Ameresco, Inc. Form 10-Q Summary
Business Context and Reporting Period
Ameresco provides energy-efficiency solutions, renewable-energy project development and operations, energy-management services, and photovoltaic equipment in the United States, Canada, and Europe. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2016, compared with the corresponding 2015 periods.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $180.6 million, down 4.5% | $477.0 million, up 4.4% |
| Gross profit | $38.8 million | $98.3 million |
| Gross margin | 21.5%, versus 19.2% | 20.6%, versus 19.0% |
| Operating income | $9.9 million | $16.4 million |
| Net income attributable to Ameresco | $5.7 million, versus $4.2 million | $8.8 million, versus $2.0 million |
| Diluted EPS | $0.12, versus $0.09 | $0.19, versus $0.04 |
| Operating cash flow | Not separately reported for the quarter | $(47.4) million, versus $(32.6) million |
| Investing cash flow | Not separately reported for the quarter | $(47.9) million, versus $(30.1) million |
| Financing cash flow | Not separately reported for the quarter | $92.8 million, versus $58.5 million |
At September 30, 2016, cash and cash equivalents were $18.4 million and restricted cash was $12.4 million. Total assets were $734.1 million. Long-term debt and capital lease liabilities, including current portions, totaled approximately $128.8 million, excluding Federal ESPC liabilities of $108.0 million. The company had $18.7 million outstanding and $41.3 million available under its revolving credit facility, and $10.0 million outstanding under its term loan.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined primarily because U.S. Regions revenue fell $20.2 million and All Other revenue fell $4.2 million. These declines exceeded increases of $11.0 million in U.S. Federal and $5.8 million in Small-Scale Infrastructure revenue.
- Nine-month revenue increased $19.9 million, led by U.S. Federal revenue growth of $38.2 million and Small-Scale Infrastructure growth of $15.6 million, partly offset by a $26.0 million decline in U.S. Regions and a $10.2 million decline in All Other.
- Gross margin improved because of a more favorable revenue mix and cost-budget revisions on significant projects, including a favorable Small-Scale Infrastructure project adjustment in the third quarter.
- SG&A increased 8.4% in the quarter and 7.0% year to date, primarily due to bad-debt and receivable reserves. The company recorded a $2.2 million third-quarter reserve related to a bankrupt customer and $1.9 million of Canada bad-debt expense during the second quarter.
- The estimated effective tax rate declined to 24.3% for the quarter and 25.0% year to date, compared with 44.4% and 52.5%, respectively, in the 2015 comparable periods. Section 179D deductions and production tax credits contributed to the lower 2016 rates.
- Cash usage increased as Federal ESPC receivables increased by $83.4 million and project-asset purchases rose to $45.2 million. Financing inflows, including $65.1 million from Federal ESPC projects, $17.0 million from sale-leaseback financing, and $7.5 million of net revolver borrowings, funded much of the investment.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that available cash, revolving-credit availability, and access to credit markets were expected to fund operations through 2016 and thereafter. No specific revenue or earnings guidance was provided.
- Fully contracted backlog was approximately $443.8 million at September 30, 2016, compared with $379.3 million a year earlier. Twelve-month backlog was $285.9 million, down from $306.8 million. Awarded but unsigned projects totaled approximately $1.05 billion.
- Management planned an additional $25 million to $40 million of capital expenditures, principally for renewable-energy plants, during the remainder of 2016.
- The business is seasonal and affected by construction cycles, government procurement timing, weather, project timing, and legislative changes affecting energy-efficiency and renewable-energy incentives.
- Federal ESPC financing materially affects reported cash flows: related project expenditures are reflected in operating cash flow, while associated financing proceeds are classified as financing cash flow. The company remains primarily obligated until government customer acceptance.
- The company reported $307.9 million of contractual obligations, including debt, Federal ESPC liabilities, interest, capital leases, and operating leases.
- Interest-rate swaps had a fair-value liability of $7.9 million at September 30, 2016, compared with $4.7 million at December 31, 2015. The company reported a $3.7 million year-to-date comprehensive loss from hedge and foreign-currency items, despite net income.
- The redeemable non-controlling interest increased to $6.8 million from $0.5 million at year-end 2015. The related HLBV accounting may cause quarter-to-quarter volatility in income attributable to Ameresco.
- In October 2016, Ameresco entered into a non-recourse construction loan facility of up to $35.0 million for certain solar-PV projects; no amounts had been drawn as of the filing.
- The company was in compliance with its credit-facility and project-financing covenants at September 30, 2016. Management reported no material changes to previously disclosed risk factors or legal proceedings.
- The board authorized up to $10.0 million of Class A share repurchases. The company repurchased 920,944 shares for $4.5 million during the first nine months and had $5.6 million remaining authorization at September 30.
Investor Verification Checklist
- Verify the collectability and ultimate resolution of the bankrupt-customer receivables and Canada-related reserves.
- Assess conversion timing and realization risk for the $443.8 million fully contracted backlog and $1.05 billion of awarded but unsigned projects.
- Reconcile negative operating cash flow with Federal ESPC financing proceeds and monitor Federal ESPC receivable and liability balances.
- Review planned 2016 capital expenditures, project-asset returns, and the company’s ability to fund construction without excessive additional borrowing.
- Monitor debt maturities, covenant compliance, interest-rate exposure, and the $108.0 million Federal ESPC liability.
- Evaluate the sustainability of improved gross margins and the unusually favorable effective tax rate.
- Consider potential volatility from redeemable non-controlling-interest allocations, project accounting estimates, foreign exchange, and interest-rate hedges.