Ameresco(AMRC) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides Ameresco's unaudited financial statements and management's analysis of operations Item 1. Condensed Consolidated Financial Statements This section presents Ameresco's unaudited condensed consolidated financial statements and notes for Q3 2021 and FY2020 Condensed Consolidated Balance Sheets This section provides Ameresco's condensed consolidated balance sheets as of September 30, 2021, and December 31, 2020 | Metric (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------- | :----------------- | :---------------- | | Total Assets | $1,968,178 | $1,754,115 | | Total Liabilities | $1,252,394 | $1,222,485 | | Total Stockholders' Equity | $668,836 | $492,813 | Condensed Consolidated Statements of Income This section presents Ameresco's condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $273,682 | $282,507 | $799,804 | $717,956 | | Gross Profit | $58,813 | $51,374 | $159,044 | $129,328 | | Operating Income | $23,645 | $24,515 | $63,393 | $46,925 | | Net Income | $20,280 | $17,689 | $50,597 | $33,161 | | Net Income Attributable to Common Shareholders | $17,423 | $20,002 | $42,252 | $30,568 | | Basic EPS | $0.34 | $0.42 | $0.83 | $0.64 | | Diluted EPS | $0.33 | $0.41 | $0.81 | $0.62 | Condensed Consolidated Statements of Comprehensive Income This section presents Ameresco's condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2021 and 2020 | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $20,280 | $17,689 | $50,597 | $33,161 | | Total Other Comprehensive (Loss) Income | $(682) | $1,499 | $1,854 | $(4,181) | | Comprehensive Income | $19,598 | $19,188 | $52,451 | $28,980 | | Comprehensive Income Attributable to Common Shareholders | $16,741 | $21,501 | $44,106 | $26,387 | Condensed Consolidated Statements of Changes in Redeemable Non-Controlling Interests and Stockholders' Equity This section details changes in redeemable non-controlling interests and stockholders' equity for the periods presented | Metric (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------- | :----------------- | :---------------- | | Redeemable Noncontrolling Interests | $44,948 | $38,850 | | Total Stockholders' Equity | $668,836 | $492,813 | - For the nine months ended September 30, 2021, additional paid-in capital increased significantly from $145,496 thousand to $277,502 thousand, primarily due to an equity offering of common stock, net of offering costs, which contributed $120,084 thousand[7][23] Condensed Consolidated Statements of Cash Flows This section presents Ameresco's condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 | Metric (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :----------------------------- | :----------------------------- | | Cash flows from operating activities | $(116,344) | $(83,789) | | Cash flows from investing activities | $(150,100) | $(127,602) | | Cash flows from financing activities | $261,267 | $205,499 | | Net decrease in cash, cash equivalents, and restricted cash | $(5,059) | $(6,357) | | Cash, cash equivalents, and restricted cash, end of period | $93,778 | $70,907 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes to Ameresco's condensed consolidated financial statements, explaining accounting policies and financial details 1. BASIS OF PRESENTATION The condensed consolidated financial statements are unaudited, prepared under GAAP, and reflect ongoing COVID-19 pandemic risks - The company's financial statements are unaudited and include normal recurring adjustments necessary for fair presentation in conformity with GAAP[31] - The COVID-19 pandemic continues to cause global supply chain disruptions and has led to a federal mandate for COVID-19 vaccinations for employees and subcontractors in the Federal business segment, potentially leading to employee loss[34] - The ultimate impact of the COVID-19 pandemic on the company's financial condition, liquidity, or results of operations remains highly uncertain and cannot be reasonably estimated as of the reporting date[35] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines updates to accounting policies, including credit losses and recent accounting pronouncement adoptions or evaluations | Allowance for Credit Losses (in thousands) | September 30, 2021 | September 30, 2020 | | :--------------------------------------- | :----------------- | :----------------- | | Beginning of period | $2,266 | $2,260 | | Charges (recoveries) to costs and expenses, net | $29 | $(1,089) | | Account write-offs and other | $11 | $(191) | | End of period | $2,306 | $980 | - The company adopted ASU 2019-12 (Simplifying the Accounting for Income Taxes) and ASU 2020-10 (Codification Improvements) as of January 1, 2021, with no impact on its condensed consolidated financial statements[40][43] - The company is currently evaluating the impact of ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) and ASU 2021-08 (Business Combinations) on its condensed consolidated financial statements and related disclosures[41][42][44] 3. REVENUE FROM CONTRACTS WITH CUSTOMERS This note disaggregates revenue by segment and line of business, detailing contract balances and remaining performance obligations | Revenue by Segment (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. Regions | $103,036 | $93,724 | $297,779 | $269,138 | | U.S. Federal | $96,654 | $118,303 | $289,068 | $271,539 | | Canada | $11,631 | $12,263 | $34,148 | $32,690 | | Non-Solar DG | $33,811 | $28,251 | $99,750 | $74,104 | | All Other | $28,550 | $29,966 | $79,059 | $70,485 | | Total Revenues | $273,682 | $282,507 | $799,804 | $717,956 | | Contract Balances (in thousands) | September 30, 2021 | December 31, 2020 | | :------------------------------- | :----------------- | :---------------- | | Accounts receivable, net | $112,893 | $125,010 | | Accounts receivable retainage, net | $39,404 | $30,189 | | Costs and estimated earnings in excess of billings (Contract Assets) | $213,468 | $185,960 | | Billings in excess of cost and estimated earnings (Contract Liabilities) | $28,018 | $33,984 | | Total contract liabilities | $34,813 | $40,615 | - At September 30, 2021, the company had a backlog of $1,893,740 thousand, with approximately 33% anticipated to be recognized as revenue in the next twelve months, primarily from energy efficiency and renewable energy construction projects, including long-term O&M services[57] 4. GOODWILL AND INTANGIBLE ASSETS, NET This note details changes in goodwill balances by segment and provides a breakdown of definite-lived intangible assets and amortization | Goodwill Balances (in thousands) | December 31, 2020 | September 30, 2021 | | :------------------------------- | :---------------- | :----------------- | | U.S. Regions | $26,705 | $26,705 | | U.S. Federal | $3,981 | $3,981 | | Canada | $3,441 | $3,450 | | Other | $24,587 | $24,493 | | Total | $58,714 | $58,629 | | Definite-lived Intangible Assets, Net (in thousands) | September 30, 2021 | December 31, 2020 | | :--------------------------------------------------- | :----------------- | :---------------- | | Gross carrying amount | $27,143 | $27,240 | | Less - accumulated amortization | $(26,456) | $(26,313) | | Intangible assets, net | $687 | $927 | | Amortization Expense (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | All other intangible assets | $80 | $157 | $241 | $468 | | Total amortization expense | $80 | $172 | $241 | $528 | 5. ENERGY ASSETS, NET This note provides a breakdown of energy assets, net, including depreciation, impairment charges, capitalized interest, and acquisitions | Energy Assets, Net (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :----------------- | :---------------- | | Energy assets | $1,081,099 | $954,426 | | Less - accumulated depreciation and amortization | $(252,421) | $(225,048) |\ | Energy assets, net | $828,678 | $729,378 | - An impairment charge of $1,901 thousand was recorded in the three months ended September 30, 2020, for an energy asset group within the Non-solar DG segment due to the discontinuation of an environmental permit, leading to the planned decommissioning of a landfill gas plant[64][65] | Capitalized Interest (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Capitalized interest | $827 | $1,096 | $4,353 | $2,870 | - In August 2021, the company acquired one solar energy project for a total purchase price of $3,461 thousand in cash, accounted for as an asset acquisition[67] 6. LEASES This note details operating and financing leases, including assets, liabilities, lease terms, costs, and sale-leaseback transactions | Lease Type (in thousands) | September 30, 2021 | December 31, 2020 | | :------------------------ | :----------------- | :---------------- | | Operating lease assets | $40,355 | $39,151 | | Total operating lease liabilities | $42,631 | $41,406 | | Financing lease assets (Energy assets) | $32,408 | $34,005 | | Total financing lease liabilities | $21,352 | $23,500 | | Total Lease Costs (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease costs | $2,165 | $2,001 | $6,505 | $5,933 | | Financing lease amortization expense | $532 | $533 | $1,597 | $1,597 | | Financing lease interest | $608 | $723 | $1,932 | $2,282 | | Total lease costs | $3,305 | $3,257 | $10,034 | $9,812 | - During the nine months ended September 30, 2021, the company sold and leased back three energy assets for $31,095 thousand and one energy asset for $3,281 thousand under long-term financing facilities, which are accounted for as failed sales[75][76] 7. DEBT AND FINANCING LEASE LIABILITIES This note details the company's debt and financing lease liabilities, including credit facility changes and new non-recourse debt agreements | Debt and Financing Lease Liabilities (in thousands) | September 30, 2021 | December 31, 2020 | | :-------------------------------------------------- | :----------------- | :---------------- | | Senior secured revolving credit facility | $15,000 | $53,073 | | Senior secured term loan | $54,031 | $57,688 | | Non-recourse term loans | $229,971 | $198,124 | | Non-recourse construction revolvers | $41,178 | $26,758 | | Long-term financing facilities | $54,685 | $32,618 | | Financing lease liabilities | $21,352 | $23,500 | | Total debt and financing lease liabilities | $416,217 | $391,761 | - The senior secured revolving credit facility was increased from $115,000 thousand to $180,000 thousand in June 2021, with $151,176 thousand available for borrowing as of September 30, 2021[78][82] - In July 2021, the company entered into a $44,748 thousand non-recourse debt agreement, consisting of $40,683 thousand in 25-year 3.25% fixed-rate Senior Notes and $4,065 thousand in floating-rate Second Lien Notes, along with a shelf facility of up to $60,000 thousand[89] 8. INCOME TAXES This note provides income tax provisions, effective tax rates, and reasons for differences, including tax credits and deductions | Income Tax (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Income tax (benefit) provision | $(1,192) | $3,100 | $(883) | $597 | | Estimated effective annualized tax rate | (6.2)% | 14.9% | (1.8)% | 1.8% | - The lower effective tax rate in 2021 was primarily due to higher investments in solar projects eligible for Investment Tax Credits (ITC), increased availability of the Section 179D deduction, and higher compensation deductions related to employee stock option exercises[93] | Gross Tax Unrecognized Benefits (in thousands) | December 31, 2020 | September 30, 2021 | | :--------------------------------------------- | :---------------- | :----------------- | | Balance | $600 | $800 | | Additions for prior year tax positions | | $200 | 9. COMMITMENTS AND CONTINGENCIES This note outlines commitments, including letters of credit, performance bonds, ongoing legal proceedings, and earn-out commitments - The company is involved in a legal proceeding from November 2017 regarding a customer complaint claiming physical damages and design defects, with a trial set for April 2022. The company has accrued a reasonable estimate of the loss, believing it will be covered by insurance[97] - As of September 30, 2021, the fair value of a revenue earn-out contingent consideration from an August 2018 acquisition was $678 thousand, included in other liabilities[99] 10. FAIR VALUE MEASUREMENT This note describes fair value measurement practices, categorizing financial instruments and presenting fair values of recurring instruments and debt | Financial Instruments Measured at Fair Value (in thousands) | Input Level | September 30, 2021 | December 31, 2020 | | :-------------------------------------------------------- | :---------- | :----------------- | :---------------- | | Assets: Interest rate swap instruments | 2 | $800 | $2 | | Assets: Commodity swap instruments | 2 | — | $363 | | Liabilities: Interest rate swap instruments | 2 | $7,285 | $10,073 | | Liabilities: Commodity swap instruments | 2 | $3,544 | — | | Liabilities: Make-whole provisions | 2 | $4,715 | $412 | | Liabilities: Contingent consideration | 3 | $678 | $678 | | Long-term Debt (excluding financing leases, in thousands) | September 30, 2021 Fair Value | September 30, 2021 Carrying Value | December 31, 2020 Fair Value | December 31, 2020 Carrying Value | | :-------------------------------------------------------- | :---------------------------- | :-------------------------------- | :--------------------------- | :------------------------------- | | Long-term debt (Level 2) | $382,592 | $378,884 | $363,460 | $357,536 | - The fair value of long-term debt is estimated using discounted cash flow analysis based on current incremental borrowing rates, categorized as Level 2 inputs. There were no transfers in or out of Level 2 or 3 financial instruments during the reported periods[102] 11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES This note provides fair value information for derivative instruments, their effects on income, and lists active swaps and provisions | Derivative Instruments Fair Value (in thousands) | Balance Sheet Location | September 30, 2021 | December 31, 2020 | | :----------------------------------------------- | :--------------------- | :----------------- | :---------------- | | Designated as Hedging: Interest rate swap contracts | Other liabilities | $7,250 | $9,994 | | Not Designated as Hedging: Interest rate swap contracts | Other assets | $800 | $2 | | Not Designated as Hedging: Commodity swap contracts | Other liabilities | $3,544 | — | | Not Designated as Hedging: Make-whole provisions | Other liabilities | $4,715 | $412 | | Effects of Derivative Instruments on Net Income (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Designated: Interest rate swap contracts | $528 | $503 | $1,573 | $908 | | Not Designated: Interest rate swap contracts | $(63) | $287 | $(842) | $287 | | Not Designated: Commodity swap contracts | $2,409 | $194 | $3,907 | $241 | | Not Designated: Make-whole provisions | $(1,679) | $(27) | $(1,173) | $443 | 12. INVESTMENT FUNDS AND EQUITY METHOD INVESTMENTS This note breaks down assets and liabilities for consolidated VIEs and discusses equity method investments, including a new joint venture | Total VIE Assets and Liabilities (in thousands) | September 30, 2021 | December 31, 2020 | | :---------------------------------------------- | :----------------- | :---------------- | | Total VIE assets | $126,088 | $162,198 | | Total VIE liabilities | $31,224 | $33,335 | - During the nine months ended September 30, 2021, the company entered into a joint venture with a Service-Disabled Veteran-Owned Small Business renewable energy company to submit proposals for cleantech solutions to federal agencies[118] | Equity Method Investments (in thousands) | September 30, 2021 | December 31, 2020 | | :--------------------------------------- | :----------------- | :---------------- | | Equity method investments | $1,065 | $1,189 | | Expense recognized (Nine Months Ended Sep 30) | $128 | $127 | 13. REDEEMABLE NON-CONTROLLING INTERESTS This note explains call and put options for redeemable non-controlling interests and details a September 2021 call option exercise - The company's subsidiaries have call options to acquire non-controlling interests in investment funds, and non-controlling interest holders have put options to require the company to purchase their interests[122][123] - In September 2021, the company finalized the purchase of an investor's membership interest for $1,000 thousand in cash, reclassifying the remaining redeemable non-controlling interest balance to paid-in capital[122] - Redeemable non-controlling interests were reported at their carrying values as of September 30, 2021, and December 31, 2020, because these values were greater than the estimated redemption values[123] 14. EQUITY AND EARNINGS PER SHARE This note details the March 2021 equity offering and provides EPS computations for basic and diluted shares - On March 9, 2021, the company completed an underwritten public offering of 2,875,000 shares of Class A common stock, generating total net proceeds of $120,084 thousand, of which $80,000 thousand was used to repay the outstanding U.S. dollar balance under its senior secured revolving credit facility[124] | Earnings Per Share (EPS) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $0.34 | $0.42 | $0.83 | $0.64 | | Diluted EPS | $0.33 | $0.41 | $0.81 | $0.62 | | Weighted-average common shares outstanding (Basic) | 51,464 | 47,788 | 50,599 | 47,597 | | Weighted-average common shares outstanding (Diluted) | 52,839 | 49,101 | 52,013 | 48,785 | 15. STOCK-BASED COMPENSATION This note details stock-based compensation expense, unrecognized expense for non-vested awards, and common stock options granted | Stock-Based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $2,166 | $522 | $4,280 | $1,380 | - As of September 30, 2021, there was $27,777 thousand of unrecognized compensation expense related to non-vested stock option awards, expected to be recognized over a weighted-average period of 3.0 years[128] - During the nine months ended September 30, 2021, the company granted 946 common stock options to certain employees under its 2020 Stock Incentive Plan, with a contractual life of ten years and a five-year vesting period[129] 16. BUSINESS SEGMENT INFORMATION This note provides detailed financial information for Ameresco's reportable segments, including revenues and income before taxes - The company's reportable segments are U.S. Regions, U.S. Federal, Canada, Non-Solar DG, and All Other, with the U.S. Regions segment now including U.S.