AMERESCO, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from ___________ to ___________.
Commission File Number: 001-34811
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
(508 ) 661-2200
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Accelerated Filer o | Non-accelerated filer o | Smaller reporting company | |||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o | |||||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Shares outstanding as of July 29, 2022 | ||||
| Class A Common Stock, $0.0001 par value per share | |||||
| Class B Common Stock, $0.0001 par value per share | |||||
TABLE OF CONTENTS
| Page | ||||||||
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements
AMERESCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| June 30, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
Cash and cash equivalents (1) | $ | $ | |||||||||
Restricted cash (1) | |||||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Accounts receivable retainage, net | |||||||||||
Costs and estimated earnings in excess of billings (1) | |||||||||||
| Inventory, net | |||||||||||
Prepaid expenses and other current assets (1) | |||||||||||
| Income tax receivable | |||||||||||
| Project development costs | |||||||||||
Total current assets (1) | |||||||||||
| Federal ESPC receivable | |||||||||||
Property and equipment, net (1) | |||||||||||
Energy assets, net (1) | |||||||||||
| Deferred income tax assets, net | |||||||||||
| Goodwill, net | |||||||||||
| Intangible assets, net | |||||||||||
Operating lease assets (1) | |||||||||||
Restricted cash, net of current portion (1) | |||||||||||
Other assets (1) | |||||||||||
Total assets (1) | $ | $ | |||||||||
| LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
Current portions of long-term debt and financing lease liabilities (1) | $ | $ | |||||||||
Accounts payable (1) | |||||||||||
Accrued expenses and other current liabilities (1) | |||||||||||
Current portions of operating lease liabilities (1) | |||||||||||
| Billings in excess of cost and estimated earnings | |||||||||||
| Income taxes payable | |||||||||||
Total current liabilities (1) | |||||||||||
Long-term debt and financing lease liabilities, net of current portion, unamortized discount and debt issuance costs (1) | |||||||||||
| Federal ESPC liabilities | |||||||||||
| Deferred income tax liabilities, net | |||||||||||
| Deferred grant income | |||||||||||
Long-term operating lease liabilities, net of current portion (1) | |||||||||||
Other liabilities (1) | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Redeemable non-controlling interests, net | |||||||||||
(1) Includes restricted assets of consolidated variable interest entities (“VIEs”) at June 30, 2022 and December 31, 2021 of $155,547 and $124,454 , respectively. Includes non-recourse liabilities of consolidated VIEs at June 30, 2022 and December 31, 2021 of $32,251 and $31,125 , respectively. See Note 12.
1
AMERESCO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts) (Continued)
| June 30, 2022 | December 31, 2021 | ||||||||||
| (Unaudited) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | $ | $ | |||||||||
Class A common stock, $ | |||||||||||
Class B common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss, net | ( | ( | |||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Stockholders’ equity before non-controlling interest | |||||||||||
| Non-controlling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
Total liabilities, redeemable non-controlling interests and stockholders’ equity | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
2
AMERESCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share amounts) (Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Other expenses, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax provision (benefit) | ( | ||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Net income attributable to redeemable non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common shareholders: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See notes to condensed consolidated financial statements.
3
AMERESCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
| Three Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income (loss): | |||||||||||
Unrealized gain (loss) from interest rate hedges, net of tax effect of $ | ( | ||||||||||
| Foreign currency translation adjustments | ( | ||||||||||
| Total other comprehensive (loss) income | ( | ||||||||||
| Comprehensive income | |||||||||||
| Comprehensive income attributable to redeemable non-controlling interests | ( | ( | |||||||||
| Comprehensive income attributable to common shareholders | $ | $ | |||||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | $ | |||||||||
| Other comprehensive income (loss): | |||||||||||
Unrealized gain from interest rate hedges, net of tax effect of $ | |||||||||||
| Foreign currency translation adjustments | ( | ||||||||||
| Total other comprehensive income | |||||||||||
| Comprehensive income | |||||||||||
| Comprehensive income attributable to redeemable non-controlling interests | ( | ( | |||||||||
| Comprehensive income attributable to common shareholders | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
4
AMERESCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
For the Three Months Ended June 30, 2022 and 2021
(In thousands, except share amounts) (Unaudited)
| Class A Common Stock | Class B Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Non-controlling Interests | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Shares | Amount | Non-controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity offering costs | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss from interest rate hedges, net | — | — | — | — | — | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from redeemable non-controlling interests, net of fees | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to redeemable non-controlling interests | ( | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of tax equity financing fees | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain from interest rate hedges, net | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to redeemable non-controlling interests | ( | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of tax equity financing fees | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interest | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
5
AMERESCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE NON-CONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2022 and 2021
(In thousands, except share amounts) (Unaudited)
