Ameresco, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2020. The interim financial statements are unaudited and should be read with the 2019 Form 10-K. Ameresco provides energy-efficiency solutions, renewable-energy projects, operations and maintenance services, and distributed-generation products across North America and Europe.
Financial Performance and Position
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Revenue | $282.5 million | $212.0 million | $718.0 million | $560.3 million |
| Gross profit | $51.4 million | $44.7 million | $129.3 million | $120.5 million |
| Gross margin | 18.2% | 21.1% | 18.0% | 21.5% |
| Operating income | $24.5 million | $13.5 million | $46.9 million | $33.1 million |
| Net income attributable to common shareholders | $20.0 million | $8.9 million | $30.6 million | $22.2 million |
| Diluted EPS | $0.41 | $0.19 | $0.62 | $0.47 |
- Q3 revenue increased 33.2%; nine-month revenue increased 28.1%, driven primarily by higher project revenue, with additional contributions from energy assets and operations and maintenance.
- Q3 operating income increased 82.2%, and nine-month operating income increased 41.9%. SG&A declined 14.0% in Q3 and 5.7% year to date, reflecting lower salaries and benefits, professional fees and travel costs.
- Gross margin declined because the revenue mix included more lower-margin design-build projects, energy revenue and incentive revenue.
- The nine-month income-tax provision fell to $0.6 million from $2.0 million. The estimated annual effective tax rate was 1.8%, benefiting from investment and production tax credits, Section 179D deductions, CARES Act net operating loss carrybacks and partnership tax-basis adjustments.
- Cash flow from operations was negative $83.8 million versus negative $120.7 million in the prior-year period. The principal use was a $160.2 million increase in Federal ESPC receivables; the company explains that related financing inflows are classified as financing cash flows.
- Investing cash flow was negative $127.6 million, including $125.5 million for energy assets. Financing cash flow was positive $205.5 million, primarily from Federal ESPC project proceeds and debt financings.
- Cash, cash equivalents and restricted cash totaled $70.9 million at September 30, 2020, including $45.4 million of unrestricted cash and cash equivalents, compared with $77.3 million at December 31, 2019.
- Total debt and financing lease liabilities were $345.9 million, including $61.5 million classified as current. Long-term debt and financing lease liabilities, net of current maturities and deferred financing fees, were $278.1 million.
- At September 30, $45.7 million remained available under the $185.0 million senior secured credit facility, and $19.0 million remained available under a $30.0 million construction revolver.
Material Changes Versus the Prior Comparable Period
- U.S. Federal revenue increased 66.0% in Q3 and 60.4% for the first nine months, primarily from project timing and progression.
- U.S. Regions revenue increased 10.5% in Q3 and 16.9% year to date; segment pretax income increased substantially because of higher utilization and lower personnel costs.
- Canada revenue declined 3.2% in Q3 but increased 18.0% year to date. Canada pretax income declined in both periods because of lower margins and higher interest expense.
- Non-Solar Distributed Generation revenue increased 29.1% in Q3 and 11.7% year to date.
- Energy assets, net increased to $670.1 million from $579.5 million at December 31, 2019. Federal ESPC receivables increased to $330.6 million from $230.6 million.
- Backlog totaled $2.155 billion at September 30, 2020. Fully contracted backlog was approximately $1.034 billion, awarded but unsigned backlog was approximately $1.211 billion, and 12-month project backlog was $605.9 million.
Outlook, Risks and Unusual Items
- Management stated that COVID-19 had not materially affected results through September 30, but expects possible delays in project award conversions and construction slowdowns. The future effects on operations, liquidity and cash flows remain uncertain.
- Management believes available cash, revolving credit capacity and access to credit markets will fund operations for the next twelve months and thereafter. The company planned approximately $50 million to $70 million of additional capital expenditures and approximately $50 million to $70 million of additional project financings for the remainder of 2020.
- The company expects seasonal volatility: revenue and operating income are generally higher in the third and fourth quarters and lower in the first quarter.
- A $1.0 million impairment charge was recorded for an energy asset after an engine repeatedly failed emissions compliance and was deemed unsalvageable.
- On October 2, 2020, the SEC requested information regarding revenue recognition for the company’s software-as-a-service businesses for January 1, 2014 through September 30, 2020. The company is cooperating, and an outside-counsel review overseen by the Audit Committee had not identified material misstatements as of the filing date. The inquiry could nevertheless result in restatements, remediation costs, penalties, litigation or management distraction.
- On October 23, 2020, the company amended a non-recourse credit facility, extending its maturity to March 31, 2026 and increasing the amended principal amount to up to $50 million.
- The company reported no material adverse effect from pending ordinary-course legal proceedings and stated that disclosure controls were effective at a reasonable level of assurance.
Investor Verification Checklist
- Verify the collectability and timing of the $330.6 million Federal ESPC receivable and the effect of its financing structure on reported operating cash flow.
- Assess whether lower gross margins from project mix could persist as revenue and backlog convert.
- Review debt maturities, covenant compliance, variable-rate exposure and availability under revolving facilities.
- Monitor COVID-19 effects on awarded-project conversions, construction schedules, customer payments and supply chains.
- Follow the SEC SaaS revenue-recognition inquiry and any resulting accounting, control, legal or financial consequences.
- Evaluate the execution and timing risk associated with the $2.155 billion backlog, including the $1.211 billion of awarded but unsigned projects.
- Confirm the planned $50 million to $70 million of remaining 2020 capital expenditures and related financing requirements.