Ameresco, Inc. — Fiscal 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 10-K rather than a standalone fourth-quarter filing, although the request identifies 2022 Q4.
Business context
Ameresco is a clean-technology integrator and renewable-energy asset developer, owner and operator. Its offerings include energy-efficiency projects, infrastructure upgrades, renewable energy, battery storage, microgrids, operations and maintenance, energy assets, integrated photovoltaic products and consulting. Operations span the United States, Canada, the United Kingdom and Europe.
- Reportable segments: U.S. Regions, U.S. Federal, Canada, Alternative Fuels and All Other.
- Ameresco owned and operated 162 renewable-energy plants with approximately 389 megawatt equivalents of capacity at year-end.
- Government entities generated approximately 46.0% of 2022 revenue; the U.S. federal government represented 21.5%.
- One non-federal customer represented 39.6% of revenue, creating substantial customer concentration.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $1.824 billion | $1.216 billion | +50.1% |
| Gross profit | $290.8 million | $230.4 million | +26.3% |
| Gross margin | 15.9% | 18.9% | Down 3.0 percentage points |
| Operating income | $133.0 million | $95.4 million | +39.4% |
| Operating margin | 7.3% | 7.9% | Down 0.6 percentage points |
| Net income | $98.5 million | $80.2 million | +22.9% |
| Net income attributable to common shareholders | $94.9 million | $70.5 million | +34.7% |
| Diluted EPS | $1.78 | $1.35 | +$0.43 |
| Operating cash flow | $(338.3) million | $(172.3) million | More negative by $166.0 million |
| Investing cash flow | $(328.4) million | $(205.3) million | Higher investment outflow |
| Financing cash flow | $730.2 million | $365.5 million | Higher funding inflow |
Revenue growth was driven primarily by a $577.3 million, or 64%, increase in project revenue, including substantial progress on the Southern California Edison battery-storage project. The lower gross margin reflected the higher mix of lower-margin design-build revenue from that project. Interest expense increased by $12.1 million due primarily to higher average senior secured debt.
Liquidity, debt and capital resources
- Cash and cash equivalents were $115.5 million, compared with $50.5 million at December 31, 2021. Total cash, cash equivalents and restricted cash were $149.9 million.
- Working capital was $189.3 million, compared with $164.4 million in the prior year.
- Total debt and financing lease liabilities were $915.7 million, compared with $471.5 million at year-end 2021. Current maturities were $331.5 million.
- Senior secured credit facilities totaled $477.9 million outstanding. Only $0.3 million remained available under the revolving credit facility, with $16.8 million of letters of credit outstanding.
- Federal ESPC liabilities were $478.5 million. These advances materially affect reported operating cash flow because related project expenditures are operating outflows while corresponding financing advances are financing inflows.
- Management stated that cash, working capital, revolving-facility availability, potential lender-approved incremental capacity and access to capital markets should fund operations for at least the next twelve months.
- Management planned approximately $325 million to $375 million of 2023 capital investment and approximately $250 million to $300 million of additional 2023 financing, principally for renewable-energy plants.
Material changes versus the prior comparable period
- Revenue increased 50.1%, but gross margin declined from 18.9% to 15.9% because of the SCE battery-storage project mix and project cost pressures.
- U.S. Regions revenue increased 103.8% to $1.123 billion; U.S. Federal revenue declined 0.3% to $391.9 million.
- Operating cash flow deteriorated substantially, primarily because of a $159.4 million increase in unbilled revenue, including SCE project amounts, a $47.3 million decrease in accounts payable and related liabilities, and higher Federal ESPC receivables.
- Capital investment in new energy assets increased to $304.6 million from $170.3 million; major maintenance investment increased to $18.0 million from $8.6 million.
- Debt increased substantially to fund project construction and renewable-energy assets, including the March 2022 expansion of the senior credit facility and new project financings.
- Stock-based compensation increased to $15.0 million from $8.7 million. Unrecognized compensation expense was $46.7 million at year-end.
