Ameresco, Inc. 2012 Q1 Form 10-Q Summary
Business Context and Reporting Period
Ameresco provides energy-efficiency solutions, renewable-energy projects, photovoltaic products, and operations and maintenance services across the United States, Canada, and Europe. The filing covers the unaudited quarter ended March 31, 2012, compared with the quarter ended March 31, 2011. Results are seasonally weighted toward the second and third quarters, with the first quarter typically weaker.
Financial Performance and Liquidity
| Metric | Q1 2011 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | $146.4 million | $146.6 million | 0.1% |
| Gross profit | $28.0 million | $29.2 million | 4.4% |
| Gross margin | 19.1% | 19.9% | Up 0.8 percentage points |
| Operating income | $8.3 million | $3.4 million | Down 58.7% |
| Operating margin | 5.7% | 2.3% | Down 3.4 percentage points |
| Income before taxes | $7.4 million | $2.1 million | Down 71.8% |
| Net income | $5.3 million | $1.5 million | Down 71.5% |
| Diluted EPS | $0.12 | $0.03 | Down $0.09 |
| Cash flow from operations | $(25.6) million | $33.2 million | Improved by $58.8 million |
Energy-efficiency revenue increased 6.8% to $113.4 million, while renewable-energy revenue declined 17.5% to $33.2 million. Energy-efficiency gross margin improved to 21.0% from 18.7%; renewable-energy gross margin declined to 16.5% from 20.3%.
At March 31, 2012, cash and cash equivalents were $38.4 million, restricted cash was $12.6 million, and working capital was approximately $124.1 million. Current assets were $246.6 million and current liabilities were $122.5 million.
Balance-sheet debt consisted of $12.4 million of current debt and $197.3 million of long-term debt. Separately, federal ESPC receivable financing totaled approximately $118.5 million and construction and project term loans totaled approximately $55.5 million. The company had no borrowings under its $60 million revolving credit facility and reported compliance with all financial and operating covenants.
Material Changes Versus the Prior Comparable Period
- Revenue was essentially flat because energy-efficiency growth offset lower renewable-energy activity.
- U.S. federal revenue fell 48.3%, Canada revenue fell 28.1%, and central U.S. revenue fell 11.6%. Other U.S. regions increased 36.7%, and centrally managed activities increased 62.6%.
- Renewable-energy revenue was reduced by approximately $12.9 million from the Savannah River project, which completed construction in the fourth quarter of 2011 and moved into its operations and maintenance phase.
- Operating expenses increased 31.1% to $25.8 million. Salaries and benefits rose 42.5%, while general, administrative and other expenses rose 38.9%, reflecting added personnel, new offices, public-company costs, acquisition integration, and amortization of acquired intangible assets.
- Operating cash flow benefited from collection of approximately $21.2 million of Savannah River retainage and collections of acquired-company receivables that had been delayed into 2012.
- Capital expenditures and project-asset investment totaled $11.3 million before $3.8 million of grants and rebates; net investing cash outflow was $7.4 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide specific numerical earnings or revenue guidance. Management stated that available cash, the unused revolving facility, and access to credit markets were expected to fund operations through 2012 and thereafter. Management also expected renewable-energy gross margin to improve as Savannah River transition costs largely had been incurred.
Fully contracted backlog was approximately $413 million at March 31, 2012, down from approximately $589 million a year earlier. Awarded but unsigned projects totaled approximately $872 million, up from approximately $577 million. Conversion of awarded projects to signed contracts had been delayed by federal ESPC competition-rule changes, lower regional award activity, and government and municipal customer uncertainty.
- The company disclosed a continuing material weakness in internal control over financial reporting, involving insufficient personnel and review procedures for timely and accurate GAAP reporting. Remediation efforts were expected to continue through 2012.
- A customer seeks approximately $6.8 million in reprocurement costs in a construction-contract dispute. Ameresco disputes the claim, considers additional liability unlikely, and had approximately $3.8 million of related claims outstanding that had not been recognized as revenue or profit.
- Former AEG shareholders may receive up to $5.0 million of additional consideration based on performance milestones; contingent consideration carried a fair value of approximately $2.7 million.
- The business is exposed to interest-rate, foreign-currency, project-performance, construction-cost, customer-collection, contract-estimate, and seasonal risks. Interest-rate swaps had a liability fair value of $6.2 million at March 31, 2012.
- Management noted that fixed-price contracts, percentage-of-completion accounting, project delays, subcontractor performance, and estimates of final contract costs could materially affect reported results.
Most Important Facts to Verify
- Whether the company remediated the disclosed material weakness in internal controls and whether additional control deficiencies were identified.
- Progress converting the $872 million of awarded but unsigned projects into contracted backlog, particularly in the federal and Canadian markets.
- Sustainability of the $33.2 million operating cash inflow, given its dependence on retainage and delayed receivable collections.
- Whether renewable-energy margins improved after Savannah River transition costs ended.
- Current utilization, covenant headroom, maturity profile, and refinancing needs for the senior secured facility, project loans, and ESPC financing.
- Resolution and potential financial exposure from the $6.8 million customer dispute and related unrecognized claims.