Ameresco, Inc. 2016 Form 10-K Summary
Business context and reporting period
Ameresco provides energy-efficiency, infrastructure-upgrade, energy-security, operations and maintenance, and renewable-energy services across North America and Europe. The filing is an annual report for the fiscal year ended December 31, 2016; the source also provides unaudited fourth-quarter data.
- More than 1,000 employees and 55 owned renewable-energy plants with aggregate capacity exceeding 164 megawatt equivalents.
- Approximately 75% of revenue historically came from government entities; the U.S. federal government represented 27.3% of 2016 revenue.
- Fully contracted backlog was $534.1 million at year-end 2016, up from $390.4 million in 2015. Awarded but unsigned projects totaled an estimated $957.6 million, compared with $955.8 million in 2015.
Key financial metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Revenue | $651.2 million | $630.8 million | +3.2% |
| Gross profit | $134.3 million | $117.1 million | +14.7% |
| Gross margin | 20.6% | 18.6% | +2.0 percentage points |
| Operating income | $23.8 million | $7.1 million | +237.0% |
| Net income attributable to Ameresco | $12.0 million | $0.8 million | + $11.2 million |
| Diluted EPS | $0.26 | $0.02 | +$0.24 |
| Cash flow from operations | $(58.1) million | $(49.5) million | Higher use of cash |
| Cash flow from investing | $(79.6) million | $(51.8) million | Higher investment |
| Cash flow from financing | $137.3 million | $100.7 million | Higher financing inflows |
Fourth-quarter 2016 revenue was $174.2 million, gross profit was $36.0 million, net income attributable to Ameresco was $3.3 million, and diluted EPS was $0.07.
At December 31, 2016, cash and cash equivalents were $20.6 million, restricted cash was $12.3 million, total assets were $797.3 million, and stockholders’ equity was $294.3 million. Long-term debt and capital lease liabilities, net of current portions and deferred financing fees, were $140.6 million. Federal ESPC liabilities were $133.0 million.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by a $50.4 million increase in U.S. Federal revenue and a $15.1 million increase in Small-Scale Infrastructure revenue. These gains were partly offset by a $31.6 million decline in U.S. Regions revenue and a $14.7 million decline in All Other revenue.
- U.S. Federal revenue increased 39.5% to $178.0 million, with pretax income increasing 33.3% to $22.2 million.
- U.S. Regions revenue declined 10.5% to $269.8 million, and pretax income declined 26.6% to $18.2 million.
- Canada revenue increased 2.5% to $50.4 million, while its pretax loss narrowed from $15.4 million to $2.3 million.
- Small-Scale Infrastructure revenue increased 22.7% to $81.4 million, and pretax income increased 26.1% to $10.9 million.
- Gross margin improved primarily because 2015 included a $6.6 million reserve and cost-budget revision on a significant Canadian project.
- 2016 included $6.2 million of restructuring charges, primarily related to Canadian bad debt and a reserve for receivables from a bankrupt customer; 2015 included $6.6 million of restructuring charges.
- Capital expenditures increased to $76.0 million from $52.7 million, principally for renewable-energy plant development.
Outlook, liquidity, risks and unusual items
- Management stated that cash, revolver availability and access to credit markets were expected to fund operations through 2017 and thereafter. Planned 2017 capital expenditures were approximately $60 million to $85 million, primarily for renewable-energy plants.
- The senior secured facility consists of a $60 million revolver and a $30 million term loan, both maturing in June 2020. At year-end, $15.0 million was outstanding on the revolver and $28.5 million on the term loan. The company was in compliance with its covenants.
- Project-financing debt totaled approximately $108.0 million at year-end, generally secured by project assets and structured as non-recourse to Ameresco, Inc. Certain construction loans maturing in 2017 were expected to be refinanced or repaid.
- Operating cash flow was substantially affected by federal ESPC financing structure: project-related cash advances are classified as financing inflows, while related project expenditures are reflected in operating outflows.
- Government concentration, appropriations, contract termination rights, long sales cycles, project execution and performance guarantees, permitting and environmental requirements, customer credit, competition, foreign exchange, interest rates, and availability of financing are significant risks.
- Energy-efficiency deductions and credits, including Section 179D, expired at the end of 2016, potentially increasing the effective tax rate if not extended.
- Goodwill impairment testing identified no impairment, although the Southwest reporting unit had only a 9% fair-value cushion over carrying value and $16.8 million of goodwill.
- The company revised its 2015 financial statements for a $2.1 million deferred tax liability related to an outside-basis difference; management concluded the revision was not material.
- The board authorized up to $10.0 million of share repurchases in 2016; $6.4 million was spent to repurchase 1.3 million shares. The authorization was increased to $15.0 million in February 2017.
- In January 2017, the company acquired two solar PV projects under construction for $2.4 million and assumed $5.6 million of associated non-recourse financing.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether the substantial awarded-project backlog converts to signed contracts and revenue on the expected schedule.
- The sustainability of the 2016 gross-margin improvement after excluding the prior-year Canadian project reserve and other unusual items.
- Whether negative operating cash flow, renewable-energy capital spending, and ESPC financing requirements remain manageable.
- The refinancing or repayment of construction loans maturing in 2017 and continued compliance with debt covenants.
- Exposure to government funding, procurement cycles, contract termination rights, and policy changes affecting energy-efficiency incentives.
- Potential customer-credit losses, including the bankrupt-customer reserve and Canadian collectability issues.
- The financial performance and valuation cushion of the Southwest and Canada reporting units, as well as the risk of future impairment charges.