- Backlog declined overall: total project backlog was $2.640 billion versus $3.052 billion, while fully contracted project backlog declined to $1.001 billion from $1.509 billion. O&M fully contracted backlog increased to $1.231 billion from $1.132 billion.
- Ameresco entered joint ventures in Greece and California and acquired an operating wind farm in Ireland during 2022; it completed no business acquisitions during the year.
Guidance, outlook, commentary and unusual items
- Management viewed the Inflation Reduction Act as favorable for long-term renewable-energy demand through expanded and extended clean-energy incentives, but noted potential delays in customer decisions, greater competition and higher labor, equipment and commodity costs.
- Supply-chain disruptions, inflation, battery-cell and semiconductor shortages, logistics delays, the war in Ukraine and U.S.-China trade restrictions negatively affected 2022 results and were expected to continue.
- The Department of Commerce solar-panel circumvention investigation could result in tariffs beginning in June 2024 if preliminary findings are upheld. Management did not expect a material near-term impact because of existing panel inventory and the temporary suspension of duties.
- The SCE agreement covers three battery-storage facilities totaling 537.5 MW and has an aggregate construction and O&M price of approximately $892 million. Delays caused by battery supply constraints, weather and other factors moved the schedule into 2023. Ameresco disclosed potential liquidated damages of up to $89 million and possible termination rights if extensions and force-majeure relief are not agreed or performance guarantees are not met.
- Management expected the SCE facilities to achieve substantial completion before summer 2023, but stated that most related revenue had already been recognized in 2022 based on costs incurred relative to estimated total costs.
- Revenue is recognized over time using cost-to-cost estimates. Changes in estimated project costs, variable consideration, penalties or completion timing could materially affect reported revenue and profit.
- The company’s auditor identified project revenue recognition and goodwill impairment as critical audit matters because of significant management judgment and estimation.
- The SEC staff concluded its review of Ameresco’s software-as-a-service revenue recognition in August 2022 and did not intend to recommend further action at that time.
- No goodwill impairment was recorded in 2022. The filing reports that goodwill reporting-unit fair values exceeded carrying values by at least 20%.
- Ameresco did not declare or pay dividends and expects to retain earnings for growth. The filing does not provide formal earnings or revenue guidance.
Principal risks and contingencies
- Execution risk on large fixed-price projects, especially the SCE battery-storage project, including schedule delays, cost overruns, liquidated damages and customer termination rights.
- High working-capital requirements and negative operating cash flow caused by unbilled revenue, project timing and customer acceptance processes.
- Leverage and refinancing risk, including $331.5 million of current debt maturities, limited revolver availability and financial covenants requiring specified debt-to-EBITDA and debt-service-coverage ratios.
- Exposure to interest rates, foreign currency, commodity prices, renewable-energy certificate and renewable identification number prices, and changes in tax credits or government incentives.
- Dependence on government funding and procurement cycles, as well as concentrated exposure to a small number of customers.
- Performance guarantees under energy-savings contracts may require equipment modifications, substitute measures or customer payments if savings commitments are not achieved.
- Permitting, environmental, cybersecurity, labor, subcontractor, weather and climate-related risks could delay projects or increase costs.
Investor verification checklist
- Verify the status, completion dates, cost-to-complete estimates, force-majeure claims and potential damages under the SCE agreement.
- Reconcile 2023 debt maturities and refinancing plans with the company’s stated capital-investment and financing requirements.
- Assess whether unbilled revenue and Federal ESPC receivables convert to cash on expected schedules.
- Review project backlog conversion, cancellations, customer concentration and the decline in fully contracted project backlog.
- Test the sustainability of gross margins after completion of the lower-margin SCE project and amid ongoing inflation and supply-chain constraints.
- Monitor the impact of IRA implementation guidance, solar-panel tariffs, tax-credit eligibility and prevailing-wage requirements.
- Review covenant compliance, revolver availability, letters of credit and non-recourse versus corporate debt obligations.