Ameresco, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
Ameresco provides energy-efficiency solutions, renewable-energy project development and operations, energy sales, operations and maintenance services, and photovoltaic equipment in the United States, Canada and Europe. This unaudited filing covers the three months ended March 31, 2018, compared primarily with the three months ended March 31, 2017.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Revenue | $167.4 million | $134.6 million | 24.4% increase |
| Gross profit | $35.5 million | $25.9 million | 36.8% increase |
| Gross margin | 21.2% | 19.3% | Up 190 basis points |
| Operating income | $8.3 million | $(0.6) million | Improved by $8.8 million |
| Net income | $7.5 million | $(1.7) million | Improved by $9.2 million |
| Net income attributable to common shareholders | $7.0 million | $(0.6) million | Improved by $7.6 million |
| Diluted EPS | $0.15 | $(0.01) | Improved by $0.16 |
| Cash flow from operations | $(37.1) million | $(32.0) million | Use increased by $5.1 million |
| Cash flow from investing | $(35.2) million | $(29.1) million | Use increased by $6.0 million |
| Cash flow from financing | $84.1 million | $64.6 million | Increase of $19.5 million |
At March 31, 2018, cash and cash equivalents were $34.1 million and total cash, cash equivalents and restricted cash were $71.8 million. Total assets were $1.01 billion. Long-term debt and capital lease liabilities totaled $244.7 million, including $26.3 million of current maturities; reported long-term debt, net of current maturities and deferred financing fees, was $218.4 million. The company had $22.6 million available under its revolving credit facility and was in compliance with its financial and operating covenants.
Operating cash flow was affected by a $38.0 million increase in the Federal ESPC receivable and by working-capital requirements. Management notes that Federal ESPC-related customer cash inflows are presented as financing activities rather than operating activities, which can make reported operating cash flow appear weaker.
Material changes versus the prior comparable period
- Revenue increased $32.8 million, primarily from a $30.2 million increase in U.S. Regions revenue, a $2.5 million increase in Non-Solar Distributed Generation revenue and a $0.9 million increase in All Other revenue.
- U.S. Regions revenue increased 67.9% to $74.7 million, driven primarily by larger average project size. U.S. Federal revenue was essentially flat at $47.8 million.
- Non-Solar Distributed Generation revenue increased 15.8% to $18.1 million, primarily due to higher energy and incentive revenue from owned renewable-gas assets.
- Canada revenue declined 6.3% to $8.9 million, and the segment’s pretax loss widened to $2.4 million from $0.5 million, reflecting lower project revenue, higher project-development costs and unfavorable foreign-exchange effects.
- Gross margin improved primarily because of higher-margin energy and incentive revenue from renewable-gas assets.
- SG&A increased only 2.7% to $27.2 million, resulting in operating leverage.
- Other expenses increased $1.7 million, mainly because of higher interest expense and unfavorable foreign-exchange fluctuations.
- The company repurchased 212,131 Class A shares for $1.8 million, including fees, leaving approximately $3.5 million available under the $15.0 million authorization.
Guidance, outlook, commentary, risks and unusual items
- No specific quantitative full-year revenue or earnings guidance is provided in the filing text.
- Backlog was approximately $1.38 billion under the company’s Topic 606 presentation. Separately, fully contracted backlog was approximately $595.6 million, awarded but unsigned projects were approximately $1.293 billion, and 12-month backlog was $360.3 million. Approximately 30% of total backlog was expected to be recognized within the next twelve months.
- The company entered into agreements to acquire two solar projects for total consideration of $55.0 million, of which $21.0 million had been paid at March 31, 2018. Closing was expected in the second quarter of 2018, with commercial operation expected in late 2018 or early 2019.
- The company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective method. The adoption reduced beginning retained earnings by $4.5 million. For Q1 2018, reported adoption effects increased gross profit by $1.4 million and net income attributable to common shareholders by $1.1 million compared with amounts that would have been reported under the prior accounting rules.
- Net income benefited from a $3.8 million Section 179D tax deduction related to 2017, retroactively extended in February 2018, as well as investment tax credits. The reported tax benefit was $2.8 million and the estimated annual effective tax rate was a benefit of 58.8%, making the quarter’s tax rate unusually favorable.
- Results are seasonal: first-quarter revenue and operating income are typically lower than in the third and fourth quarters because of weather, construction cycles, educational-facility schedules and government procurement timing.
- Redeemable non-controlling interests and the HLBV allocation methodology may create quarter-to-quarter volatility in income attributable to common shareholders.
- Key risks include execution and profitability of fixed-price construction contracts, timing and conversion of backlog, customer termination or deferral rights, government contracting cycles, availability of financing, interest-rate and foreign-exchange exposure, project-development recoverability, tax-credit availability and acquisition execution.
- The company reported no material changes to previously disclosed risk factors, no material adverse legal proceedings, and no off-balance-sheet arrangements as defined by SEC rules.
Most important facts for investors to verify
- Reconcile the significant improvement in earnings with the favorable ASC 606 adoption impact and the $3.8 million discrete Section 179D tax benefit.
- Assess recurring operating cash generation separately from Federal ESPC financing-related cash inflows and working-capital investment.
- Monitor leverage, variable-rate debt exposure, the $22.6 million revolving-credit availability and compliance with debt covenants.
- Verify completion, financing and commercial-operation timing for the two solar projects requiring $55.0 million of total consideration.
- Evaluate the quality and conversion rate of the $1.293 billion awarded but unsigned project pipeline and the timing of the $1.38 billion backlog.
- Review Canada’s deteriorating segment performance and the assumptions underlying project-development costs and contract estimates.