Business Context and Reporting Period
Ameresco, Inc. is a clean-technology integrator providing energy-efficiency, renewable-energy, energy-asset, operations and maintenance, alternative-fuels, integrated photovoltaic, and consulting services. The unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Reportable segments are U.S. Regions, U.S. Federal, Canada, Alternative Fuels, and All Other. Approximately 24% of nine-month revenue came from U.S. federal government work. Contracted backlog was $2.426 billion at September 30, 2023, with approximately 35% expected to be recognized over the next twelve months.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $335.1 million | $441.3 million | $933.3 million | $1.493 billion |
| Gross profit | $63.7 million | $79.6 million | $172.3 million | $229.2 million |
| Gross margin | 19.0% | 18.0% | 18.5% | 15.4% |
| Operating income | $21.4 million | $38.9 million | $48.1 million | $110.7 million |
| Net income attributable to common shareholders | $21.3 million | $27.4 million | $28.7 million | $77.0 million |
| Diluted EPS | $0.40 | $0.51 | $0.54 | $1.44 |
| Operating cash flow | Not separately provided | Not separately provided | $(40.4) million | $(273.2) million |
Q3 operating margin was 6.4%, versus 8.8% in the prior-year quarter. Nine-month operating margin was 5.2%, versus 7.4%. The improved gross margins primarily reflected lower revenue contribution from the lower-margin Southern California Edison battery-storage project.
The company recorded income-tax benefits of $10.1 million in Q3 and $10.6 million for nine months, compared with tax provisions of $3.7 million and $10.9 million, respectively, in the prior-year periods. The benefits were principally associated with Section 179D deductions, investment tax credits, and compensation-related deductions.
Liquidity, Debt, and Capital Investment
- Cash and cash equivalents were $107.8 million, with total restricted cash of $67.9 million, at September 30, 2023. Cash, cash equivalents, and restricted cash totaled $175.7 million, up from $149.9 million at year-end 2022.
- Total debt and financing lease liabilities were $1.455 billion, compared with $915.7 million at December 31, 2022. Current maturities were $409.9 million.
- The senior secured revolving facility had $67.9 million outstanding and $38.3 million available. The company stated that cash, working capital, revolver availability, potential increases to the revolver, asset sales, tax-equity transfers, and capital-market access should fund operations through at least November 2024.
- Operating cash flow was negative $40.4 million, while investing cash flow was negative $465.2 million, including $445.5 million of capital investment in energy assets. Financing cash flow was positive $532.4 million.
- Management expected approximately $25 million to $50 million of additional capital expenditures and approximately $50 million of additional project financing during the remainder of 2023.
Material Changes Versus the Prior Comparable Period
- Q3 revenue declined 24.1% and nine-month revenue declined 37.5%, primarily because of project timing and lower revenue recognized on active projects, including the SCE battery-storage project.
- Nine-month project revenue declined approximately $579.3 million, partially offset by a $12.0 million increase in energy-asset revenue.
- SG&A increased 4.0% in Q3 and 4.5% for nine months, driven by project development costs not realized on projects, professional fees, IT and telecommunications costs, and acquired-intangible amortization.
- Other expense increased 41.0% in Q3 and 40.3% for nine months, primarily due to higher interest expense, higher project financing balances and rates, and accounts-receivable factoring fees.
- Energy assets, net increased to $1.657 billion from $1.182 billion at year-end 2022. Total assets increased to $3.461 billion from $2.877 billion.
- Fully contracted project backlog increased to $1.188 billion from $933.3 million a year earlier, while awarded but unsigned backlog increased to $2.513 billion from $1.693 billion.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide a clear consolidated revenue or earnings guidance range. Management views the Inflation Reduction Act as favorable for renewable-energy demand but reported delays in funding and in converting awarded backlog into contracted backlog.
- Supply-chain disruptions, labor shortages, inflation, component shortages, weather events, and higher transportation and labor costs delayed projects and negatively affected nine-month results. Management expected supply-chain and inflationary pressures to continue beyond 2023.
- Potential U.S. federal government shutdowns could delay payments, contract performance, procurement, and future orders.
- Under the SCE agreement, two of three battery-storage projects were in commissioning and were expected to reach substantial completion by year-end 2023; the third was expected in the first half of 2024. If force-majeure claims are not accepted, potential liquidated damages could reach $89 million, and schedule-change costs may not be recovered.
- The company entered a two-phase agreement involving an energy-asset project and Bright Canyon Energy Corporation. Phase one closed in August 2023. Phase two, involving a planned $39.1 million acquisition of BCE, remained subject to conditions and third-party consents and was targeted for late 2023 or early 2024.
- The delayed-draw term loan had $90 million remaining at the filing date and was scheduled to mature on December 15, 2023; the company had requested a further maturity extension.
- Legal proceedings were described as incidental to ordinary business, with no currently pending or threatened matter expected to have a material adverse effect. The company reported effective disclosure controls as of September 30, 2023.
Investor Verification Priorities
- Verify the timing and profitability of SCE battery-storage project completion, force-majeure claims, and any potential liquidated damages.
- Verify refinancing or repayment of the $90 million delayed-draw term loan and the company’s ability to meet the $409.9 million of current debt maturities.
- Reconcile negative operating cash flow with reported earnings, particularly the effects of contract assets, Federal ESPC receivables, customer billings, and project financing.
- Assess whether backlog converts to signed contracts and revenue at historical rates, especially the $2.513 billion of awarded but unsigned backlog.
- Monitor project execution, supply-chain and labor costs, interest rates, federal procurement or shutdown risks, and the planned BCE transaction.
- Evaluate the sustainability of the reported tax benefits and the impact of higher debt balances and borrowing costs on future earnings.