Ameresco(AMRC) - 2020 Q3 - Quarterly Report

PART I Item 1. Condensed Consolidated Financial Statements This section presents Ameresco, Inc.'s unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2020, including balance sheets, income, comprehensive income, equity, and cash flow statements, along with detailed notes on accounting policies and financial components Condensed Consolidated Balance Sheets As of September 30, 2020, total assets increased to $1.58 billion from $1.37 billion at December 31, 2019, primarily driven by growth in Federal ESPC receivables and Energy assets, while total liabilities also grew to $1.08 billion from $913.5 million, mainly due to increased Federal ESPC liabilities and long-term debt, and total stockholders' equity rose to $463.1 million from $428.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,584,697 | $1,374,013 | | Cash and cash equivalents | $45,351 | $33,223 | | Federal ESPC receivable | $330,607 | $230,616 | | Energy assets, net | $670,139 | $579,461 | | Total Liabilities | $1,085,219 | $913,541 | | Federal ESPC liabilities | $385,386 | $245,037 | | Total long-term debt and financing lease liabilities | $339,648 | $336,150 | | Total Stockholders' Equity | $463,057 | $428,856 | Condensed Consolidated Statements of Income For the third quarter of 2020, Ameresco reported a significant increase in revenues to $282.5 million, up 33.2% year-over-year, with net income attributable to common shareholders more than doubling to $20.0 million, and diluted EPS rising to $0.41 from $0.19 in Q3 2019, while nine-month results also showed strong growth, with revenues up 28.1% and net income up 37.5% compared to the prior year period Q3 2020 and Nine Months 2020 Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | YoY Change | Nine Months 2020 | Nine Months 2019 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $282,507 | $212,026 | +33.2% | $717,956 | $560,321 | +28.1% | | Gross Profit | $51,374 | $44,693 | +15.0% | $129,328 | $120,464 | +7.4% | | Operating Income | $24,515 | $13,462 | +82.1% | $46,925 | $33,068 | +41.9% | | Net Income Attributable to Common Shareholders | $20,002 | $8,870 | +125.5% | $30,568 | $22,233 | +37.5% | | Diluted EPS | $0.41 | $0.19 | +115.8% | $0.62 | $0.47 | +31.9% | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash used in operating activities was $83.8 million, an improvement from the $120.7 million used in the same period of 2019, primarily due to changes in working capital despite a significant increase in Federal ESPC receivables, while cash used in investing activities increased to $127.6 million due to higher purchases of energy assets, and cash provided by financing activities rose to $205.5 million, driven by proceeds from Federal ESPC projects and debt financings Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | ($83,789) | ($120,725) | | Net cash from investing activities | ($127,602) | ($79,930) | | Net cash from financing activities | $205,499 | $172,877 | | Effect of exchange rate changes on cash | ($465) | $249 | | Net decrease in cash | ($6,357) | ($27,529) | - The significant cash outflow from operations is largely attributable to a $160.2 million increase in Federal ESPC receivables, with cash inflows for these projects recorded under financing activities, creating a mismatch in the operating cash flow presentation[19][221] Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial results, covering the impact of COVID-19 and the CARES Act, revenue recognition, backlog, goodwill, debt facilities, segment performance, and a new SEC inquiry into SaaS revenue recognition - The company determined that the COVID-19 pandemic did not have a material adverse impact on its results for the nine months ended September 30, 2020, but future impact remains uncertain[27][28] - Under the CARES Act, the company will defer approximately $5.0 million in 2020 employer payroll taxes and estimates a tax benefit of about $2.0 million from net operating loss carryback provisions, along with additional refunds[29] - Total backlog as of September 30, 2020, was $2.15 billion, with approximately 31% expected to be recognized as revenue in the next twelve months[57] - In October 2020, the company received a request for information from the SEC regarding its SaaS revenue recognition practices from January 1, 2014, through September 30, 2020, and an internal review is underway[238] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting significant revenue growth driven by project execution, particularly in the U.S. Federal segment, covering the impact of COVID-19, a substantial increase in backlog, segment-level performance, and liquidity, noting that cash from operations is negatively impacted by the accounting for Federal ESPC projects, while financing cash flows benefit Backlog and Awarded Projects As of September 30, 2020, the company's backlog and awarded projects showed significant growth compared to the prior year, with fully-contracted backlog increasing by 31.3%, O&M backlog growing by 23.3%, and assets in development seeing a substantial 37.2% increase, indicating a strong pipeline for future growth Backlog and Pipeline Comparison (in millions) | Metric | Sep 30, 2020 | Sep 30, 2019 | % Change | | :--- | :--- | :--- | :--- | | Fully-Contracted Backlog | $1,033.7 | $787.2 | +31.3% | | Awarded Projects (uncontracted) | $1,211.3 | $1,434.9 | -15.6% | | O&M Backlog | $1,120.8 | $908.9 | +23.3% | | Assets in Development | $784.6 | $572.0 | +37.2% | Results of Operations For Q3 2020, revenues increased 33.2% YoY to $282.5 million, driven by a $69.5 million increase in project revenue, while gross margin decreased from 21.1% to 18.2% due to a higher mix of lower-margin design-build work, and SG&A expenses fell 14.0% to $26.9 million, primarily due to lower salaries and professional fees, consequently, net income attributable to common shareholders rose 125.5% to $20.0 million - Revenue for Q3 2020 increased by $70.5 million (33.2%) YoY, primarily from a $69.5 million increase in project revenue[185] - Gross margin for Q3 2020 decreased to 18.2% from 21.1% in Q3 