Ameresco, Inc. 2015 Q3 SEC Filing Summary
Business Context and Reporting Period
Ameresco provides energy-efficiency solutions, renewable-energy project development and operations, energy-management services, and photovoltaic equipment. It operates in the United States, Canada, and Europe. This Form 10-Q covers the three and nine months ended September 30, 2015; the interim financial statements are unaudited.
Key Financial Metrics
| Metric | Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 |
|---|---|---|---|---|
| Revenue | $189.1 million | $168.9 million | $457.1 million | $412.2 million |
| Gross profit | $36.3 million | $35.0 million | $86.8 million | $80.5 million |
| Gross margin | 19.2% | 20.7% | 19.0% | 19.5% |
| Operating income | $9.7 million | $9.2 million | $10.3 million | $6.2 million |
| Net income | $4.2 million | $7.3 million | $2.0 million | $1.7 million |
| Diluted EPS | $0.09 | $0.16 | $0.04 | $0.04 |
| Adjusted EBITDA | $16.1 million | $15.8 million | $29.2 million | $25.3 million |
For the nine months, operating cash flow was negative $33.9 million versus negative $12.1 million in the prior-year period. Adjusted cash from operations, including $61.8 million of Federal ESPC project proceeds, was $27.9 million versus $20.8 million. Investing cash flow was negative $30.1 million, principally from $29.9 million of project-asset purchases. Financing cash flow was positive $58.5 million, including $61.8 million of Federal ESPC proceeds.
At September 30, 2015, cash and cash equivalents were $21.3 million and restricted cash was $15.3 million. Total assets were $694.8 million and stockholders’ equity was $287.2 million. Reported debt and capital-lease liabilities totaled approximately $95.6 million, excluding $106.4 million of Federal ESPC liabilities. The company had no revolver borrowings, $15.7 million outstanding under its senior secured term loan, and $76.9 million of project-financing debt. It was in compliance with its debt covenants.
Material Changes Versus the Prior Comparable Period
- Revenue increased 12.0% in Q3 and 10.9% for the nine months, driven primarily by U.S. Regions and U.S. Federal activity.
- U.S. Regions revenue increased 32.8% in Q3 and 24.8% year to date; U.S. Federal revenue increased 28.6% and 35.9%, respectively.
- Canada revenue declined 40.6% in Q3 and 34.9% year to date. The segment reported a pretax loss of $1.7 million in Q3 and $7.2 million year to date, including the effects of cost-budget revisions and a $1.1 million reserve for potential future losses on a significant project.
- Gross margin declined because of a higher mix of lower-margin project revenue, unfavorable U.S. Federal project mix, and Canadian project cost revisions.
- Q3 net income declined 42.7%, despite higher operating income, primarily because the company recorded a $3.3 million tax provision versus a $0.5 million tax benefit in the prior-year quarter.
- All Other revenue declined 20.8% in Q3 and 9.2% year to date, primarily due to lower integrated-PV sales and private-sector commercial and industrial service activity.
- Backlog at September 30, 2015 included $379.3 million of fully contracted projects and $1.03 billion of awarded but unsigned projects. Twelve-month backlog was $306.8 million.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that available cash, the undrawn revolving facility, and access to credit markets were expected to be sufficient to fund operations through 2015 and thereafter. The company planned to invest an additional $30 million to $35 million in capital expenditures, principally renewable-energy plants, during the remainder of 2015. No specific revenue or earnings guidance was provided.
- The business is seasonal, with typically stronger third-quarter and weaker first-quarter results. Government procurement cycles, construction timing, weather, and project delays can cause material quarterly volatility.
- In September 2015, the company entered into an investor arrangement involving ownership interests in certain renewable-energy project subsidiaries. Ameresco expects to consolidate the entities and record redeemable non-controlling interests beginning in Q4 2015 or Q1 2016; HLBV income allocations could increase quarter-to-quarter earnings volatility.
- In November 2015, the company announced restructuring in Canada and its enterprise energy-management business. It expected fourth-quarter costs of $1.0 million to $1.5 million, primarily employee termination benefits.
- Federal ESPC arrangements create significant balance-sheet and cash-flow effects: Federal ESPC liabilities were $106.4 million and related receivables were $103.6 million at September 30, 2015. The company remains the primary obligor until government project acceptance.
- The company had a remaining solar tariff contingency related to one covered shipment of Chinese solar modules and had reserved its current estimate of the exposure. The final U.S. Customs bill had not yet been received.
- Gross unrecognized tax benefits were approximately $3.7 million. The company also had up to £4.5 million, or approximately $6.8 million, of potential acquisition-related compensation tied to Energyexcel performance milestones through December 31, 2018.
- Interest-rate swaps had a fair value liability of $5.8 million, and accumulated other comprehensive loss was $5.6 million. The company reported no goodwill or intangible-asset impairment charges for the nine months.
Most Important Facts for Investors to Verify
- Reconcile the negative GAAP operating cash flow with the company’s non-GAAP adjusted cash-from-operations measure and Federal ESPC financing structure.
- Assess whether Canadian project losses and the planned restructuring are contained or could require additional reserves and charges.
- Review the quality, timing, and conversion rate of the $1.03 billion awarded-but-unsigned backlog, which is not equivalent to contracted revenue.
- Monitor gross-margin trends, particularly the mix of lower-margin federal and other project work.
- Evaluate leverage, covenant headroom, Federal ESPC obligations, project-financing recourse, and required capital expenditures.
- Confirm the timing and earnings impact of redeemable non-controlling interests from the September 2015 renewable-project financing.
- Verify the final solar-tariff assessment, tax contingencies, and the potential Energyexcel milestone payment.