Ameresco, Inc. Form 10-Q Summary
Business Context and Reporting Period
Ameresco is a clean technology integrator providing energy-efficiency, renewable-energy, operations and maintenance, energy-supply, integrated photovoltaic, consulting and enterprise energy-management solutions. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
The company operates through U.S. Regions, U.S. Federal, Canada, Alternative Fuels and All Other segments. On March 30, 2023, Ameresco acquired Enerqos Energy Solutions S.r.l., an Italian renewable-energy and energy-efficiency company, for total consideration of $13.4 million; the acquisition was not material to reported results.
Financial Performance and Position
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Revenue | $327.1 million | $577.4 million | $598.1 million | $1,051.4 million |
| Gross profit | $58.6 million | $81.3 million | $108.6 million | $149.7 million |
| Gross margin | 17.9% | 14.1% | 18.2% | 14.2% |
| Operating income | $17.6 million | $43.1 million | $26.7 million | $71.7 million |
| Operating margin | 5.4% | 7.5% | 4.5% | 6.8% |
| Net income attributable to common shareholders | $6.4 million | $32.2 million | $7.5 million | $49.6 million |
| Diluted EPS | $0.12 | $0.61 | $0.14 | $0.93 |
Revenue declined 43.4% in the second quarter and 43.1% year to date, primarily because of project timing and lower recognized revenue from active projects, including the SCE battery-storage projects. Gross margin improved because the prior-year period included a larger contribution from the lower-margin SCE project. SG&A increased 7.3% in the quarter and 4.8% year to date, while other expenses increased primarily because of higher interest costs, higher rates, factoring fees and lower government incentives.
- Q2 revenue changes by segment: U.S. Regions decreased 65.0%, U.S. Federal decreased 21.1%, Canada increased 5.1%, Alternative Fuels increased 3.9% and All Other increased 79.1%.
- Six-month revenue from Alternative Fuels was essentially flat, while All Other increased 42.3% and U.S. Regions declined 63.0%.
- Approximately 94% of year-to-date revenue was recognized over time.
- Contracted backlog was $2.33 billion at June 30, 2023, with approximately 36% expected to be recognized within twelve months. Total project backlog, including awarded but unsigned work, was $3.24 billion, and O&M backlog was $1.24 billion.
Cash Flow, Debt and Liquidity
- Cash flow from operating activities was negative $33.8 million for the first six months of 2023, compared with negative $307.8 million in 2022. The improvement primarily reflected lower unbilled revenue and accounts receivable balances, partially offset by lower earnings and reduced payables.
- Investing cash flow was negative $279.2 million, including $261.5 million of investment in new energy assets, $5.8 million for major maintenance and $9.2 million for the Enerqos acquisition.
- Financing cash flow was $265.1 million. Net cash, cash equivalents and restricted cash decreased $48.1 million to $101.8 million at June 30, 2023, including $49.0 million of unrestricted cash and cash equivalents.
- Total debt and financing lease liabilities were $1.14 billion, compared with $915.7 million at December 31, 2022. Long-term debt and financing lease liabilities, net of current maturities and issuance costs, were $784.3 million.
- The senior secured revolving facility had $102.9 million outstanding and $20.7 million available. The March 2023 amendment temporarily increased the funded-debt-to-EBITDA covenant from 3.50x to 4.00x for the first two quarters of 2023, reverting to 3.50x thereafter.
- Management stated that cash, working capital, revolving availability, potential additional revolver capacity and access to capital markets should fund operations through at least July 2024. The company requested an extension to mid-December 2023 for a $220 million delayed-draw term loan otherwise scheduled to mature September 4, 2023.
- Management expects approximately $150 million to $200 million of additional capital expenditures and approximately $250 million to $300 million of additional project financings during the remainder of 2023.
Material Changes, Outlook and Risks
- Supply-chain disruptions, inflation, labor and component costs, shipping delays and geopolitical conditions negatively affected results during the first six months and may continue beyond 2023. Identified constrained components include lithium-ion battery cells, semiconductors and electrical transformers.
- Two of the three SCE battery-storage projects were in commissioning and expected to reach substantial completion in the third quarter of 2023; the third was expected in the fourth quarter. If Ameresco’s force-majeure claims are not accepted, potential liquidated damages could reach an aggregate maximum of $89 million, and some schedule-change costs may not be recoverable.
- The Inflation Reduction Act is viewed as favorable for renewable-energy demand and contributed to expected investment tax credits and deductions, but it may also increase competition and demand for labor, equipment and commodities.
- Solar-panel trade restrictions or duties arising from the U.S. Department of Commerce investigation could disrupt supply and increase costs, although management did not expect a material near-term impact.
- Results are seasonal and affected by construction cycles, government procurement timing, weather and project milestones. Management expects the effective tax rate to be lower in 2023 because of investment tax credits, stock-compensation deductions and Section 179D deductions.
- Management expects to continue evaluating capital commitments and discretionary spending in response to interest rates, inflation, political uncertainty and supply constraints.
Other Unusual Items and Contingencies
- Interest expense paid during the first six months was $31.8 million, compared with $13.7 million in the prior-year period.
- Accounts receivable factoring fees were $1.3 million in the first six months and $1.3 million in the second quarter.
- Ameresco paid $3.0 million of contingent consideration during the first six months; remaining contingent consideration was $1.3 million at June 30, 2023.
- Legal proceedings are described as ordinary-course matters, and management does not believe current matters will have a material adverse effect.
- Disclosure controls and procedures were assessed as effective at a reasonable assurance level.
Important Facts for Investors to Verify
- Whether the SCE projects achieve the projected completion dates and whether potential liquidated damages or unrecovered schedule costs arise.
- Whether the requested delayed-draw term-loan maturity extension is obtained and whether covenant compliance remains achievable.
- Funding and execution of the planned $150 million to $200 million of capital expenditures and $250 million to $300 million of project financings.
- Conversion of awarded backlog into signed contracts and the timing of revenue recognition from the $2.33 billion contracted backlog.
- Whether supply-chain, inflation, labor, component and solar-panel trade risks continue to pressure project margins and cash flow.
- The company’s ability to reduce negative operating cash flow while supporting substantial investment in owned energy assets.