-based enterprise energy management services previously in 'All Other'[130] | Revenues by Segment (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. Regions | $103,036 | $93,724 | $297,779 | $269,138 | | U.S. Federal | $96,654 | $118,303 | $289,068 | $271,539 | | Canada | $11,631 | $12,263 | $34,148 | $32,690 | | Non-Solar DG | $33,811 | $28,251 | $99,750 | $74,104 | | All Other | $28,550 | $29,966 | $79,059 | $70,485 | | Total Consolidated | $273,682 | $282,507 | $799,804 | $717,956 | | Income before Taxes (excluding unallocated corporate activity, in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. Regions | $10,753 | $7,336 | $21,642 | $16,576 | | U.S. Federal | $15,150 | $16,121 | $38,262 | $33,160 | | Canada | $341 | $446 | $1,007 | $741 | | Non-Solar DG | $3,526 | $2,391 | $17,247 | $6,966 | | All Other | $1,214 | $3,836 | $4,682 | $6,368 | | Unallocated corporate activity | $(11,896) | $(9,341) | $(33,126) | $(30,053) | | Income before taxes | $19,088 | $20,789 | $49,714 | $33,758 | 17. OTHER EXPENSES, NET This note presents the components of other expenses, net, including derivative losses, interest expense, and government incentives | Other Expenses, Net (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Loss on derivatives | $667 | $454 | $1,892 | $971 | | Interest expense, net of interest income | $3,981 | $3,528 | $10,031 | $11,829 | | Amortization of debt discount and debt issuance costs | $607 | $674 | $2,085 | $1,849 | | Foreign currency transaction loss (gain) | $317 | $(249) | $682 | $24 | | Government incentives | $(1,015) | $(681) | $(1,011) | $(1,506) | | Other expenses, net | $4,557 | $3,726 | $13,679 | $13,167 | 18. SUBSEQUENT EVENT This note discloses a significant subsequent event: a $892 million EPCM agreement for battery energy storage systems - On October 21, 2021, Ameresco entered into an EPCM Agreement for three battery energy storage system facilities with a total capacity of 537.5 megawatts, valued at approximately $892 million[139] - The EPCM Agreement includes a Guaranteed Completion Date of August 1, 2022, and stipulates liquidated damages for failure to achieve substantial completion or meet availability and capacity guarantees[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Ameresco's financial condition, operational results, liquidity, and critical accounting policies Overview Ameresco is a leading clean technology integrator offering energy efficiency and renewable energy solutions, primarily in North America and the U.K - Ameresco is a leading clean technology integrator providing energy efficiency and renewable energy supply solutions, primarily in North America and the U.K[142][143] - The company leverages budget-neutral solutions, including energy savings performance contracts (ESPCs) and power purchase agreements (PPAs), to eliminate financial barriers for energy projects[142] - Revenue is derived from energy efficiency projects, long-term O&M contracts, energy supply from owned renewable assets, solar PV product sales, and consulting services, with growth driven by organic expansion and strategic acquisitions[143][144] Key Factors and Trends This section highlights key factors and trends affecting Ameresco's business, including COVID-19 impacts, legislative effects, and backlog status - The COVID-19 pandemic continues to cause supply chain disruptions and has led to a federal vaccine mandate for employees and subcontractors working on federal contracts, posing a risk of workforce attrition[147][149] - The Energy Act of 2020 extended the 26% Investment Tax Credit (ITC) rate for solar power through 2022 and made the Section 179D Energy Efficient Commercial Building Deduction permanent[150] | Backlog and Assets in Development (in thousands) | September 30, 2021 | September 30, 2020 | | :----------------------------------------------- | :----------------- | :----------------- | | Total