Ameresco, Inc. 2014 Form 10-K Summary
Business context and reporting period
Ameresco provides energy-efficiency services, infrastructure upgrades, operations and maintenance, photovoltaic products, and renewable-energy development and operations in the United States, Canada, and the United Kingdom. The filing covers the fiscal year ended December 31, 2014; fourth-quarter data are presented on an unaudited basis. Approximately 80% of revenue historically came from government entities, and the U.S. Federal Government represented 16.9% of 2014 revenue.
At year-end, Ameresco owned and operated 45 small-scale renewable-energy plants and solar installations with aggregate capacity exceeding 137 megawatt equivalents. The company acquired the energy consultancy and project-management business of Energyexcel LLP in the third quarter of 2014 for approximately $9.1 million.
Financial performance and key metrics
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Revenue | $593.2 million | $574.2 million | 3.3% increase |
| Gross profit | $116.9 million | $103.3 million | 13.2% increase |
| Gross margin | 19.7% | 18.0% | 170 basis-point increase |
| Operating income | $13.2 million | $6.6 million | 98.3% increase |
| Net income | $10.4 million | $2.4 million | Increase of $8.0 million |
| Diluted EPS | $0.22 | $0.05 | Increase of $0.17 |
| Adjusted EBITDA | $38.5 million | $29.9 million | 28.7% increase |
| Cash flow from operations | $0.3 million | $(60.6) million | Improved by $60.9 million |
| Adjusted cash from operations | $51.4 million | $(20.6) million | Improved by $72.0 million |
Fourth-quarter 2014 revenue was $181.1 million, gross profit was $36.4 million, and net income was $8.7 million, or $0.18 diluted EPS, compared with fourth-quarter 2013 revenue of $176.1 million, gross profit of $28.4 million, and net income of $1.6 million, or $0.03 diluted EPS.
Revenue growth in 2014 was driven primarily by a $29.5 million increase in the U.S. Federal segment, an $11.6 million increase in Small-Scale Infrastructure, $6.9 million of additional integrated-PV and enterprise energy-management revenue, and $9.7 million from acquisitions. These gains were partly offset by a $40.0 million decline in U.S. Regions revenue.
Liquidity, capital investment, and debt
- Cash and cash equivalents were $23.8 million at December 31, 2014, compared with $17.2 million at year-end 2013. Total assets were $629.7 million and stockholders’ equity was $286.3 million.
- Capital expenditures were $24.7 million, net of Section 1603 rebates, and acquisition investment was $13.9 million. Management planned approximately $75 million to $90 million of 2015 capital expenditures, principally for renewable-energy plants.
- Total long-term debt, including current maturities, was $102.3 million at year-end, down from $116.2 million. This included $25.0 million under the senior secured credit facility and $77.3 million of project-financing loans.
- The senior facility consisted of a $60 million revolver and an original $40 million term loan. At year-end, $5.0 million was outstanding on the revolver, $20.0 million on the term loan, and $34.0 million of revolver capacity was available. The facility matures June 30, 2016.
- Federal ESPC liabilities were $70.9 million, up from $44.3 million. These liabilities represent advances from third-party investors and are generally eliminated when federally sponsored projects are completed and accepted.
- Management stated that liquidity, revolver availability, and access to credit markets were expected to fund operations through 2015 and thereafter. The company was in compliance with its credit and project-financing covenants at year-end.
Material changes versus prior comparable period
- Profitability improved materially: gross margin increased to 19.7%, operating income nearly doubled, and net income more than quadrupled from the low 2013 base.
- The U.S. Federal segment grew 41.9% in revenue and 63.1% in pretax income as several large projects began recognizing revenue.
- U.S. Regions revenue declined 12.7%, primarily because the company elected to develop certain small-scale renewable projects for its own portfolio rather than for customers. Segment pretax income nevertheless increased 15.3% due to project mix and a $1.0 million recovery related to a customer warranty issue.
- Canada revenue increased 2.5%, but the segment’s pretax loss widened to $7.8 million from $3.0 million because of lower-margin projects and approximately $1.0 million of restructuring charges.
- Small-Scale Infrastructure revenue increased 28.8% and pretax income increased 39.5% as more owned plants became fully operational.
- SG&A increased 7.3% to $103.8 million, including $2.0 million of restructuring charges, $1.4 million of bad-debt expense tied to a single customer, higher project-development costs, and acquisition-related expenses.
- The 2014 income-tax benefit was $4.1 million, compared with a $0.3 million provision in 2013. The negative 2014 effective tax rate was primarily attributed to investment and production tax credits.
- Fully contracted backlog increased to $386.2 million from $361.9 million, while awarded projects without signed contracts declined to $853.8 million from $993.0 million.
Outlook, risks, contingencies, and unusual items
- Management expects continued growth in energy-efficiency and renewable-energy markets, but project sales cycles average 18 to 42 months and awarded projects generally take 12 to 18 months to convert to signed contracts.
- Backlog and awarded-project estimates are not guaranteed. Customers may delay, terminate, resize, or fail to finance projects; awarded projects do not generate revenue until contracts are signed.
- Government customers and funding are central to the business. Changes in appropriations, procurement rules, energy incentives, or government fiscal health could reduce demand or delay payments.
- Energy-savings performance contracts expose Ameresco to potential obligations to modify projects, install substitute measures, or compensate customers if performance commitments are not met.
- The company faces construction, permitting, equipment, subcontractor, renewable-resource, commodity-cost, customer-credit, environmental, regulatory, foreign-currency, and interest-rate risks.
- The company’s $60 million revolving facility includes minimum EBITDA, leverage, and cash-flow-to-debt-service covenants. Failure to comply could restrict borrowings or accelerate debt repayment.
- Ameresco paid countervailing duties on certain Chinese solar-cell shipments during 2014 and early 2015 and was awaiting a final U.S. Customs bill for one remaining shipment. The filing does not provide a clear final amount for this remaining exposure.
- Former Energyexcel owners may receive up to £4.5 million, or approximately $7.0 million at year-end exchange rates, in additional compensation if performance milestones are achieved through December 31, 2018; the company recorded a reserve for its estimated exposure.
- The company remediated a previously reported material weakness in internal control over financial reporting and reported effective disclosure controls and internal control as of December 31, 2014. Energyexcel was excluded from the 2014 internal-control assessment because it was acquired during the year.
- Ameresco has never paid cash dividends and expects to retain earnings for business growth. Class B shares carry five votes per share, and George P. Sakellaris and affiliates control approximately 79% of combined voting power.
Facts investors should verify
- Whether the planned $75 million to $90 million of 2015 capital spending is funded without materially increasing leverage.
- The conversion rate, timing, and economics of the $853.8 million awarded-project pipeline and the sustainability of the $386.2 million contracted backlog.
- Whether Canada’s losses and restructuring actions improve, and whether U.S. Regions revenue stabilizes after the shift toward company-owned renewable assets.
- The effect of expiring or changing energy-efficiency deductions, investment credits, production credits, and other government incentives on future tax rates and project economics.
- The status and ultimate cost of the remaining solar tariff liability and the potential payout under the Energyexcel performance arrangement.
- Compliance with the senior credit facility and project-financing covenants, including the June 2016 maturity of the senior facility.
- The quality of operating cash flow after considering the unusual Federal ESPC financing structure; GAAP operating cash flow was only $0.3 million, while adjusted cash from operations was $51.4 million.