Ameresco, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual Form 10-K, not a standalone Q4 filing; it includes unaudited fourth-quarter information. Ameresco provides energy-efficiency services, renewable-energy project development and operations, energy supply, O&M, and solar products across North America.
Financial Performance and Position
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $728.2 million | $618.2 million | 17.8% increase |
| Energy-efficiency revenue | $551.3 million | $455.3 million | 21.1% increase |
| Renewable-energy revenue | $176.9 million | $162.9 million | 8.6% increase |
| Gross profit | $135.0 million | $110.7 million | 22.0% increase |
| Gross margin | 18.5% | 17.9% | Up 0.6 percentage points |
| Operating income | $50.7 million | $46.0 million | 10.2% increase |
| Operating margin | 7.0% | 7.4% | Down 0.4 percentage points |
| Net income | $34.7 million | $28.7 million | 20.9% increase |
| Diluted EPS | $0.78 | $0.69 | 13.0% increase |
| Adjusted EBITDA | $67.6 million | $59.9 million | 12.8% increase |
| Cash flow from operations | $30.1 million | $20.8 million | Increase |
Fourth-quarter 2011 revenue was $188.5 million, operating income was $12.6 million, and net income was $8.2 million, compared with fourth-quarter 2010 revenue of $179.3 million, operating income of $12.5 million, and net income of $7.7 million.
Energy-efficiency gross margin improved to 18.9% from 17.0%, supported by project closeouts and acquired businesses. Renewable-energy gross margin declined to 17.3% from 20.5%, primarily due to plant maintenance, approximately $1.8 million of Savannah River O&M start-up costs recognized before related revenue, and a $0.8 million integrated-PV inventory adjustment.
At December 31, 2011, cash and cash equivalents were $26.3 million, restricted cash was $12.4 million, and net cash available after a $7.3 million book overdraft was $19.0 million. Total assets were $645.6 million and stockholders’ equity was $236.4 million.
Total debt was approximately $208.0 million, including $42.1 million under the senior secured credit facility, $56.2 million of construction and term loans, and $110.0 million of federal ESPC receivable financing. The credit facility consisted of a $60 million revolver and a $40 million term loan, maturing in June 2016. The company reported compliance with its financial and operational covenants.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by the other U.S. regions segment, which increased 88.3% to $268.2 million. U.S. federal revenue declined 18.2% to $145.2 million, and central U.S. region revenue declined 13.9% to $86.4 million.
- U.S. federal and central-region performance weakened as projects neared completion and the conversion of awarded projects to signed contracts slowed.
- Ameresco completed acquisitions of Applied Energy Group, Ameresco Southwest, and the xChangePoint and energy-project businesses acquired from EPS. These acquisitions contributed approximately $37.0 million of 2011 revenue and increased goodwill and intangible assets.
- Fully contracted backlog declined to approximately $478 million from $651 million, while awarded projects increased to approximately $741 million from $483 million. Awarded projects were not yet supported by signed contracts and may not convert to revenue.
- Capital expenditures increased to $45.2 million from $39.6 million, and investing cash outflows increased to $105.6 million, including $66.2 million for acquisitions.
- Cash flow from operations improved, but higher investment and acquisition spending reduced cash by $18.4 million during the year.
- Basic EPS declined because of the substantial increase in weighted-average shares; diluted EPS increased to $0.78.
Outlook, Commentary, Risks, and Unusual Items
- Management expected approximately $30 million of 2012 capital expenditures, principally for new renewable-energy plants, and stated that available cash, revolver capacity, and access to credit markets should fund operations through 2013 and thereafter.
- Management expected the effective tax rate in 2012 to be higher than the 23.7% reported for 2011. The 2011 rate benefited from energy-efficiency deductions, production tax credits, and a $0.9 million tax benefit related to a resolved tax position.
- Management expected project-development spending to remain elevated as it worked to convert awarded projects into fully contracted backlog; the sales cycle typically lasts 12 to 36 months.
- Revenue and operating income are seasonal, with the third quarter typically strongest and the first quarter weakest. Results can also vary materially based on project timing and percentage-of-completion estimates.
- More than 80% of revenue historically came from federal, state, provincial, or local government entities. Government funding, procurement rules, contract termination rights, appropriations, and fiscal conditions therefore represent significant risks.
- ESPCs include performance commitments that may require equipment modifications, substitute measures, or customer payments if projected energy savings are not achieved. Historical payments and related costs were less than $100,000 in aggregate through December 31, 2011.
- The company identified a continuing material weakness in internal control over financial reporting. Management and the auditor concluded that controls were not effective as of December 31, 2011, due principally to insufficient personnel and inadequate review procedures. Remediation was expected to continue through 2012.
- A customer dispute involving hazardous-material remediation included approximately $4.0 million of unrecognized claims at year-end. The company believed additional liability was remote, but the matter remained unresolved.
- Section 1603 renewable-energy grants reduced project-asset costs; approximately $6.7 million was received in 2011, and an additional $2.6 million was received in March 2012. Certain grants may require repayment if qualifying assets are disposed of or cease to qualify within five years.
- Goodwill and intangible-asset impairment testing identified no impairment charge for 2011, but the balances are sensitive to changes in projected cash flows, market conditions, and discount rates.
Most Important Facts to Verify
- Reconcile the sharp decline in fully contracted backlog with the increase in awarded projects and assess expected conversion timing and financing availability.
- Review the sustainability of the 18.9% energy-efficiency gross margin and the causes of the lower renewable-energy margin.
- Assess liquidity after acquisition spending, capital expenditures, book overdraft, restricted cash requirements, and scheduled debt repayments.
- Monitor compliance with the $40 million rolling four-quarter EBITDA covenant and the June 2016 maturity of the senior secured credit facility.
- Evaluate remediation of the material weakness and the effect of acquired businesses excluded from the 2011 controls assessment.
- Review government-contract concentration, appropriations exposure, ESPC performance obligations, renewable-energy output and fuel risks, and the unresolved customer litigation.
- Consider the effect of share dilution, dual-class voting control, and the company’s stated policy of paying no cash dividends.