project backlog | $2,363,790 | $2,244,950 | | 12-month project backlog | $551,570 | $605,880 | | O&M Backlog | $1,115,420 | $1,120,820 | | 12-month O&M backlog | $66,250 | $59,990 | | Assets in development | $1,200,000 | $784,600 | - An $892 million contract for a multi-site battery energy storage system, announced in October 2021, significantly increased the company's fully-contracted backlog and is expected to be a key driver of results through 2022[155] Results of Operations (Three Months Ended September 30, 2021 vs 2020) For Q3 2021, revenues decreased by 3.1%, while gross profit increased by 14.5% due to a favorable revenue mix | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Dollar Change | % Change | | :-------------------- | :------------------------------ | :------------------------------ | :------------ | :------- | | Revenues | $273,682 | $282,507 | $(8,825) | (3.1)% | | Cost of revenues | $214,869 | $231,133 | $(16,264) | (7.0)% | | Gross profit | $58,813 | $51,374 | $7,439 | 14.5% | | Selling, general and administrative expenses | $35,168 | $26,859 | $8,309 | 30.9% | | Operating income | $23,645 | $24,515 | $(870) | (3.5)% | | Income before income taxes | $19,088 | $20,789 | $(1,701) | (8.2)% | | Net income attributable to common shareholders | $17,423 | $20,002 | $(2,579) | (12.9)% | - Project revenues decreased by $21.4 million (10%) due to construction delays from COVID-related protocols and supply chain disruptions, partially offset by an $8.9 million (29%) increase in energy asset revenue[161] - Selling, general and administrative expenses increased by $8.3 million, primarily due to higher net salaries and benefits ($4.5 million), increased headcount, higher health insurance costs, and professional fees ($1.4 million)[161] - Basic earnings per share decreased by $0.08 to $0.34, and diluted earnings per share decreased by $0.08 to $0.33, partly due to the equity offering in March 2021 which increased weighted average shares outstanding[162] Results of Operations (Nine Months Ended September 30, 2021 vs 2020) For the nine months ended September 30, 2021, revenues increased by 11.4%, and operating income surged by 35.1% | Metric (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Dollar Change | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :------------ | :------- | | Revenues | $799,804 | $717,956 | $81,848 | 11.4% | | Cost of revenues | $640,760 | $588,628 | $52,132 | 8.9% | | Gross profit | $159,044 | $129,328 | $29,716 | 23.0% | | Selling, general and administrative expenses | $95,651 | $82,403 | $13,248 | 16.1% | | Operating income | $63,393 | $46,925 | $16,468 | 35.1% | | Income before income taxes | $49,714 | $33,758 | $15,956 | 47.3% | | Net income attributable to common shareholders | $42,252 | $30,568 | $11,684 | 38.2% | - Revenues increased primarily due to a $51.2 million (10%) increase in project revenue and a $22.2 million (25%) increase in energy asset revenue[164] - Selling, general and administrative expenses increased by $13.2 million, mainly due to higher net salaries and benefits ($10.0 million) and professional fees ($1.9 million)[164] - Basic EPS increased by $0.19 to $0.83, and diluted EPS increased by $0.19 to $0.81, despite the equity offering increasing weighted average shares outstanding by approximately 2,158,000[164] Business Segment Analysis This section analyzes the financial performance of Ameresco's reportable segments, highlighting revenue drivers and income changes Revenues by Segment This section details Ameresco's revenues disaggregated by reportable segment for the periods presented | Revenues by Segment (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Dollar Change | % Change | | :--------------------------------- | :------------------------------ | :------------------------------ | :------------ | :------- | | U.S. Regions | $103,036 | $93,724 | $9,312 | 9.9% | | U.S. Federal | $96,654 | $118,303 | $(21,649) | (18.3)% | | Canada | $11,631 | $12,263 | $(632) | (5.2)% | | Non-Solar DG | $33,811 | $28,251 | $5,560 | 19.7% | | All Other | $28,550 | $29,966 | $(1,416) | (4.7)% | | Total revenues | $273,682 | $282,507 | $(8,825) | (3.1)% | | Revenues by Segment (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Dollar Change | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------------ | :------- | | U.S. Regions | $297,779 | $269,138 | $28,641 | 10.6% | | U.S. Federal | $289,068 | $271,539 | $17,529 | 6.5% | | Canada | $34,148 | $32,690 | $1,458 | 