Ameresco, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021; filed August 3, 2021. Financial statements are unaudited and presented in thousands unless otherwise stated.
Business Context
Ameresco is a clean-technology integrator providing energy-efficiency, renewable-energy, energy-supply, integrated photovoltaic, consulting and operations-and-maintenance services. Its customers include commercial, industrial, educational, healthcare and government organizations, primarily in North America and the U.K. The company also develops, owns and operates renewable-energy assets.
Revenue is seasonal, with generally higher activity in the third and fourth quarters and lower activity in the first quarter. Approximately 94% of revenue was recognized over time during both the second quarter and first six months of 2021.
Financial Performance
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Revenue | $273.9 million | $223.0 million | $526.1 million | $435.4 million |
| Gross profit | $53.3 million | $39.5 million | $100.2 million | $78.0 million |
| Gross margin | 19.5% | 17.7% | 19.1% | 17.9% |
| Operating income | $21.4 million | $12.9 million | $39.7 million | $22.4 million |
| Operating margin | 7.8% | 5.8% | 7.6% | 5.1% |
| Net income | $17.9 million | $8.8 million | $30.3 million | $15.5 million |
| Net income attributable to common shareholders | $13.7 million | $4.4 million | $24.8 million | $10.6 million |
| Diluted EPS | $0.26 | $0.09 | $0.48 | $0.22 |
- Q2 revenue increased 22.8%; six-month revenue increased 20.8%.
- Q2 gross profit increased 35.0%, and six-month gross profit increased 28.6%, reflecting a greater mix of higher-margin energy-asset revenue.
- Q2 operating income increased 66.4%; six-month operating income increased 77.4%.
- Q2 common-shareholder net income increased 212.8%; six-month common-shareholder net income increased 135.0%.
- Energy-asset revenue increased 28% in Q2 and 23% for the first six months, supported by portfolio growth, renewable-gas production and higher renewable-identification-number pricing.
Cash Flow, Liquidity and Debt
- Operating cash flow was negative $96.5 million for the first six months, compared with negative $73.6 million in the prior-year period. The principal use was a $125.1 million increase in Federal ESPC receivables.
- Investing cash flow was negative $105.8 million, including $104.3 million of energy-asset investment, compared with negative $78.7 million in 2020.
- Financing cash flow was positive $196.9 million, including $120.1 million of net equity-offering proceeds, $70.2 million of proceeds from Federal ESPC projects and $64.9 million of long-term debt financing.
- Cash, cash equivalents and restricted cash totaled $93.8 million at June 30, 2021, compared with $98.8 million at December 31, 2020. Unrestricted cash and cash equivalents were $58.8 million.
- Total debt and financing lease liabilities were $395.3 million, compared with $391.8 million at year-end 2020. Current maturities were $79.8 million.
- The senior secured revolving commitment was increased from $115.0 million to $180.0 million, with $141.2 million available at June 30, 2021. The funded-debt-to-EBITDA covenant maximum increased from 3.25 to 3.50.
- Management stated that available cash, working capital, revolving-credit availability and access to credit markets should fund operations through at least August 2022, although future liquidity remains subject to business and market conditions.
Material Changes Versus Prior Comparable Period
- Project revenue increased 23% in Q2 and 24% year to date, with growth across multiple geographies and markets.
- Non-Solar Distributed Generation revenue increased 53.8% in Q2 and 43.8% year to date, primarily from higher energy production and renewable-identification-number pricing.
- U.S. Federal revenue increased 6.8% in Q2 and 25.6% year to date, driven by project timing, approvals and customized-equipment progress.
- SG&A increased 19.8% in Q2, primarily due to higher salaries, benefits and health-insurance costs; year-to-date SG&A increased 8.9%.
- Other expense increased in Q2 because of higher derivative mark-to-market losses and lower government incentives, but declined modestly year to date because of lower interest expense.
- The March 2021 equity offering increased shares outstanding by 2.875 million and reduced Q2 and year-to-date diluted EPS by approximately $0.01 and $0.02, respectively, according to management.
- At June 30, 2021, project backlog was $2.211 billion, broadly comparable with $2.220 billion in 2020. Fully contracted project backlog declined to $781.2 million from $1.018 billion, while awarded but unsigned backlog increased to $1.430 billion from $1.202 billion.
- Assets in development increased to an estimated $1.126 billion from $752.5 million at June 30, 2020.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide a clear numerical revenue or earnings guidance range.
- Management planned approximately $115 million to $165 million of additional capital expenditures and approximately $85 million to $135 million of additional project financings during the remainder of 2021, principally for renewable-energy plants.
- COVID-19 had no material adverse impact on results through June 30, 2021, but management identified potential future delays in receivable collections, contract execution, supply chains and demand.
- Management cited seasonal and construction-cycle volatility, government procurement timing, lengthy sales cycles and uncertainty in converting awarded projects into signed contracts.
- Two projects financed under a construction revolver missed commercial-operation deadlines in July 2021. The lender granted a limited waiver and extension, retroactively curing the resulting default.
- On July 27, 2021, Ameresco entered into $44.7 million of non-recourse solar financing, including a 25-year, 3.25% fixed-rate term loan and additional funding availability of up to $60.0 million.
- A customer lawsuit involving alleged property damage and project defects is scheduled for trial in April 2022. Ameresco believes a loss is probable, has accrued an estimate, and has also accrued a probable insurance recovery.
- The company disclosed risks related to cybersecurity, information technology, derivatives and interest rates, project execution, financing availability, tax incentives, supply chains and the conversion of backlog.
- Unrecognized stock-based compensation increased to $29.2 million at June 30, 2021, expected to be recognized over an average of three years.
Investor Verification Checklist
- Verify whether awarded but unsigned backlog converts to fully contracted backlog and ultimately to revenue at historical conversion rates.
- Monitor Federal ESPC receivables, contract assets and operating cash flow for collection or funding delays.
- Confirm the availability and covenant compliance of revolving credit, construction revolvers and project-finance facilities.
- Assess the funding requirements and returns associated with the planned 2021 renewable-energy capital expenditures.
- Evaluate the sustainability of higher renewable-gas production and renewable-identification-number pricing.
- Track the April 2022 litigation, insurance recovery and any related changes in accrued liabilities.
- Consider dilution from the March equity offering and the expected increase in stock-based compensation expense.
- Review the impact of COVID-19, supply-chain conditions, interest-rate movements and changes to energy-tax incentives on future results.