Ameresco(AMRC) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements Ameresco, Inc.'s unaudited condensed consolidated financial statements include balance sheets, income, comprehensive income, equity, and cash flows, with detailed notes on accounting policies and disclosures Condensed Consolidated Balance Sheets Total assets increased to $2,967,348 thousand at March 31, 2023, from $2,876,821 thousand at December 31, 2022, reflecting investments and financing activities Condensed Consolidated Balance Sheets (Selected Items, in thousands) | Indicator | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | ASSETS | | | | Total current assets | $957,974 | $1,001,351 | | Energy assets, net | $1,270,230 | $1,181,525 | | Goodwill, net | $77,810 | $70,633 | | Total assets | $2,967,348 | $2,876,821 | | LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $767,112 | $812,068 | | Long-term debt and financing lease liabilities, net | $631,676 | $568,635 | | Redeemable non-controlling interests, net | $46,700 | $46,623 | | Total stockholders' equity | $894,772 | $873,031 | | Total liabilities, redeemable non-controlling interests and stockholders' equity | $2,967,348 | $2,876,821 | Condensed Consolidated Statements of Income Q1 2023 revenues decreased by 42.8% and net income attributable to common shareholders by 93.7% year-over-year, primarily due to project revenue timing Condensed Consolidated Statements of Income (Selected Items, in thousands) | Indicator | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Revenues | $271,042 | $474,002 | | Cost of revenues | $221,094 | $405,624 | | Gross profit | $49,948 | $68,378 | | Operating income | $9,097 | $28,686 | | Income before income taxes | $1,054 | $21,605 | | Income tax (benefit) provision | $(503) | $2,307 | | Net income | $1,557 | $19,298 | | Net income attributable to common shareholders | $1,102 | $17,384 | | Basic EPS | $0.02 | $0.34 | | Diluted EPS | $0.02 | $0.32 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q1 2023 significantly decreased to $971 thousand from $22,076 thousand, mainly due to unrealized loss from interest rate hedges Condensed Consolidated Statements of Comprehensive Income (in thousands) | Indicator | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net income | $1,557 | $19,298 | | Unrealized (loss) gain from interest rate hedges, net of tax | $(868) | $2,711 | | Foreign currency translation adjustments | $282 | $67 | | Total other comprehensive (loss) income | $(586) | $2,778 | | Comprehensive income | $971 | $22,076 | | Comprehensive income attributable to common shareholders | $508 | $20,162 | Condensed Consolidated Statements of Changes in Redeemable Non-Controlling Interests and Stockholders' Equity Total stockholders' equity increased to $894,772 thousand at March 31, 2023, driven by non-controlling interests and stock-based compensation Changes in Stockholders' Equity (Selected Items, in thousands) | Indicator | Balance, Dec 31, 2022 | Exercise of stock options | Stock-based compensation expense | Unrealized loss from interest rate hedges, net | Foreign currency translation adjustment | Contributions from noncontrolling interests | Net income | Balance, Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Additional paid-in capital | $306,314 | $571 | $4,037 | — | — | — | — | $310,726 | | Retained earnings | $533,549 | — | — | — | — | — | $1,102 | $534,624 | | Accumulated other comprehensive loss, net | $(4,051) | — | — | $(868) | $282 | — | — | $(4,645) | | Non-controlling interests | $49,002 | — | — | — | $8 | $16,417 | $423 | $65,850 | | Total stockholders' equity | $873,031 | $571 | $4,037 | $(868) | $282 | $16,417 | $1,525 | $894,772 | Condensed Consolidated Statements of Cash Flows Net increase in cash, cash equivalents, and restricted cash was $63,689 thousand for Q1 2023, driven by operating and financing activities Condensed Consolidated Statements of Cash Flows (Selected Items, in thousands) | Cash Flow Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Cash flows from operating activities | $58,772 | $(276,122) | | Cash flows from investing activities | $(101,253) | $(57,733) | | Cash flows from financing activities | $106,128 | $355,400 | | Effect of exchange rate changes on cash | $42 | $(196) | | Net increase in cash, cash equivalents, and restricted cash | $63,689 | $21,349 | | Cash, cash equivalents, and restricted cash, end of period | $213,577 | $108,403 | | Cash paid for interest | $13,135 | $4,488 | | Cash paid for income taxes | $323 | $78 | | Accrued purchases of energy assets | $97,542 | $40,683 | Notes to Condensed