Ameresco, Inc. 2015 Q2 Form 10-Q Summary
Business Context and Reporting Period
Ameresco provides energy-efficiency, renewable-energy, operations and maintenance, consulting, and photovoltaic solutions across the United States, Canada, and Europe. The filing covers the unaudited three and six months ended June 30, 2015, compared with the corresponding 2014 periods.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $152.5 million, up 7.0% | $267.9 million, up 10.1% |
| Gross profit | $30.9 million; 20.3% margin | $50.5 million; 18.9% margin |
| Operating income | $5.1 million; 3.3% margin | $0.7 million; 0.2% margin |
| Net income (loss) | $2.0 million; $0.04 diluted EPS | $(2.2) million; $(0.05) diluted EPS |
| Adjusted EBITDA | $11.3 million | $13.1 million |
| Operating cash flow | Not separately provided | $(37.6) million |
| Adjusted cash from operations | Not separately provided | $3.3 million |
- Cash and cash equivalents were $19.3 million at June 30, 2015, compared with $23.8 million at December 31, 2014. Restricted cash was $13.6 million.
- Total assets were $637.1 million and stockholders’ equity was $285.3 million.
- Debt and capital lease liabilities totaled approximately $102.8 million, excluding $85.4 million of Federal ESPC liabilities. Project financing loans totaled $73.7 million and senior secured facility borrowings included $8.5 million on the revolver and $17.1 million under the term loan.
- Investing cash outflows were $13.4 million, including $13.6 million for project assets. Management planned approximately $60.0 million of additional capital expenditures, principally for renewable-energy plants, during the remainder of 2015.
Material Changes Versus the Prior Comparable Period
- Revenue growth was driven primarily by U.S. Regions and U.S. Federal, partly offset by lower Canadian revenue. Six-month U.S. Regions revenue increased 18.5%, while U.S. Federal revenue increased 41.2%; Canada declined 31.4%.
- Gross margin improved modestly to 20.3% from 19.6% in the second quarter and to 18.9% from 18.7% for the six-month period, reflecting a favorable mix of higher-margin U.S. Federal projects, partly offset by Canadian project cost revisions.
- Six-month operating income improved from a $3.0 million loss to $0.7 million of income. The six-month net loss narrowed from $5.6 million to $2.2 million.
- Second-quarter net income declined 26.8% despite higher revenue, primarily because of higher income taxes and increased other expenses, including lower unrealized gains on interest-rate swaps.
- Canada recorded a six-month pretax loss of $5.6 million, including a reserve for potential future losses on a significant project and an unfavorable lower-margin project mix.
- Operating cash flow deteriorated from $5.9 million of inflow to $37.6 million of outflow, principally because of a $29.6 million increase in Federal ESPC receivables and working-capital uses. Adjusted cash from operations declined from $19.9 million to $3.3 million.
- On June 30, 2015, Ameresco amended and extended its senior credit facility. The new facility includes a $60.0 million revolver maturing in 2020 and a $17.1 million term loan maturing in 2018; approximately $8.5 million and $17.1 million were drawn, respectively, at quarter-end.
Guidance, Outlook, Risks, and Unusual Items
- No specific revenue or earnings guidance is provided in the filing. Management stated that available cash, revolver availability, and access to credit markets were expected to fund operations through 2015 and thereafter.
- Backlog at June 30, 2015 included approximately $398.3 million of fully contracted projects and $944.5 million of awarded but unsigned projects. Assets in development were $152.4 million. Backlog conversion remains subject to long sales cycles, customer contracting, project execution, and financing.
- Operations are seasonal, with typically stronger third-quarter results and weaker first-quarter results. Government procurement cycles and legislative or incentive-related delays can affect timing.
- Federal ESPC financing materially affects reported cash flows: $40.9 million of proceeds were classified as financing cash flows during the first six months, while related project expenditures reduced operating cash flow. Federal ESPC liabilities were $85.4 million and remain until customer acceptance.
- The company entered a sale-leaseback program with potential funding of up to $50.0 million and received $7.6 million from two solar-PV projects sold during the first quarter. No projects were sold in the second quarter. Capital leaseback obligations and project-performance, tax, warranty, and operating commitments remain relevant.
- Ameresco was in compliance with all senior credit facility and project-financing covenants at June 30, 2015. Failure to maintain the required total funded debt-to-EBITDA ratio below 2.0 to 1.0 or debt-service coverage ratio of at least 1.5 to 1.0 could trigger default and acceleration remedies.
- Unrecognized tax benefits were approximately $3.7 million. The company also maintained a reserve for a remaining U.S. Customs assessment related to historical solar-module antidumping duties; the final bill had not yet been received.
- Management reported no material changes to previously disclosed risk factors, no material adverse effect expected from current legal proceedings, and effective disclosure controls.
Most Important Facts for Investors to Verify
- Whether the Canadian project reserve and other contract-cost revisions have been fully reflected or could produce additional losses.
- The conversion rate and timing of the $944.5 million awarded but unsigned backlog, and the pace of conversion of contracted backlog into revenue and cash.
- Federal ESPC receivable collections, project acceptance timing, and the related $85.4 million liability exposure.
- Liquidity after planned 2015 capital expenditures of approximately $60.0 million, including revolver availability and covenant headroom.
- The sustainability of improved U.S. Federal margins and whether Canadian losses or corporate costs offset segment gains.
- The final U.S. Customs solar-tariff assessment, unrecognized tax benefits, sale-leaseback obligations, and any guarantees associated with project financing.