Ameresco, Inc. — Q1 2014 Form 10-Q Summary
Business context and reporting period
Ameresco provides energy-efficiency solutions, renewable-energy project development and operations, energy-management services, and photovoltaic products across the United States, Canada, and Europe. The filing covers the unaudited three months ended March 31, 2014, compared with the three months ended March 31, 2013. Results are seasonally weaker in the first quarter because of weather, construction cycles, and government procurement timing.
Key financial metrics
- Revenue: $100.7 million, down 8.5% from $110.1 million.
- Gross profit: $17.6 million; gross margin declined to 17.4% from 19.5%.
- Operating loss: $6.8 million, compared with $2.1 million.
- Net loss: $8.3 million, or $0.18 per basic and diluted share, compared with a $1.9 million loss, or $0.04 per share.
- Adjusted EBITDA: negative $0.9 million, compared with positive $4.3 million.
- Operating cash flow: $2.4 million, compared with cash used of $33.6 million in the prior-year quarter. Adjusted free cash flow was $5.6 million versus negative $28.2 million.
- Investing cash flow: cash used of $8.6 million, primarily for renewable-energy project assets.
- Financing cash flow: cash provided of $9.0 million, including an $8.0 million revolver draw and $3.5 million of Federal ESPC project proceeds.
- Cash and cash equivalents: $20.7 million at March 31, 2014, compared with $17.2 million at December 31, 2013; restricted cash was $15.8 million.
- Debt and related obligations: long-term debt, including current maturities, was $121.2 million. Project financing loans totaled $88.9 million, and Federal ESPC liabilities totaled $47.8 million. The filing reports total contractual obligations of $216.0 million, including debt, interest, and operating leases.
- Liquidity: management stated that cash, revolver availability, and expected access to credit markets should fund operations through 2014 and thereafter.
Material changes versus the prior comparable period
- Revenue declined primarily because of the size and completion phase of active projects, especially in U.S. Regions and U.S. Federal.
- Gross margin contracted because of a less favorable mix of lower-margin revenue and higher fuel and operating costs at the Savannah River Site related to weather.
- SG&A increased 3.1% to $24.3 million, primarily due to severance charges. Unallocated corporate costs increased 29.5% to $8.1 million, driven by severance and higher professional fees.
- Net interest and other expenses increased by $1.3 million, including higher interest expense, foreign-currency transaction losses, and lower derivative gains.
- U.S. Regions revenue fell 25.0% and income before taxes fell 86.6%. U.S. Federal revenue fell 12.4% and reported no income before taxes. Canada revenue increased 19.3% but its pretax loss widened to $1.4 million. Small-Scale Infrastructure revenue rose 7.8%, while pretax income declined 40.9%.
- Fully contracted backlog increased to approximately $395.1 million from $343.8 million. Awarded but unsigned projects were approximately $963.6 million, down from approximately $1.2 billion.
- Cash flow comparisons were affected by a prior-period reclassification: advances under Federal ESPC arrangements were classified as financing rather than operating cash flows.
Guidance, outlook, commentary, risks, and unusual items
- The filing does not provide specific revenue, earnings, or adjusted EBITDA guidance. Management expects available liquidity to fund operations through 2014 and thereafter.
- The March 2014 amendment to the senior secured facility waived the prior minimum EBITDA covenant for the four quarters ended December 31, 2013 and reduced covenant thresholds for 2014. Ameresco reported compliance with all financial covenants at March 31, 2014.
- The senior facility had $8.0 million outstanding on its revolver and $24.3 million outstanding under its term loan; it matures June 30, 2016.
- Federal ESPC financing remains dependent on project completion and government acceptance. Ameresco remains the primary obligor until acceptance, and related receivables and liabilities are then removed from the balance sheet.
- The company had a material weakness in internal control over financial reporting related to timely preparation and review of financial statements and disclosures. Remediation continued, but management stated that additional work was required and the weakness remained in effect.
- A solar tariff contingency could result in combined duties of up to approximately $3.3 million; the company has recorded a reserve for its current estimate of exposure.
- Legal proceedings are described as ordinary-course matters that management does not believe will have a material adverse effect, although outcomes cannot be predicted with certainty.
- Results depend significantly on percentage-of-completion estimates, project margins, government procurement timing, weather, subcontractors, financing access, interest rates, foreign currency, tax credits, and customer acceptance of projects.
Important facts for investors to verify
- Whether the company achieves improving project margins and returns to positive adjusted EBITDA after the seasonally weak first quarter.
- Progress converting the $963.6 million of awarded but unsigned projects into contracted backlog and revenue.
- Compliance with the progressively higher EBITDA and leverage covenants later in 2014 and refinancing requirements before the June 2016 maturity.
- Completion and acceptance timing for Federal ESPC projects and the associated $47.8 million liability.
- Execution of remediation plans for the material weakness in internal controls.
- Final resolution and cash impact of the solar tariff contingency and other contractual or legal claims.