Consolidated Financial Statements Detailed disclosures cover financial reporting, accounting policies, revenue, acquisitions, debt, taxes, and other financial instruments 1. BASIS OF PRESENTATION Unaudited financial statements prepared under GAAP, with Q1 2023 results not indicative of the full year, noting global risks - Unaudited condensed consolidated financial statements prepared in conformity with GAAP, with results not necessarily indicative of the full year[27][28] - Global factors such as supply chain disruptions, inflationary pressures, and geopolitical tensions are significant risks and uncertainties impacting future operations and liquidity[30][31] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Adopted ASU 2020-04 and 2022-01 with no material impact, evaluating ASU 2022-03 and 2023-02 for future periods Allowance for Credit Losses (in thousands) | Indicator | 2023 | 2022 | | :--- | :--- | :--- | | Allowance for credit losses, beginning of period | $911 | $2,263 | | Provision for bad debts | $93 | $237 | | Account write-offs and other | $(33) | $(235) | | Allowance for credit losses, end of period | $971 | $2,265 | - Adopted ASU 2020-04 (Reference Rate Reform) and ASU 2022-01 (Derivatives and Hedging) with no material impact on financial statements[35][36] - Currently evaluating the impact of ASU 2022-03 (Fair Value Measurement) and ASU 2023-02 (Investments - Equity Method and Joint Ventures), effective for fiscal years beginning after December 15, 2023[37][38] 3. REVENUE FROM CONTRACTS WITH CUSTOMERS Total revenues decreased by 42.8% year-over-year in Q1 2023, primarily due to lower project revenue, with 93% recognized over time Revenue Disaggregation by Line of Business and Reportable Segment (Q1 2023, in thousands) | Segment | Project revenue | O&M revenue | Energy assets | Integrated-PV | Other | Total revenues | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Regions | $104,320 | $5,529 | $13,651 | — | $869 | $124,369 | | U.S. Federal | $45,549 | $12,700 | $1,076 | — | $231 | $59,556 | | Canada | $14,911 | $10 | $762 | — | $2,728 | $18,411 | | Alternative Fuels | — | $3,686 | $24,653 | — | — | $28,339 | | All Other | $18,450 | $333 | $630 | $11,944 | $9,010 | $40,367 | | Total | $183,230 | $22,258 | $40,772 | $11,944 | $12,838 | $271,042 | Revenue Disaggregation by Line of Business and Reportable Segment (Q1 2022, in thousands) | Segment | Project revenue | O&M revenue | Energy assets | Integrated-PV | Other | Total revenues | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Regions | $298,632 | $5,080 | $10,018 | — | $790 | $314,520 | | U.S. Federal | $62,217 | $12,297 | $1,090 | — | $42 | $75,646 | | Canada | $13,951 | $11 | $761 | — | $2,449 | $17,172 | | Alternative Fuels | — | $2,774 | $26,487 | — | — | $29,261 | | All Other | $18,604 | $91 | $72 | $11,356 | $7,280 | $37,403 | | Total | $393,404 | $20,253 | $38,428 | $11,356 | $10,561 | $474,002 | Revenue Recognized Over Time and by Geographic Area (in thousands) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Percentage of revenue recognized over time | 93% | 96% | | Revenues by Geographic Area | | | | United States | $233,084 | $438,391 | | Canada | $17,234 | $15,988 | | Other | $20,724 | $19,623 | | Total revenues | $271,042 | $474,002 | Contract Balances (in thousands) | Contract Balance | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Accounts receivable, net | $130,940 | $174,009 | | Accounts receivable retainage, net | $35,625 | $38,057 | | Costs and estimated earnings in excess of billings (Contract Assets) | $497,762 | $576,363 | | Billings in excess of cost and estimated earnings (Contract Liabilities) | $39,326 | $34,796 | | Billings in excess of cost and estimated earnings, non-current | $12,510 | $7,617 | | Total contract liabilities | $51,836 | $42,413 | - Contracted backlog at March 31, 2023, was $2,222,460 thousand, with approximately 33% expected to be recognized in the next twelve months[52] - Project development costs of $2,612 thousand were recognized in Q1 2023 on projects converted to customer contracts, down from $4,209 thousand in Q1 2022[53] 4. BUSINESS ACQUISITIONS AND RELATED TRANSACTIONS Acquired Enerqos Energy Solutions S.r.l. for $13,584 thousand, expanding clean energy in Italy and resulting in $6,996 thousand goodwill - Acquired Enerqos Energy Solutions S.r.l. on March 30, 2023, for $13,584 thousand, with $9,535 thousand paid to date[55] - Estimated goodwill from Enerqos acquisition is $6,996 thousand, largely attributed to expected benefits and the acquired workforce[56] 5. GOODWILL AND INTANGIBLE ASSETS, NET