2019, attributed to a higher proportion of lower-margin projects in the revenue mix[187] - SG&A expenses for Q3 2020 decreased by $4.4 million (14.0%) YoY, mainly due to lower salaries, benefits, professional fees, and travel expenses[189] - The effective tax rate for Q3 2020 was 14.9%, up from 10.1% in Q3 2019, and for the nine-month period, the rate was 1.8% compared to 9.2% in 2019, influenced by investment tax credits and benefits from the CARES Act[193][194][195] Business Segment Analysis For Q3 2020, the U.S. Federal segment was the primary growth driver, with revenues increasing 66.0% to $118.3 million, while the U.S. Regions segment also grew revenues by 10.5%, the Non-Solar DG segment saw a 29.1% revenue increase, and Canada experienced a slight revenue decline of 3.2%, with strong performance in the U.S. segments significantly boosting overall profitability Segment Revenue and Income Before Taxes - Q3 2020 vs Q3 2019 (in thousands) | Segment | Q3 2020 Revenue | Q3 2019 Revenue | % Change | Q3 2020 Income Before Taxes | Q3 2019 Income Before Taxes | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Regions | $92,944 | $84,079 | +10.5% | $7,225 | $3,350 | +115.7% | | U.S. Federal | $118,303 | $71,258 | +66.0% | $16,121 | $10,967 | +47.0% | | Canada | $12,263 | $12,665 | -3.2% | $446 | $1,577 | -71.7% | | Non-Solar DG | $28,251 | $21,875 | +29.1% | $2,391 | $977 | +144.7% | | All Other | $30,746 | $22,149 | +38.8% | $3,967 | $881 | +350.3% | Liquidity and Capital Resources The company maintains liquidity through cash from operations, Federal ESPC project advances, and debt facilities, with operating activities using $83.8 million in cash for the first nine months of 2020, an improvement from 2019, largely due to the accounting treatment of Federal ESPC projects where cash inflows are classified under financing, and the company benefited from the CARES Act, deferring $5 million in payroll taxes and anticipating tax refunds, with planned capital expenditures for the remainder of 2020 between $50.0 million and $70.0 million, primarily for new renewable energy plants - The company believes its cash, credit facility availability, and access to credit markets are sufficient to fund operations for at least the next twelve months[213] - The CARES Act provides liquidity benefits, including the deferral of approximately $5 million in 2020 employer payroll taxes and anticipated tax refunds totaling around $5.3 million[215] - Planned capital expenditures for the remainder of 2020 are between $50.0 million and $70.0 million, mainly for constructing or acquiring new renewable energy plants[223][227] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that as of September 30, 2020, there have been no significant changes in its market risk exposures that would materially affect the quantitative and qualitative disclosures previously provided in its Annual Report - There were no significant changes in market risk exposures since the last Annual Report[232] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable level of assurance as of September 30, 2020, with no material changes to internal control over financial reporting identified during the most recent fiscal quarter - Management concluded that disclosure controls and procedures were effective as of the end of the quarter[233] - No material changes in internal control over financial reporting occurred during the quarter[234] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company disclosed that on October 2, 2020, it received a request for information from the SEC concerning revenue recognition for its software-as-a-service (SaaS) businesses for the period from January 1, 2014, to September 30, 2020, and the Audit Committee is overseeing an internal review, which has not identified any material misstatements to date, with the company fully cooperating with the SEC - On October 2, 2020, the SEC requested information regarding revenue recognition for the company's SaaS businesses from 2014 to 2020[238] - The company is cooperating with the SEC, and an internal review overseen by the Audit Committee has not yet identified any material misstatements[238] Item 1A. Risk Factors This section highlights the risks associated with the ongoing SEC investigation into the company's SaaS revenue recognition practices, where potential adverse outcomes include the restatement of financial statements, investment in remediating internal controls, sanctions or penalties, management distraction, and third-party litigation, all of which could negatively impact financial results - A key risk factor is the SEC's investigation into SaaS revenue recognition, which could lead to financial restatements, penalties, or litigation[241][242] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported on its stock repurchase program, noting that during the quarter ended September 30, 2020, no shares of Class A common stock were repurchased, and as of the end of the quarter, approximately $5.9 million remained available for future repurchases under the authorized program Stock Repurchase Activity for Q3 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2020 | 0 | N/A | | August 2020 | 0 | N/A | | September 2020 | 0 | N/A | | Total Q3 2020 | 0 | N/A | - Approximately $5.9 million remains available for repurchase under the company's stock repurchase program as of September 30, 2020[244] Item 5. Other Information On October 28, 2020, the Board of Directors approved clarifying changes to its Share Ownership Guidelines, originally adopted in April 2019, with amendments allowing the CEO to grant waivers of the guidelines to others, but not to himself - The company amended its Share Ownership Guidelines on October 28, 2020, to make clarifying changes and adjust waiver provisions[245] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the amended Stock Ownership Guidelines, CEO and CFO certifications as required by the Sarbanes-Oxley Act, and the financial statements formatted in XBRL - Exhibits filed include the amended Stock Ownership Guidelines, Sarbanes-Oxley certifications, and XBRL data files[247][249][250]