leverage, variable-rate exposure, debt maturities, covenant compliance, and the remaining availability under the revolver.
- Evaluate whether backlog and awarded projects convert to signed contracts and revenue on the expected schedule; customers may terminate or defer certain contracts.
- Monitor Canada’s operating performance, project development costs, foreign exchange exposure, and the contribution from renewable natural gas assets.
- Separate recurring operating performance from the ASC 606 adoption effects, Section 179D tax benefit, investment tax credits, acquisition activity, and HLBV allocations to redeemable non-controlling interests.
- Review the financing and completion requirements for solar and renewable-energy projects, including the third-quarter acquisitions and planned 2018 capital expenditures.