Goodwill increased to $77,810 thousand at March 31, 2023, due to the Enerqos acquisition, while amortization expense decreased Goodwill Carrying Value by Reportable Segment (in thousands) | Segment | Balance, Dec 31, 2022 | Goodwill acquired | Currency effects | Balance, Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | U.S. Regions | $39,593 | — | — | $39,593 | | U.S. Federal | $3,981 | — | — | $3,981 | | Canada | $3,236 | — | $4 | $3,240 | | Alternative Fuels | — | — | — | — | | All Other | $23,823 | $6,996 | $177 | $30,996 | | Total | $70,633 | $6,996 | $181 | $77,810 | Definite-Lived Intangible Assets, Net (in thousands) | Indicator | As of March 31, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Gross carrying amount | $36,700 | $32,277 | | Less - accumulated amortization | $(28,034) | $(27,584) | | Intangible assets, net | $8,666 | $4,693 | Amortization Expense (in thousands) | Asset type | Location | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | :--- | | Customer contracts | Cost of revenues | — | $184 | | All other intangible assets | Selling, general and administrative expenses | $302 | $394 | | Total amortization expense | | $302 | $578 | 6. ENERGY ASSETS, NET Energy assets, net, increased to $1,270,230 thousand at March 31, 2023, reflecting capital investment, with higher capitalized interest Energy Assets, Net (in thousands) | Indicator | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Energy assets | $1,596,171 | $1,493,913 | | Less - accumulated depreciation and amortization | $(325,941) | $(312,388) | | Energy assets, net | $1,270,230 | $1,181,525 | Depreciation and Amortization Expense on Energy Assets (in thousands) | Location | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Cost of revenues | $13,341 | $11,806 | Capitalized Interest and ARO Assets/Liabilities (in thousands) | Indicator | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Capitalized interest | $6,376 | $1,312 | | ARO Assets/Liabilities | March 31, 2023 | December 31, 2022 | | ARO assets, net (Energy assets, net) | $3,612 | $2,359 | | ARO liabilities, non-current (Other liabilities) | $4,424 | $3,052 | | Depreciation expense of ARO assets (Q1 2023) | $55 | $37 | | Accretion expense of ARO liabilities (Q1 2023) | $66 | $36 | 7. LEASES Operating lease assets remained stable, total lease costs decreased slightly, and one energy asset was sold and leased back for $4,139 thousand Operating and Financing Lease Information (in thousands) | Indicator | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Operating Leases: | | | | Operating lease assets | $38,189 | $38,224 | | Total operating lease liabilities | $37,647 | $37,532 | | Weighted-average remaining lease term | 13 years | 13 years | | Weighted-average discount rate | 6.0 % | 6.0 % | | Financing Leases: | | | | Energy assets | $28,839 | $29,365 | | Total financing lease liabilities | $16,031 | $16,060 | | Weighted-average remaining lease term | 14 years | 14 years | Lease Costs (in thousands) | Lease Type | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Operating lease costs | $2,120 | $2,291 | | Financing lease amortization expense | $526 | $355 | | Financing lease interest on lease liabilities | $444 | $559 | | Total lease costs | $3,090 | $3,205 | - Sold and leased back one energy asset for $4,139 thousand in cash proceeds under the August 2018 master lease and participation agreement during Q1 2023[76] 8. DEBT AND FINANCING LEASE LIABILITIES Total debt and financing lease liabilities increased to $963,307 thousand, driven by new notes, an amended loan, and acquired debt Debt and Financing Lease Liabilities (in thousands) | Debt Type | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Senior secured revolving credit facility | $182,900 | $182,900 | | Senior secured term loans | $295,000 | $295,000 | | Non-recourse construction revolvers | $47,090 | $45,391 | | Non-recourse term loans | $296,880 | $255,403 | | Non-recourse long-term financing facilities | $121,455 | $120,923 | | Non-recourse financing lease liabilities | $16,031 | $16,060 | | Acquired debt | $3,951 | — | | Total debt and financing lease liabilities | $963,307 | $915,677 | | Less: current maturities | $(313,459) | $(331,479) | | Less: unamortized discount and debt issuance costs | $(18,172) | $(15,563) | | Long-term debt and financing lease liabilities, net | $631,676 | $568,635 | - On March 17, 2023, the company amended its senior secured credit facility, increasing the total funded debt to EBITDA covenant ratio from 3.50 to 4.00 for Q1 and Q2 2023[81] - Issued three senior secured Shelf Notes for $22,625 thousand at a fixed rate of 5.99% due December 31, 2047, incurring $282 thousand in fees and recording a derivative instrument for make-whole provisions with an initial value of $3,123 thousand[82] - Entered into an amended and restated financing agreement for a non-recourse variable rate term loan, extending maturity to March 28, 2028, with a rate of 6.38% at March 31, 2023[83] - Drew down the remaining $30,000 thousand under a non-recourse fixed rate note (6.50%, due October 31, 2037), bringing the outstanding balance to $114,919 thousand[84] - Entered into a new construction credit facility with a total commitment of CAD$100,000 thousand, with no funds drawn as of March 31, 2023[86] 9. INCOME TAXES Ameresco recorded an income tax benefit of $503 thousand for Q1 2023, with an effective annualized tax rate benefit of 47.7% due to tax credits Income Tax (Benefit) Provision (in thousands) | Indicator | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Income tax (benefit) provision | $(503) | $2,307 | | Estimated effective annualized tax rate | 47.7% benefit | 10.7% expense | - The effective tax rate is lower in 2023 due to investment tax credits from solar and storage plants and higher Section 179D deductions under the IRA[88] Unrecognized Tax Benefits (in thousands) | Indicator | December 31, 2022 | March 31, 2023 | | :--- | :--- | :--- | | Gross Tax Unrecognized Benefits | $900 | $900 | | Amount that would favorably affect effective income tax rate (net of federal benefit) | $450 | $450 | 10. COMMITMENTS AND CONTINGENCIES Legal proceedings are not expected to have a material adverse effect, and contingent consideration for Plug Smart increased to $3,921 thousand - No material adverse effect expected from current legal proceedings[92] - Fair value of contingent consideration for Plug Smart acquisition increased to $3,921 thousand at March 31, 2023, from $3,800 thousand at December 31, 2022, based on future EBITDA targets[94] 11. FAIR VALUE MEASUREMENT Financial instruments are measured at fair value, with total liabilities increasing to $12,460 thousand, primarily using Level 2 and 3 inputs Fair Value of Financial Instruments (in thousands) | Instrument | Input Level | Fair Value (March 31, 2023) | Fair Value (December 31, 2022) | | :--- | :--- | :--- | :--- | | Assets: | | | | | Interest rate swap instruments | 2 | $3,564 | $5,202 | | Total assets | | $3,564 | $5,202 | | Liabilities: | | | | | Interest rate swap instruments | 2 | $6 | $9 | | Make-whole provisions | 2 | $8,175 | $5,348 | | Contingent consideration | 3 | $4,279 | $4,158 | | Total liabilities | | $12,460 | $9,515 | Changes in Fair Value of Contingent Consideration Liability (Level 3, in thousands) | Indicator | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Balance, beginning of period | $4,158 | $2,838 | | Changes in fair value included in earnings | $121 | $(19) | | Payment of contingent consideration | — | $1,614 | | Remeasurement period adjustment | — | $(275) | | Balance, end of period | $4,279 | $4,158 | Fair Value and Carrying Value of Long-Term Debt (excluding financing leases, in thousands) | Indicator | As of March 31, 2023 (Fair Value) | As of March 31, 2023 (Carrying Value) | As of December 31, 2022 (Fair Value) | As of December 31, 2022 (Carrying Value) | | :--- | :--- | :--- | :--- | :--- | | Long-term debt (Level 2) | $915,732 | $929,104 | $869,771 | $884,054 | 12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Adopted ASU 2020-04 for interest rate swaps, dedesignated one swap, and entered a new cash flow hedge, with make-whole provisions increasing - Adopted ASU 2020-04 for two interest rate swap contracts, transitioning from LIBOR to SOFR[102] - Dedesignated one interest rate swap and entered into a new interest rate swap contract to hedge $14,084 thousand of an extended loan facility, designated as a cash flow hedge[102] Fair Value of Derivative Instruments (in thousands) | Derivative Type | Balance Sheet Location | Fair Value (March 31, 2023) | Fair Value (December 31, 2022) | | :--- | :--- | :--- | :--- | | Designated as Hedging Instruments: | | | | | Interest rate swap contracts (Assets) | Other assets | $630 | $1,748 | | Interest rate swap contracts (Liabilities) | Other liabilities | $6 | $9 | | Not Designated as Hedging Instruments: | | | | | Interest rate swap contracts (Assets) | Other assets | $2,934 | $3,454 | | Make-whole provisions (Liabilities) | Other liabilities | $8,175 | $5,348 | Effects of Derivative Instruments on Income (in thousands) | Derivative Type | Location of Loss (Gain) | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | :--- | | Designated