| Class A Common Stock | Class B Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Redeemable Non-controlling Interests | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Shares | Amount | Non-controlling Interest | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity offering of common stock, net of offering costs of $ | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss from interest rate hedges, net | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from redeemable non-controlling interests, net of fees | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to redeemable non-controlling interests | ( | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of tax equity financing fees | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain from interest rate hedges, net | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to redeemable non-controlling interests | ( | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accretion of tax equity financing fees | — | — | — | — | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment fund call option exercise | ( | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from non-controlling interest | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
6
AMERESCO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to cash flows from operating activities: | |||||||||||
| Depreciation of energy assets, net | |||||||||||
| Depreciation of property and equipment | |||||||||||
| Gain on contingent consideration | ( | ||||||||||
| Accretion of ARO liabilities | |||||||||||
| Amortization of debt discount and debt issuance costs | |||||||||||
| Amortization of intangible assets | |||||||||||
| Provision for bad debts | |||||||||||
| Equity in earnings of unconsolidated entity | ( | ||||||||||
| Net loss from derivatives | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes, net | |||||||||||
| Unrealized foreign exchange loss (gain) | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Accounts receivable retainage | ( | ( | |||||||||
| Federal ESPC receivable | ( | ( | |||||||||
| Inventory, net | ( | ( | |||||||||
| Costs and estimated earnings in excess of billings | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Project development costs | ( | ||||||||||
| Other assets | ( | ( | |||||||||
| Accounts payable, accrued expenses and other current liabilities | ( | ||||||||||
| Billings in excess of cost and estimated earnings | ( | ||||||||||
| Other liabilities | ( | ||||||||||
| Income taxes receivable, net | |||||||||||
Cash flows from operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Capital investment in new energy assets | ( | ( | |||||||||
| Capital investment in major maintenance of energy assets | ( | ( | |||||||||
Cash flows from investing activities | ( | ( | |||||||||
| See notes to condensed consolidated financial statements. | |||||||||||
7
| AMERESCO, INC. | |||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In thousands) (Unaudited) (Continued) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from equity offering, net of offering costs | $ | $ | |||||||||
| Payments of debt discount and debt issuance costs | ( | ( | |||||||||
| Proceeds from exercises of options and ESPP | |||||||||||
| Proceeds from (payments on) senior secured revolving credit facility, net | ( | ||||||||||
| Proceeds from long-term debt financings | |||||||||||
| Proceeds from Federal ESPC projects | |||||||||||
| Proceeds for (payments on) energy assets from Federal ESPC | ( | ||||||||||
| Contributions from non-controlling interest | |||||||||||
| (Distributions to) proceeds from redeemable non-controlling interests, net | ( | ||||||||||
| Payments on long-term debt and financing leases | ( | ( | |||||||||
Cash flows from financing activities | |||||||||||
| Effect of exchange rate changes on cash | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes | $ | $ | |||||||||
| Non-cash Federal ESPC settlement | $ | $ | |||||||||
| Accrued purchases of energy assets | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
8
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited)
1. BASIS OF PRESENTATION
The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results which may be expected for the full year. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements, but certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2021, included in our annual report on Form 10-K (“2021 Form 10-K”) for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 1, 2022.
Reclassification
Certain prior period amounts were reclassified to conform to the presentation in the current period.
Significant Risks and Uncertainties
The COVID-19 pandemic has continued to result in global supply chain disruptions and certain governmental travel and other restrictions.
We have considered the impact of COVID-19 on the assumptions and estimates used, which may change in response to this evolving situation. Results of future operations and liquidity could be adversely impacted by a number of factors associated with the COVID-19 pandemic including payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, potential loss of employees due to vaccine mandates, and uncertain demand. As of the date of issuance of these condensed consolidated financial statements, we cannot reasonably estimate the extent to which the COVID-19 pandemic may impact our financial condition, liquidity, or results of operations in the foreseeable future. The ultimate impact of the pandemic on us is highly uncertain and will depend on future developments, and such impacts could exist for an extended period of time, even after the pandemic subsides.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our accounting policies are set forth in Note 2 to the consolidated financial statements contained in our 2021 Form 10-K. We have included certain updates to those policies below.
Accounts Receivable and Allowance for Credit Losses
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Allowance for credit losses, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Provision for bad debts | |||||||||||||||||||||||
| Account write-offs and other | ( | ( | ( | ||||||||||||||||||||
| Allowance for credit losses, end of period | $ | $ | $ | $ | |||||||||||||||||||
Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04, which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Companies can apply the ASU immediately, however, the guidance will only be available until December 31, 2022. We are currently evaluating the impact
9
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
that adopting this new accounting standard would have on our condensed consolidated financial statements and related disclosures.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in ASU 2021-01 provide optional expedients to the current guidance on contract modification and hedge accounting from the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance generally can be applied to applicable contract modifications through December 31, 2022. We are currently evaluating the impact that adopting this new accounting standard would have on our condensed consolidated financial statements and related disclosures.
Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires annual disclosures about certain types of government assistance received. ASU 2021-10 is effective for our fiscal year beginning after December 15, 2021. We adopted this guidance as of January 1, 2022 and the adoption did not have an impact on our condensed consolidated financial statements.
Derivatives and Hedging
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method, which expands the current single-layer method to allow multiple hedged layers of a single closed portfolio to be hedged under the method. ASU 2022-01 is effective for our fiscal year ending beginning after December 15, 2022. We are currently evaluating the impact that adopting this new accounting standard would have on our condensed consolidated financial statements.
Fair Value Measurement
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the measurement criteria for equity securities and refines the disclosure requirements for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for our fiscal year ending beginning after December 15, 2023. We are currently evaluating the impact that adopting this new accounting standard would have on our condensed consolidated financial statements.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
Our reportable segments for the three and six months ended June 30, 2022 were U.S. Regions, U.S. Federal, Canada, Alternative Fuels (formerly Non-Solar Distributed Generation (“Non-Solar DG”)) and All Other. On January 1, 2022, we changed the structure of our internal organization and our “All Other” segment now includes our U.S.-based enterprise energy management services previously included in our U.S Regions segment and our U.S. Regions segment now includes U.S. project revenue and associated costs previously included in our former Non-Solar DG segment. As a result, previously reported amounts have been reclassified for comparative purposes.
The following table presents our revenue disaggregated by line of business and reportable segment for the three months ended June 30, 2022:
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | All Other | Total | ||||||||||||||||||||||||||||||
| Project revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| O&M revenue | |||||||||||||||||||||||||||||||||||
| Energy assets | |||||||||||||||||||||||||||||||||||
| Integrated-PV | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
10
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
The following table presents our revenue disaggregated by line of business and reportable segment for the three months ended June 30, 2021:
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | All Other | Total | ||||||||||||||||||||||||||||||
| Project revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| O&M revenue | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Energy assets | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Integrated-PV | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Other | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table presents our revenue disaggregated by line of business and reportable segment for the six months ended June 30, 2022:
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | All Other | Total | ||||||||||||||||||||||||||||||
| Project revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| O&M revenue | |||||||||||||||||||||||||||||||||||
| Energy assets | |||||||||||||||||||||||||||||||||||
| Integrated-PV | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table presents our revenue disaggregated by line of business and reportable segment for the six months ended June 30, 2021:
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | All Other | Total | ||||||||||||||||||||||||||||||
| Project revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| O&M revenue | |||||||||||||||||||||||||||||||||||
| Energy assets | |||||||||||||||||||||||||||||||||||
| Integrated-PV | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following table presents information related to our revenue recognized over time:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Percentage of revenue recognized over time | |||||||||||||||||||||||
The remainder of our revenue is for products and services transferred at a point in time, at which point revenue is recognized.
We attribute revenues to customers based on the location of the customer. The following table presents information related to our revenues by geographic area:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||||||||
| Canada | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | |||||||||||||||||||
11
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
Contract Balances
The following tables provide information about receivables, contract assets and contract liabilities from contracts with customers:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Accounts receivable, net | $ | $ | ||||||||||||
| Accounts receivable retainage, net | $ | $ | ||||||||||||
| Contract Assets: | ||||||||||||||
| Costs and estimated earnings in excess of billings | $ | $ | ||||||||||||
| Contract Liabilities: | ||||||||||||||
| Billings in excess of cost and estimated earnings | $ | $ | ||||||||||||
Billings in excess of cost and estimated earnings, non-current (1) | ||||||||||||||
| Total contract liabilities | $ | $ | ||||||||||||
| June 30, 2021 | December 31, 2020 | ||||||||||
| Accounts receivable, net | $ | $ | |||||||||
| Accounts receivable retainage, net | $ | $ | |||||||||
| Contract Assets: | |||||||||||
| Costs and estimated earnings in excess of billings | $ | $ | |||||||||
| Contract Liabilities: | |||||||||||
| Billings in excess of cost and estimated earnings | $ | $ | |||||||||
Billings in excess of cost and estimated earnings, non-current (1) | |||||||||||
| Total contract liabilities | $ | $ | |||||||||
| (1) Performance obligations that are expected to be completed beyond the next twelve months and are included in other liabilities in the condensed consolidated balance sheets. | |||||||||||
The increase in contract assets for the six months ended June 30, 2022 was primarily due to revenue recognized of $845,211 offset by billings of $492,820 . Contract assets also increased due to reclassifications, primarily from contract liabilities as a result of timing of customer payments. The increase in contract liabilities was primarily driven by the receipt of advance payments from customers, and related billings, as well as reclassifications from contract assets as a result of timing of customer payments. In addition, the advance payments and reclassifications, exceeded the recognition of revenue as performance obligations were satisfied. For the six months ended June 30, 2022, we billed customers $59,453 and recognized revenue of $64,145 that was previously included in the beginning balance of contract liabilities.
