Ameresco, Inc. — Fiscal 2013 Form 10-K Summary
Business context and reporting period
Ameresco provides energy-efficiency services, infrastructure upgrades, operations and maintenance, enterprise energy management, solar products and renewable-energy development, construction and operations across the United States, Canada and the United Kingdom. The filing covers the fiscal year ended December 31, 2013, with comparative results for 2012 and 2011. The company had 976 employees, 70 offices and more than 1,000 customers at year-end.
Ameresco acquired Ennovate in the first quarter and the U.K.-based ESP businesses in the second quarter of 2013. More than 80% of revenue historically came from federal, state, provincial or local government customers; the U.S. federal government represented 12.3% of 2013 revenue.
Financial performance and liquidity
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $574.2 million | $631.2 million | Down 9.0% |
| Gross profit | $103.3 million | $128.1 million | Down 19.4% |
| Gross margin | 18.0% | 20.3% | Down 230 basis points |
| Operating income | $6.6 million | $28.7 million | Down 76.9% |
| Net income | $2.4 million | $18.4 million | Down 86.9% |
| Diluted EPS | $0.05 | $0.40 | Down $0.35 |
| Adjusted EBITDA | $29.9 million | $52.4 million | Down 42.9% |
| Cash flow from operations | $(60.6) million | $42.2 million | Declined $102.8 million |
| Adjusted free cash flow | $(22.9) million | $67.4 million | Declined $90.3 million |
Revenue from energy-efficiency projects fell to $369.5 million from $449.0 million, while renewable-energy revenue increased to $204.7 million from $182.2 million. O&M, energy supply, solar, consulting and enterprise energy-management revenue increased overall. Management attributed the energy-efficiency decline principally to delays in converting awarded projects into signed contracts.
Cash and cash equivalents were $17.2 million at December 31, 2013, compared with $63.3 million at December 31, 2012. Current assets were $249.8 million and current liabilities were $131.2 million. Total assets were $604.7 million and stockholders’ equity was $276.8 million.
Capital expenditures were $23.6 million, including $24.5 million of renewable-energy project investments and $2.3 million of property and equipment purchases, partially offset by grants and rebates. Management planned approximately $15.0 million of 2014 capital expenditures, principally for new renewable-energy plants.
Backlog, debt and material changes
- Fully contracted backlog was approximately $361.9 million at December 31, 2013, compared with $367.0 million at year-end 2012.
- Awarded projects without signed contracts totaled approximately $993.0 million, down from approximately $1.1 billion at year-end 2012. Awarded projects are management estimates and are not contractually committed revenue.
- The company owned and operated 41 renewable-energy plants and solar photovoltaic installations with aggregate capacity exceeding 115 megawatt equivalents.
- Total long-term debt, including current maturities, was $116.2 million at year-end 2013, compared with $121.5 million at year-end 2012. Project-financing debt was generally nonrecourse to Ameresco, although certain guarantees and support obligations remained.
- The $60.0 million revolving credit facility had no revolver borrowings outstanding; $25.7 million remained outstanding under its term loan. The facility matures in June 2016.
- Federal ESPC liabilities declined to $44.3 million from $92.8 million. These liabilities generally are removed when the related federal project is completed and accepted.
- The company revised the classification of advances under federal ESPC financing arrangements. As revised, 2013 operating cash flow was $(60.6) million and 2012 operating cash flow was $42.2 million; the related cash inflows were classified as financing activities.
- During the fourth quarter, the company retired 4.8 million treasury shares previously recorded on the balance sheet.
Guidance, outlook, commentary and risks
Management stated that cash, availability under the revolving facility and access to credit markets were expected to fund operations through 2014 and thereafter. Management also expected the lagged effect of slower awarded-project conversion to continue into 2014. The company did not provide a specific revenue or earnings forecast in the filing.
Following the weak 2013 results, the senior credit facility was amended in March 2014. The amendment waived the minimum EBITDA covenant for the four quarters ended December 31, 2013, reduced minimum EBITDA requirements for 2014 and temporarily increased permitted funded-debt-to-EBITDA thresholds. The company reported compliance with its covenants at December 31, 2013 and stated that it did not consider a covenant breach likely during the following twelve months.
Key risks include long and variable sales cycles, government budget and procurement uncertainty, dependence on government customers and incentives, possible cancellation or modification of government contracts, project execution and performance-guarantee obligations, access to project financing and surety bonds, renewable-plant operating performance, competition, foreign-currency exposure, tax-law changes and customer credit risk.
The company identified a material weakness in internal control over financial reporting related to timely preparation and review of financial statements and disclosures. Management implemented remediation measures during 2013 but stated that additional work would continue throughout 2014. The independent auditor issued an adverse opinion on the effectiveness of internal control over financial reporting, while issuing an unqualified opinion on the consolidated financial statements.
Other unusual or contingent items include a potential solar-module tariff liability of up to approximately $3.3 million, for which the company established a reserve; approximately $9.2 million of gross unrecognized tax benefits at year-end; and a pending U.S. federal tax examination for tax years 2009 through 2011 noted in the risk disclosures.
Important facts for investors to verify
- Whether awarded projects convert to signed contracts at the historical rate and within the expected 12-to-16-month timeframe.
- Whether revenue and margins recover after the 2013 decline in energy-efficiency activity and lower project closeout benefits.
- Actual 2014 operating cash flow, adjusted free cash flow and working-capital requirements, particularly federal ESPC receivables.
- Compliance with the amended credit-facility EBITDA, leverage and debt-service covenants.
- Progress in remediating the material weakness and whether any financial statements or disclosures require correction.
- Exposure to the solar-tariff contingency, unrecognized tax benefits and other commitments or guarantees.
- Performance, output and cash generation from owned renewable-energy plants and the terms of related nonrecourse project debt.
- The sustainability of the unusually low 2013 effective tax rate of 12.5%, which benefited from energy-efficiency deductions and production tax credits.