Ameresco, Inc. 2015 Form 10-K Summary
Business context and reporting period
Ameresco provides energy-efficiency services, infrastructure upgrades, renewable-energy development and operations, O&M services, consulting, and integrated photovoltaic products across the United States, Canada and the United Kingdom. The filing covers the fiscal year ended December 31, 2015; quarterly data includes the three months ended December 31, 2015.
- Ameresco owned and operated 49 small-scale renewable-energy plants and solar PV installations with aggregate capacity exceeding 158 megawatt equivalents.
- The company had 1,037 employees at December 31, 2015.
- More than 80% of revenue historically came from federal, state, provincial or local government entities. The U.S. federal government represented 20.2% of 2015 revenue.
Financial performance and key metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $630.8 million | $593.2 million | +6.3% |
| Gross profit | $117.1 million | $116.9 million | Approximately flat |
| Gross margin | 18.6% | 19.7% | Down 1.1 percentage points |
| Operating income | $7.1 million | $13.2 million | Down 46.3% |
| Income before taxes | $0.3 million | $6.3 million | Down 95.4% |
| Net income attributable to Ameresco | $3.0 million | $10.4 million | Down 71.3% |
| Diluted EPS | $0.06 | $0.22 | Down $0.16 |
| Operating cash flow | $(49.5) million | $1.3 million | Significant deterioration |
| Capital expenditures | $52.7 million | $24.7 million | More than doubled |
Reported net loss was $2.6 million, but $5.5 million of loss was attributed to redeemable non-controlling interests, resulting in $3.0 million of net income attributable to Ameresco. The 2015 effective tax rate was unusually high at approximately 974%, primarily because of a valuation allowance related to Canadian losses and the absence of investment tax credits from owned plants placed in service during the year.
- Revenue from projects increased to $434.4 million from $388.3 million; operating-asset revenue increased to $55.1 million from $52.2 million; O&M revenue increased to $59.1 million from $57.2 million.
- Integrated-PV revenue declined to $40.1 million from $52.5 million.
- Cash and cash equivalents were $21.6 million at year-end, compared with $23.8 million in 2014. Restricted cash was $16.2 million.
- Total assets increased to $728.7 million from $621.9 million, primarily reflecting higher project assets, receivables and development activity.
- Total debt and capital lease liabilities were approximately $119.2 million, including $25.5 million under the senior secured credit facility, $87.5 million of project financing, and $6.8 million of capital leases.
Material changes versus the prior comparable period
- U.S. Regions revenue increased 14.4% to $301.4 million, while pretax income was essentially flat at $24.8 million.
- U.S. Federal revenue increased 20.2% to $127.6 million and pretax income increased 18.8% to $16.7 million.
- Canada revenue declined 30.2% to $49.2 million and the pretax loss widened to $15.4 million from $7.8 million. The deterioration reflected unfavorable foreign exchange, cost-budget revisions and a $6.6 million reserve for potential future losses on a significant project, as well as $4.0 million of restructuring charges.
- Small-Scale Infrastructure revenue increased 13.8% to $66.3 million and pretax income increased 169.9% to $8.6 million, partly due to more fully operational owned plants and property-tax estimate revisions.
- SG&A increased 6.0% to $110.0 million, including $6.6 million of restructuring charges and higher project-development costs.
- Fully contracted backlog increased modestly to $390.4 million from $386.2 million. Awarded projects without signed contracts increased to $955.8 million from $853.8 million. Twelve-month backlog was $310.8 million versus $309.7 million.
- The company entered into a third amended senior credit facility in June 2015, extending the revolving facility maturity to June 2020 and providing a $60.0 million revolver and a $17.1 million term loan at closing.
- Ameresco formed an investment fund with a third-party investor to finance certain solar projects. The arrangement resulted in $6.0 million of investor contributions and $5.5 million of loss attributed to redeemable non-controlling interests.
Guidance, outlook, commentary, risks and unusual items
- Management stated that cash, availability under the revolving facility and access to credit markets were expected to be sufficient to fund operations through 2016 and thereafter.
- Planned 2016 capital expenditures were approximately $50 million to $75 million, principally for new renewable-energy plants.
- Management expected approximately 90% of awarded projects historically to convert into signed contracts, but conversion typically requires 12 to 18 months and is not assured.
- The business has long sales and construction cycles, generally 18 to 42 months for sales, design and construction and 12 to 24 months for contracted project construction. Results are seasonal, with typically stronger third and fourth quarters and weaker first quarters.
- Operating cash flow was materially affected by Federal ESPC financing: customer-related cash advances are reported as financing inflows while related project expenditures are reported in operating activities. Federal ESPC receivables increased to $125.8 million and related liabilities increased to $122.0 million.
- The company recorded $6.6 million of restructuring charges in 2015 and a $6.6 million Canada project cost revision and reserve. No goodwill impairment was recorded, although the Integrated-PV reporting unit had only a 5% fair-value cushion over carrying value.
- Key risks include dependence on government customers and appropriations, contract termination and modification rights, project execution and fixed-price contract risk, energy-savings performance guarantees, access to financing and surety bonds, foreign exchange exposure, permitting and environmental compliance, renewable-plant output risk, customer credit risk and competition.
- The IRS and other tax authorities may examine prior tax years; the filing states that U.S. federal tax returns for 2009 through 2013 were under audit. Gross unrecognized tax benefits were $2.2 million at year-end, and the company considered a reduction of up to $1.0 million reasonably possible within the following twelve months.
- Legal proceedings were described as ordinary-course matters not expected by management to have a material adverse effect. A solar tariff contingency relating to historical PRC-cell imports was resolved in the first quarter of 2016.
Important facts for investors to verify
- Reconcile the deterioration in operating cash flow with the financing inflows and balance-sheet growth associated with Federal ESPC projects.
- Assess whether the Canada segment’s project reserve and restructuring actions are sufficient, and whether further losses or impairments could occur.
- Evaluate the quality and timing of the $390.4 million contracted backlog and the conversion risk associated with the additional $955.8 million of awarded projects.
- Review debt maturities, covenant compliance and liquidity after planned 2016 capital expenditures, including the $122.0 million of Federal ESPC liabilities.
- Consider the sustainability of margins after the decline to 18.6% and the company’s dependence on project closeouts, government spending and tax incentives.
- Review the economics, redemption provisions and earnings volatility associated with the third-party investment fund and redeemable non-controlling interest.
- Consider governance and control implications: Class B shares carry five votes per share, and George P. Sakellaris and affiliates controlled approximately 80% of combined voting power.