Ameresco, Inc. 2016 First-Quarter Form 10-Q Summary
Business context and reporting period
Ameresco provides energy-efficiency solutions, renewable-energy project development and operation, energy-management services, and photovoltaic equipment in the United States, Canada, and Europe. This unaudited Form 10-Q covers the three months ended March 31, 2016, compared with the three months ended March 31, 2015. First-quarter results are typically seasonally weaker because of weather, construction cycles, educational-facility schedules, and government procurement timing.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $133.8 million | $115.4 million | Up 15.9% |
| Gross profit | $27.7 million | $19.6 million | Up $8.0 million |
| Gross margin | 20.7% | 17.0% | Up 370 basis points |
| Operating income (loss) | $1.8 million | $(4.4) million | Improved $6.2 million |
| Net income (loss) | $0.7 million | $(4.2) million | Improved $4.9 million |
| Net income (loss) attributable to Ameresco | $1.1 million | $(4.2) million | Improved $5.2 million |
| Diluted EPS | $0.02 | $(0.09) | Improved $0.11 |
| Operating cash flow | $(15.1) million | $(22.1) million | Use decreased $7.0 million |
| Investing cash flow | $(9.1) million | $(6.2) million | Use increased $2.9 million |
| Financing cash flow | $19.5 million | $20.7 million | Down $1.2 million |
Cash and cash equivalents were $17.1 million at March 31, 2016, compared with $21.6 million at December 31, 2015. Restricted cash was $11.1 million, and total assets were $670.2 million. Accounts receivable, retainage, federal ESPC receivables, and costs and estimated earnings in excess of billings remained significant working-capital assets.
Long-term debt and capital lease liabilities totaled $104.8 million, including $13.6 million current and $91.2 million long-term. Federal ESPC liabilities were $99.3 million. Project-financing obligations were generally nonrecourse to Ameresco, although certain guarantees and performance or grant-recapture assurances remained. The company had no revolver borrowings and reported $43.9 million of available revolving capacity, subject to covenants. It was in compliance with all financial and operational covenants.
Material changes versus the prior comparable period
- Revenue growth was driven principally by the U.S. Federal segment, up 60.2%, Canada, up 35.9%, and Small-Scale Infrastructure, up 52.1%. U.S. Regions revenue declined 10.4%, and All Other revenue declined 11.7%.
- Management attributed the overall revenue increase partly to accelerated project work resulting from mild weather.
- Gross-margin expansion reflected higher revenue and the absence of the significant Canadian project cost-budget revision and potential-loss reserve recorded in the first quarter of 2015.
- SG&A increased 7.5% to $25.9 million, primarily because of higher project-development costs associated with new proposals.
- Other expenses, net declined to $0.8 million from $2.7 million, mainly because of favorable foreign-currency movements.
- Operating cash use improved but remained substantial. Federal ESPC arrangements distort reported operating cash flow because related customer-receivable funding is presented as financing cash flow while project expenditures are presented in operating cash flow.
- The company received $6.6 million from a redeemable non-controlling investor, $16.4 million from Federal ESPC projects, and $3.5 million from solar project sale-leaseback financing. It repaid $11.3 million under the senior secured revolver, leaving no revolver balance at quarter-end.
Backlog, outlook, risks, and unusual items
At March 31, 2016, fully contracted backlog was approximately $360.5 million, compared with $387.4 million a year earlier. Twelve-month backlog was $279.0 million, compared with $317.5 million, while awarded but unsigned projects increased to $1.03 billion from $868.0 million. Assets in development increased to $174.0 million from $148.4 million. The filing does not provide formal revenue or earnings guidance.
Management stated that available cash, revolving-credit availability, and access to credit markets should be sufficient to fund operations through 2016 and thereafter. It planned approximately $60 million to $70 million of additional 2016 capital expenditures, principally for renewable-energy plants.
- Redeemable non-controlling interest increased to $6.7 million from $0.5 million at year-end. Allocations under the HLBV method may create quarter-to-quarter volatility in income attributable to Ameresco.
- A customer bankruptcy led to allowances of $0.2 million against accounts receivable, $0.5 million against costs and estimated earnings in excess of billings, and $0.3 million against project costs. The company disclosed additional exposure of approximately $3.0 million for remaining receivables.
- Interest-rate swaps had a $7.4 million liability fair value at March 31, 2016, compared with $4.7 million at December 31, 2015. Unrealized hedge losses reduced other comprehensive income by $1.9 million.
- Legal proceedings were described as ordinary-course matters that management did not expect to have a material adverse effect. A prior solar-tariff matter was resolved in the first quarter of 2016.
- Key risks include project execution and contract-estimate risk, long sales and conversion cycles, dependence on government programs and appropriations, seasonal volatility, working-capital requirements, interest-rate and foreign-currency exposure, covenant compliance, and the possibility that awarded or backlog projects may not convert into revenue.
- In April 2016, the board authorized repurchases of up to $10 million of Class A common stock, funded from working capital and revolver borrowings. The program was discretionary and not an obligation to repurchase shares.
Important facts for investors to verify
- Whether the improved first-quarter margin is sustained after excluding favorable comparisons with the 2015 Canadian project reserve and the benefit of mild weather.
- Conversion rates and timing for the $1.03 billion of awarded but unsigned projects, and the decline in fully contracted and twelve-month backlog.
- Cash requirements for the planned $60 million to $70 million of remaining 2016 capital expenditures and the company’s ability to fund them without increasing leverage.
- The cash-flow impact and eventual settlement timing of $99.3 million of Federal ESPC liabilities and $104.4 million of Federal ESPC receivables.
- Potential collectibility of the customer-bankruptcy-related exposure of approximately $3.0 million and any further project-loss reserves.
- Compliance with senior-credit-facility and project-financing covenants, including the total-funded-debt-to-EBITDA limit below 2.0-to-1.0 and debt-service-coverage requirement of at least 1.5-to-1.0.
- The effect of the redeemable non-controlling interest and HLBV allocations on future earnings attributable to common shareholders.