4.5% | | Non-Solar DG | $99,750 | $74,104 | $25,646 | 34.6% | | All Other | $79,059 | $70,485 | $8,574 | 12.2% | | Total revenues | $799,804 | $717,956 | $81,848 | 11.4% | - Non-Solar DG revenues increased significantly (19.7% for three months, 34.6% for nine months) due to higher energy asset revenues, increased renewable gas production, and higher RINs pricing[168] Income before Taxes and Unallocated Corporate Activity This section presents income before taxes for each segment, excluding unallocated corporate activities | Income before Taxes (excluding unallocated corporate activity, in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Dollar Change | % Change | | :------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :------------ | :------- | | U.S. Regions | $10,753 | $7,336 | $3,417 | 46.6% | | U.S. Federal | $15,150 | $16,121 | $(971) | (6.0)% | | Canada | $341 | $446 | $(105) | (23.5)% | | Non-Solar DG | $3,526 | $2,391 | $1,135 | 47.5% | | All Other | $1,214 | $3,836 | $(2,622) | (68.4)% | | Unallocated corporate activity | $(11,896) | $(9,341) | $(2,555) | (27.4)% | | Income before taxes | $19,088 | $20,789 | $(1,701) | (8.2)% | | Income before Taxes (excluding unallocated corporate activity, in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Dollar Change | % Change | | :------------------------------------------------------------------------- | :----------------------------- | :----------------------------- | :------------ | :------- | | U.S. Regions | $21,642 | $16,576 | $5,066 | 30.6% | | U.S. Federal | $38,262 | $33,160 | $5,102 | 15.4% | | Canada | $1,007 | $741 | $266 | 35.9% | | Non-Solar DG | $17,247 | $6,966 | $10,281 | 147.6% | | All Other | $4,682 | $6,368 | $(1,686) | (26.5)% | | Unallocated corporate activity | $(33,126) | $(30,053) | $(3,073) | (10.2)% | | Income before taxes | $49,714 | $33,758 | $15,956 | 47.3% | - Non-Solar DG segment's income before taxes increased significantly (47.5% for three months, 147.6% for nine months) due to higher contributions from increased higher-margin energy asset revenue[170] Liquidity and Capital Resources This section details Ameresco's liquidity and capital resources, including funding sources, cash flows, and critical accounting policies Overview Ameresco funds operations through cash flow, Federal ESPC projects, credit facilities, and debt, with sufficient liquidity - Ameresco primarily funds operations through cash flow, Federal ESPC projects, its senior secured credit facility, and various forms of other debt, supplemented by a $120.1 million net proceeds equity offering in March 2021[171][174] - Working capital requirements fluctuate due to revenue growth, solar equipment purchases, contract funding timing, and payment terms, but the company believes its current liquidity sources are sufficient through at least November 2022[171][172] Sources of Liquidity This section details Ameresco's liquidity sources, including credit facilities, term loans, construction revolvers, and debt agreements - The company's senior secured revolving credit facility was increased to $180.0 million in June 2021, with $151.2 million available for borrowing as of September 30, 2021[175] - During the nine months ended September 30, 2021, the company secured an additional $14.8 million in net proceeds from a term loan increase and $20.1 million in funding from construction revolvers, with $64.7 million still available under one facility[176][177] - In July 2021, Ameresco entered into a $44.7 million non-recourse debt agreement, including $40.7 million in 25-year fixed-rate Senior Notes and $4.1 million in floating-rate Second Lien Notes, plus a $60.0 million shelf facility[179] Cash Flows This section analyzes Ameresco's cash flows from operating, investing, and financing activities for the periods presented | Cash Flows (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | $ Change | | :------------------------ | :----------------------------- | :----------------------------- | :------- | | Operating activities | $(116,344) | $(83,789) | $(32,555)| | Investing activities | $(150,100) | $(127,602) | $(22,498)| | Financing activities | $261,267 | $205,499 | $55,768 | | Total net cash flows | $(5,059) | $(6,357) | $1,298 | - Cash flows from operating activities decreased by $32.6 million, primarily due to an increase in Federal ESPC receivables ($188.0 million in 2021 vs. $160.2 million in 2020)[183] - Cash flows from investing activities increased by $22.5 million, driven by