as Hedging Instruments: | | | | | Interest rate swap contracts | Other expenses, net | $11 | $481 | | Not Designated as Hedging Instruments: | | | | | Interest rate swap contracts | Other expenses, net | $458 | $(1,262) | | Commodity swap contracts | Other expenses, net | — | $2,606 | | Make-whole provisions | Other expenses, net | $(295) | $278 | Changes in Accumulated Other Comprehensive Income (AOCI) from Hedging Instruments (in thousands) | Indicator | Three Months Ended March 31, 2023 | | :--- | :--- | | Accumulated gain in AOCI at beginning of period | $1,284 | | Unrealized loss recognized in AOCI | $(879) | | Loss reclassified from AOCI to other expenses, net | $11 | | Loss on derivatives | $(868) | | Accumulated gain in AOCI at end of period | $416 | 13. VARIABLE INTEREST ENTITIES AND EQUITY METHOD INVESTMENTS Total VIE assets increased to $238,666 thousand, non-controlling interests contributed $16,417 thousand, and equity method investments rose to $11,337 thousand Variable Interest Entities (VIEs) Assets and Liabilities (in thousands) | Indicator | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total VIE assets | $238,666 | $213,913 | | Total VIE liabilities | $41,821 | $50,729 | - Non-controlling interests contributed $16,417 thousand to a joint venture during Q1 2023[114] Equity Method Investments (in thousands) | Indicator | As of March 31, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Equity method investments | $11,337 | $10,855 | 14. REDEEMABLE NON-CONTROLLING INTERESTS Redeemable non-controlling interests are recorded at carrying values exceeding estimated redemption values, including exercisable call and put options - Redeemable non-controlling interests are reported at carrying values, which exceeded estimated redemption values at March 31, 2023, and December 31, 2022[121] - Investment funds include call options (subsidiaries can require non-controlling interest holder to sell units) and put options (non-controlling interest holder can require subsidiaries to purchase units), exercisable upon meeting specified conditions[120] 15. EARNINGS PER SHARE Basic and diluted EPS decreased significantly to $0.02 for Q1 2023, reflecting lower net income attributable to common shareholders Earnings Per Share (in thousands, except EPS) | Indicator | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Net income attributable to common shareholders | $1,102 | $17,384 | | Income attributable to common shareholders | $1,075 | $17,356 | | Basic weighted-average shares outstanding | 51,963 | 51,744 | | Diluted weighted-average shares outstanding | 53,261 | 53,636 | | Basic EPS | $0.02 | $0.34 | | Diluted EPS | $0.02 | $0.32 | - Potentially dilutive shares attributable to stock options (1,901 in 2023, 783 in 2022) were excluded from diluted EPS computation as their effect would have been anti-dilutive[122] 16. STOCK-BASED COMPENSATION Stock-based compensation expense increased to $4,037 thousand for Q1 2023, with $45,827 thousand unrecognized expense remaining Stock-Based Compensation Expense (in thousands) | Indicator | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Stock-based compensation expense | $4,037 | $3,531 | - Unrecognized compensation expense related to non-vested stock option awards was $45,827 thousand at March 31, 2023, with a weighted-average recognition period of 3.0 years[125] - Granted 30 common stock options and 47 RSUs to employees under the 2020 Stock Incentive Plan during Q1 2023[126] 17. BUSINESS SEGMENT INFORMATION Ameresco operates through five segments, offering energy efficiency, renewable energy, O&M, and specialized services like alternative fuels and integrated-PV - Reportable segments include U.S. Regions, U.S. Federal, Canada, Alternative Fuels, and All Other, providing energy efficiency, renewable energy solutions, and O&M services[127] - Alternative Fuels segment sells electricity and processed renewable natural gas (RNG) from owned plants and provides O&M for customer-owned RNG plants[127] - All Other category includes enterprise energy management, consulting, and integrated-PV sales[128] 18. OTHER EXPENSES, NET Other expenses, net, increased to $8,043 thousand in Q1 2023 due to higher interest expense, partially offset by derivative losses and currency gains Components of Other Expenses, Net (in thousands) | Component | Three Months 2023 | Three Months 2022 | | :--- | :--- | :--- | | Loss on derivatives, net | $163 | $1,622 | | Interest expense, net of interest income | $7,193 | $4,489 | | Amortization of debt discount and debt issuance costs | $790 | $852 | | Foreign currency transaction loss (gain) | $(157) | $116 | | Government incentives | — | $2 | | Other expenses, net | $8,043 | $7,081 | 19. SUBSEQUENT EVENTS A joint venture secured a $140,844 thousand construction loan, and the company sold and leased back an energy asset for $72,056 thousand - On April 18, 2023, a consolidated joint venture subsidiary entered into a construction loan agreement for up to $140,844 thousand, drawing $90,921 thousand for an energy asset[135] - On April 20, 2023, the company sold and leased back one energy asset for $72,056 thousand in cash proceeds[135] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Ameresco's business, key trends, financial results by segment, liquidity, and capital resources, including the IRA's impact and SCE Agreement status Overview Ameresco is a clean technology integrator providing energy efficiency and renewable energy solutions, growing through organic efforts and strategic acquisitions - Ameresco is a clean technology integrator offering energy efficiency and renewable energy supply solutions, utilizing budget-neutral solutions like ESPCs and PPAs[137] - Provides solutions across North America and the U.K., deriving revenue from energy efficiency projects, O&M contracts, renewable energy operating assets, integrated-PV, and consulting services[138] - Acquired Enerqos Energy Solutions S.r.l. on March 30, 2023, to expand clean energy projects and solutions in Italy[139] Key Factors and Trends Key factors include the Inflation Reduction Act's favorable impact, ongoing supply chain disruptions, solar panel import investigation, and climate change risks - The Inflation Reduction Act (IRA) is viewed favorably for the renewable energy industry, incentivizing domestic clean energy investment and deployment through extended federal incentives like ITC and PTC[141] - Ongoing global supply chain disruptions, inflationary pressures, and geopolitical tensions continue to impact operations, causing project delays, increased shipping, component, and labor costs in Q1 2023[142][143] - The U.S. Department of Commerce's investigation into solar panel imports from Southeast Asia (potentially circumventing Chinese tariffs) continues, with a preliminary determination of circumvention[144] - While President Biden's executive action suspends duties until June 2024, future tariffs or trade restrictions could disrupt the solar supply chain and increase costs[145][146] - Climate change creates opportunities for the industry but also brings risks, including more frequent and severe weather interferences and seasonal fluctuations impacting revenues and operating income, particularly in colder climates and during summer months for educational institutions[147][148] The Southern California Edison ("SCE") Agreement The SCE Agreement for BESS projects faced delays due to supply issues and weather, with SCE accelerating $125 million in milestone payments - The SCE Agreement (approx. $892.0 million for 537.5 MW BESS) faced delays due to COVID-19 related battery supply issues and record rainfall, leading to force majeure claims[150][152] - SCE agreed to accelerate $125 million of future milestone payments in Q1 2023 due to schedule changes[151] - Two of the three projects are anticipated to achieve substantial completion in early summer 2023, despite ongoing weather-related delays impacting one energized project[153] Stock-based Compensation In Q1 2023, Ameresco granted 30,000 stock options and 47,434 RSUs, with $45.8 million unrecognized expense remaining - Granted 30,000 common stock options and 47,434 RSUs to employees in Q1 2023[154] - Unrecognized stock-based compensation expense was $45.8 million at March 31, 2023, to be recognized over a weighted-average period of three years[154] Backlog and Awarded Projects Total project backlog decreased to $2,971,380 thousand at March 31, 2023, primarily due to SCE Agreement revenue recognition in 2022 Backlog (In Thousands) | Backlog Type | As of March 31, 2023 | As of March 31, 2022 | | :--- | :--- | :--- | | Project Backlog: | | | | Fully-contracted backlog | $1,007,620 | $1,342,150 | | Awarded, not yet signed customer contracts | $1,963,760 | $1,754,050 | | Total project backlog | $2,971,380 | $3,096,200 | | 12-month project backlog | $638,550 | $1,154,400 | | O&M Backlog: | | | | Fully-contracted backlog | $1,214,840 | $1,211,620 | | 12-month O&M backlog | $86,020 | $73,400 | - The decrease in fully-contracted and 12-month project backlog is primarily due to the majority of SCE Agreement revenues being recognized in 2022[157] - Sales