Ameresco, Inc. 2023 Q1 Form 10-Q Summary
Business context and reporting period
Ameresco is a clean-technology integrator providing energy-efficiency, renewable-energy, energy-supply, operations and maintenance, integrated photovoltaic, consulting, and enterprise energy-management solutions. The filing covers the unaudited three months ended March 31, 2023, compared with the three months ended March 31, 2022. First-quarter results are typically seasonally weaker than third- and fourth-quarter results because of weather, construction cycles, and government procurement timing.
On March 30, 2023, Ameresco acquired Enerqos Energy Solutions S.r.l., an Italian renewable-energy and energy-efficiency company. Total consideration was $13.6 million, including $9.5 million paid at the acquisition date; the acquisition’s contribution to first-quarter revenue and net income was not material.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $271.0 million | $474.0 million | Down 42.8% |
| Gross profit | $49.9 million | $68.4 million | Down 27.0% |
| Gross margin | 18.4% | 14.4% | Up 4.0 percentage points |
| Operating income | $9.1 million | $28.7 million | Down 68.3% |
| Income before taxes | $1.1 million | $21.6 million | Down 95.1% |
| Net income | $1.6 million | $19.3 million | Down 91.9% |
| Net income attributable to common shareholders | $1.1 million | $17.4 million | Down 93.7% |
| Diluted EPS | $0.02 | $0.32 | Down $0.30 |
| Operating cash flow | $58.8 million | $(276.1) million | Improved $334.9 million |
| Capital investment in energy assets | $89.8 million | $55.5 million | Up $34.3 million |
Revenue declined primarily because project revenue decreased by approximately $210.2 million, or 53%, reflecting project timing and lower contribution from the Southern California Edison battery-storage project. The lower-margin SCE project contributed less revenue, which improved gross margin despite the decline in gross profit.
SG&A increased 2.4% to $41.3 million, driven primarily by higher professional fees and project-development costs. Other expenses increased to $8.0 million from $7.1 million, principally because net interest expense increased by approximately $2.7 million; this was partly offset by lower derivative losses. The company recorded a $0.5 million income-tax benefit in Q1 2023, compared with $2.3 million of tax expense in Q1 2022, primarily reflecting investment tax credits and Section 179D deductions.
Cash, cash equivalents, and restricted cash totaled $213.6 million at March 31, 2023, compared with $149.9 million at December 31, 2022. Cash and cash equivalents alone were $178.9 million. Total debt and financing lease liabilities were $963.3 million, including $478.0 million under the senior secured revolver and term loans, $296.9 million of non-recourse term loans, and $520.8 million of Federal ESPC liabilities reported separately on the balance sheet. Only $4.3 million was available under the senior secured revolving facility at quarter-end.
Management stated that cash, working capital, revolving-facility availability, potential capacity to increase the revolver by $100.0 million subject to lender consent, and access to capital markets are expected to fund operations through at least May 2024. The company expects approximately $235 million to $285 million of additional capital expenditures and approximately $175 million to $225 million of additional project financings during the remainder of 2023.
Material changes versus the prior comparable period
- U.S. Regions revenue fell 60.5% to $124.4 million, primarily due to project timing and lower SCE battery-storage revenue.
- U.S. Federal revenue fell 21.3% to $59.6 million, also due to lower project revenue.
- Canada revenue increased 7.2% to $18.4 million; All Other revenue increased 7.9% to $40.4 million.
- Alternative Fuels revenue declined 3.2% to $28.3 million, while segment income before taxes declined 52.6%, primarily because of lower renewable-gas production, unplanned maintenance, and higher depreciation.
- Operating cash flow turned positive because of lower unbilled revenue and accounts receivable, including the timing of billings on the SCE project.
- Energy assets, net increased to $1.27 billion from $1.18 billion at December 31, 2022, reflecting continued investment in renewable-energy assets.
- Total contracted backlog was $2.22 billion at March 31, 2023, with approximately 33% expected to be recognized as revenue in the next twelve months. Total project backlog, including awarded but unsigned projects, was $2.97 billion, down from $3.10 billion a year earlier.
- The company amended its senior secured credit agreement to increase the funded-debt-to-EBITDA covenant from 3.50x to 4.00x for the quarters ended March 31 and June 30, 2023; the 3.50x limit resumes thereafter.
Guidance, outlook, risks, contingencies, and unusual items
Management expects continued growth opportunities from the Inflation Reduction Act, which expands federal incentives for clean-energy investment. However, the company expects competition for labor, equipment, and commodities to increase. No specific full-year revenue or earnings guidance was provided in the filing.
Supply-chain disruptions, inflation, labor constraints, logistics delays, shortages of battery cells and semiconductors, geopolitical tensions, and higher interest rates negatively affected first-quarter results and may continue beyond 2023. The company also identified seasonality, extreme weather, government funding cycles, regulatory support, and solar-panel trade restrictions as significant risks.
The SCE Agreement covers three battery-storage systems with aggregate capacity of 537.5 MW and an engineering, procurement, and construction price of approximately $892 million. SCE agreed to accelerate $125 million of future milestone payments, which Ameresco received during the quarter. Ameresco expects two projects to reach substantial completion in early summer 2023, but weather-related delays remain under review. If the parties do not agree on extensions and force-majeure relief, Ameresco could face liquidated damages of up to $89 million, may be unable to recover certain schedule-related costs, and could face termination rights under specified circumstances.
Subsequent to quarter-end, a consolidated joint venture drew $90.9 million under a non-recourse construction facility with total capacity of $140.8 million, and Ameresco received $72.1 million from a sale-leaseback of an energy asset. The company had $45.8 million of unrecognized stock-based compensation expense at March 31, 2023. No material adverse effect was expected from pending legal proceedings, according to management.
Important facts for investors to verify
- Verify the timing, completion status, cost recovery, and potential liquidated damages exposure associated with the SCE battery-storage projects.
- Assess whether the improvement in operating cash flow is sustainable or primarily reflects project billing and working-capital timing.
- Monitor leverage, covenant compliance, the limited $4.3 million revolver availability, and the company’s planned 2023 capital expenditures and project financings.
- Track backlog conversion, particularly the decline in fully contracted project backlog and 12-month project backlog.
- Evaluate the effects of supply-chain disruptions, inflation, interest rates, solar-panel trade restrictions, and weather-related delays on project margins and schedules.
- Review the Enerqos acquisition’s preliminary purchase-price allocation and subsequent operating contribution.
- Confirm the availability and realization of investment tax credits and Section 179D deductions supporting the lower expected 2023 effective tax rate.