higher capital investment in energy assets ($148.0 million in 2021 vs. $125.5 million in 2020). The company plans $70 million to $120 million in additional capital expenditures for new renewable energy plants in the remainder of 2021[184] - Cash flows from financing activities increased by $55.8 million, primarily from the equity offering ($120.1 million), Federal ESPC projects ($114.0 million), and long-term debt financings ($118.2 million), partially offset by debt payments[185] Critical Accounting Policies and Estimates This section discusses critical accounting policies and estimates, particularly regarding income taxes and prior disclosures - The company increased its liability by $0.2 million for uncertain state tax positions taken during the nine months ended September 30, 2021, and believes its current tax reserves are adequate[188] - No material changes in critical accounting estimates were noted from the 2020 Form 10-K, other than those related to income taxes[188] Recent Accounting Pronouncements This section refers to Note 2 for a discussion of recent accounting pronouncements and their potential impact - Refer to Note 2, 'Summary of Significant Accounting Policies,' for a discussion of recent accounting pronouncements[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk As of September 30, 2021, no significant changes in market risk exposures materially affected prior disclosures - As of September 30, 2021, there have been no significant changes in market risk exposures that materially affected the quantitative and qualitative disclosures as described in Item 7A to the 2020 Annual Report[189] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021 - Management, with the participation of the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective at a reasonable level of assurance as of September 30, 2021[190] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the most recent fiscal quarter - There were no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[191] PART II - OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, exhibits, and signatures Item 1. Legal Proceedings Ameresco is subject to routine legal proceedings, not anticipating a material adverse effect on its financial condition or operations - The company is subject to periodic lawsuits, investigations, and claims in the ordinary course of business, but does not believe the ultimate resolution of existing matters will have a material adverse effect on its financial condition or results of operations[193] - Additional information about certain legal proceedings is provided in Note 9, 'Commitments and Contingencies,' of the condensed consolidated financial statements[193] Item 1A. Risk Factors This section highlights new risks from federal COVID-19 vaccine mandates, potentially leading to workforce attrition and business impact - A key risk factor is the U.S. presidential executive order requiring mandatory COVID-19 vaccination for U.S.-based employees, contractors, and subcontractors working on federal contracts by December 8, 2021[195] - The executive order and potential OSHA emergency temporary standard (ETS) could result in attrition of critically skilled workforce and difficulty securing future workforce needs, materially impacting the company's business, financial condition, and results of operations[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no common stock repurchases in Q3 2021, with $5.9 million remaining authorized under the program - The company did not repurchase any shares of its common stock under the authorized stock repurchase program during the three months ended September 30, 2021[198] - As of September 30, 2021, approximately $5.9 million remained authorized for repurchase under the program, which has no expiration date and can be suspended or terminated at any time[199] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL formatted financial statements - The exhibits include Principal Executive Officer and Principal Financial Officer Certifications (31.1, 31.2), Certifications pursuant to 18 U.S.C. Section 1350 (32.1), and Inline XBRL formatted condensed consolidated financial statements (101) and Cover Page Interactive Data File (104)[201][202] Signatures The report was duly signed on November 2, 2021, by Spencer Doran Hole, Senior Vice President and Chief Financial Officer - The report was signed on November 2, 2021, by Spencer Doran Hole, Senior Vice President and Chief Financial Officer of Ameresco, Inc[204]