cycle for projects averages 18 to 42 months, with awarded backlog converting to fully-contracted backlog in 12 to 24 months; historically, ~90% of awarded backlog results in a signed contract[158] Assets in Development Assets in development, representing potential small-scale renewable energy plants, increased to an estimated $1.5 billion at March 31, 2023 - Assets in development (potential design/build project value of small-scale renewable energy plants) were estimated at $1.5 billion at March 31, 2023, up from $1.3 billion at March 31, 2022[160] - The portion of assets in development related to spending for Energy as a Service assets was approximately $41.2 million at March 31, 2023, down from $60.0 million at March 31, 2022[160] Results of Operations Q1 2023 saw a 42.8% revenue decline and 93.7% net income decrease, driven by lower project revenues and higher interest expenses, despite improved gross margin Consolidated Results of Operations (Q1 2023 vs. Q1 2022, in thousands) | Indicator | 2023 Amount | % of Revenues (2023) | 2022 Amount | % of Revenues (2022) | Year-Over-Year Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $271,042 | 100.0% | $474,002 | 100.0% | $(202,960) | (42.8)% | | Cost of revenues | $221,094 | 81.6% | $405,624 | 85.6% | $(184,530) | (45.5)% | | Gross profit | $49,948 | 18.4% | $68,378 | 14.4% | $(18,430) | (27.0)% | | Operating income | $9,097 | 3.4% | $28,686 | 6.1% | $(19,589) | (68.3)% | | Income before income taxes | $1,054 | 0.4% | $21,605 | 4.6% | $(20,551) | (95.1)% | | Income tax (benefit) provision | $(503) | (0.2)% | $2,307 | 0.5% | $(2,810) | (121.8)% | | Net income | $1,557 | 0.6% | $19,298 | 4.1% | $(17,741) | (91.9)% | | Net income attributable to common shareholders | $1,102 | 0.4% | $17,384 | 3.7% | $(16,282) | (93.7)% | - Revenues decreased primarily due to a $210.2 million (53%) decrease in project revenues, attributed to the timing of revenue recognition on active projects, including the SCE battery storage project[163] - Gross profit as a percentage of revenues increased due to lower revenue contribution from the lower-margin SCE battery storage project[163] - SG&A expenses increased due to higher professional fees and project development costs not realized, partially offset by lower miscellaneous costs from a prior-year legal settlement[163] - Other expenses, net, increased due to higher interest expenses ($2.7 million) related to increased senior secured debt, partially offset by a smaller net loss on derivatives[163] - Income tax shifted to a benefit due to additional investment tax credits from solar and storage plants and higher Section 179D deductions under the IRA[163] Business Segment Analysis U.S. Regions and Federal segments saw revenue declines, Canada and All Other segments grew, while Alternative Fuels declined due to lower production and higher costs Revenues by Business Segment (Q1 2023 vs. Q1 2022, in thousands) | Segment | 2023 | 2022 | Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. Regions | $124,369 | $314,520 | $(190,151) | (60.5)% | | U.S. Federal | $59,556 | $75,646 | $(16,090) | (21.3)% | | Canada | $18,411 | $17,172 | $1,239 | 7.2% | | Alternative Fuels | $28,339 | $29,261 | $(922) | (3.2)% | | All Other | $40,367 | $37,403 | $2,964 | 7.9% | | Total revenues | $271,042 | $474,002 | $(202,960) | (42.8)% | Income before Taxes and Unallocated Corporate Activity by Segment (Q1 2023 vs. Q1 2022, in thousands) | Segment | 2023 | 2022 | Dollar Change | % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. Regions | $7,956 | $18,218 | $(10,262) | (56.3)% | | U.S. Federal | $5,212 | $8,886 | $(3,674) | (41.3)% | | Canada | $732 | $279 | $453 | 162.4% | | Alternative Fuels | $3,515 | $7,422 | $(3,907) | (52.6)% | | All Other | $2,482 | $2,709 | $(227) | (8.4)% | | Unallocated corporate activity | $(18,843) | $(15,909) | $(2,934) | (18.4)% | | Income before taxes | $1,054 | $21,605 | $(20,551) | (95.1)% | - U.S. Regions revenue decrease primarily due to timing of revenue recognition on active projects, including SCE battery storage projects[167] - Canada revenue increase due to higher project revenues from early material deliveries[167] - Alternative Fuels revenue decrease attributed to lower renewable gas production levels and higher direct costs from unplanned maintenance[167][170] - All Other revenues increased due to higher utility SaaS, consulting, and integrated-PV revenue from increased demand in the oil and gas market[167] Liquidity and Capital Resources Ameresco funds operations through cash flow, debt, and equity, with sufficient liquidity expected through May 2024, and increased operating cash flows in Q1 2023 - Operations are funded primarily through cash flow from operations, advances from Federal ESPC projects, senior secured credit facility, other debt, and equity offerings[171] - Believes cash, working capital, and available credit facilities (including a $100.0 million increase right) will be sufficient to fund operations through at least May 2024[171] - Amended senior secured credit facility on March 17, 2023, increasing the total funded debt to EBITDA covenant ratio from 3.50 to 4.00 for Q1 and Q2 2023[173] - Net proceeds from non-recourse construction revolvers and term loans totaled $53.7 million in Q1 2023; a new CAD$100.0 million construction facility was entered into, with no funds drawn[175] - Federal ESPC financings totaled $520.8 million at March 31, 2023; cash draws were $42.3 million, used to pay project costs of $33.7 million in Q1 2023[176][177] Cash Flows Summary (Q1 2023 vs. Q1 2022, in thousands) | Cash Flow Type | 2023 | 2022 | $ Change | | :--- | :--- | :--- | :--- | | Cash flows from operating activities | $58,772 | $(276,122) | $334,894 | | Cash flows from investing activities | $(101,253) | $(57,733) | $(43,520) | | Cash flows from financing activities | $106,128 | $355,400 | $(249,272) | | Effect of exchange rate changes on cash | $42 | $(196) | $238 | | Total net cash flows | $63,689 | $21,349 | $42,340 | - Operating cash flows increased due to a $240.1 million decrease in unbilled revenue and a $99.8 million decrease in accounts receivable, partially offset by lower net income and accounts payable[179][180] - Investing activities included $89.8 million in new energy assets, $0.6 million in major maintenance, and $9.2 million for the Enerqos acquisition in Q1 2023[180] - Plans to invest $235 million to $285 million in additional capital expenditures for new renewable energy plants and $175 million to $225 million in project financings for the remainder of 2023[181][182] Item 3. Quantitative and Qualitative Disclosures About Market Risk As of March 31, 2023, there have been no significant changes in market risk exposures compared to those disclosed in the 2022 Form 10-K - No significant changes in market risk exposures as of March 31, 2023, compared to the 2022 Form 10-K[185] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2023, with internal control updates for a new ERP system not expected to have a material adverse effect - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023[187] - Internal control over financial reporting was updated due to a new ERP system implementation, with no material adverse effect expected[188] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but their ultimate resolution is not expected to materially adversely affect financial condition or operations - Involved in periodic lawsuits, investigations, and claims incidental to normal business activities[189] - Does not believe the ultimate resolution of existing matters would have a material adverse effect on financial condition or results of operations[189] Item 1A. Risk Factors The business faces numerous risks, including those in the 2022 Form 10-K, and unforeseen risks may also adversely affect future results - Business is subject to numerous risks, including those described in the 2022 Form 10-K, which could materially affect business, financial condition, and future results[190] - Risks not currently known or deemed immaterial may also adversely affect the business[190] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the stock repurchase program during Q1 2023, with approximately $5.9 million remaining authorized - No shares repurchased under the stock repurchase program during Q1 2023[191] - Approximately $5.9 million remains authorized for repurchase under the program as of March 31, 2023[191] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including various agreements, certifications, and interactive data files in Inline XBRL format - Includes Form of 2023 Executive/Employee RSU Award Agreement, Amended and Restated Credit Agreement, and certifications by principal executive and financial officers[193][194][195][196][197] - Condensed consolidated financial statements for Q1 2023 are formatted in Inline XBRL (Extensible Business Reporting Language) as Exhibit 101[199] Signatures The report was signed by Spencer Doran Hole, Executive Vice President and Chief Financial Officer, on May 2, 2023, for submission under the Securities Exchange Act - Report signed by Spencer Doran Hole, Executive Vice President and Chief Financial Officer, on May 2, 2023[201]