The increase in contract assets for the six months ended June 30, 2021 was primarily due to revenue recognized of $277,960 offset by billings of $288,012 . Contract assets also increased due to reclassifications from contract liabilities as a result of timing of customer payments. The decrease in contract liabilities was primarily driven by recognition of revenue as performance obligations were satisfied exceeding increases from the receipt of advance payment from customers, and related billings. For the six months ended June 30, 2021, we recognized revenue of $98,570 that was previously included in the beginning balance of contract liabilities and billed customers $70,884 . Changes in contract liabilities are also driven by reclassifications to or from contract assets as a result of timing of customer payments.
12
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
Performance Obligations
Our remaining performance obligations (“backlog”) represent the unrecognized revenue value of our contract commitments. At June 30, 2022, we had contracted backlog of $2,199,560 of which approximately 38 % is anticipated to be recognized as revenue in the next twelve months . The remaining performance obligations primarily relate to the energy efficiency and renewable energy construction projects, including long-term operations and maintenance (“O&M”) services related to these projects. The long-term services have varying initial contract terms, up to 25 years.
Project Development Costs
Project development costs of $1,771 and $3,109 were recognized in the condensed consolidated statements of income on projects that converted to customer contracts during the three months ended June 30, 2022 and 2021, respectively. Project development costs of $5,980 and $5,094 were recognized in the condensed consolidated statements of income on projects that converted to customer contracts during the six months ended June 30, 2022 and 2021, respectively.
4. GOODWILL AND INTANGIBLE ASSETS, NET
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | Other | Total | ||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Remeasurement period adjustment | |||||||||||||||||||||||||||||||||||
| Currency effects | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| As of June 30, 2022 | As of December 31, 2021 | ||||||||||
| Gross carrying amount | $ | ||||||||||
| Less - accumulated amortization | ( | ( | |||||||||
| Intangible assets, net | $ | $ | |||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
| Asset type | Location | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||
| Customer contracts | Cost of revenues | $ | $ | $ | $ | |||||||||||||||||||||||||||
| All other intangible assets | Selling, general and administrative expenses | |||||||||||||||||||||||||||||||
| Total amortization expense | $ | $ | $ | $ | ||||||||||||||||||||||||||||
13
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
5. ENERGY ASSETS, NET
| June 30, 2022 | December 31, 2021 | ||||||||||
Energy assets (1) | $ | $ | |||||||||
| Less - accumulated depreciation and amortization | ( | ( | |||||||||
| Energy assets, net | $ | $ | |||||||||
(1) Includes financing lease assets (see Note 6), capitalized interest and Asset retirement obligations (“ARO”) assets (see tables below). | |||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Location | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
Cost of revenues (2) | $ | $ | $ | $ | |||||||||||||||||||
(2) Includes depreciation and amortization on financing lease assets (see Note 6). | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Capitalized interest | $ | $ | $ | $ | |||||||||||||||||||
The following tables sets forth information related to our ARO assets and ARO liabilities:
| Location | June 30, 2022 | December 31, 2021 | ||||||||||||
| ARO assets, net | Energy assets, net | $ | $ | |||||||||||
| ARO liabilities, current | Accrued expenses and other current liabilities | $ | $ | |||||||||||
| ARO liabilities, non-current | Other liabilities | |||||||||||||
| Total ARO liabilities | $ | $ | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Depreciation expense of ARO assets | $ | $ | $ | $ | |||||||||||||||||||
| Accretion expense of ARO liabilities | $ | $ | $ | $ | |||||||||||||||||||
14
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
6. LEASES
| June 30, 2022 | December 31, 2021 | ||||||||||
| Operating Leases: | |||||||||||
| Operating lease assets | $ | $ | |||||||||
| Current portions of operating lease liabilities | $ | $ | |||||||||
| Long-term portions of operating lease liabilities | |||||||||||
| Total operating lease liabilities | $ | $ | |||||||||
| Weighted-average remaining lease term | |||||||||||
| Weighted-average discount rate | % | % | |||||||||
| Financing Leases: | |||||||||||
| $ | $ | ||||||||||
| $ | $ | ||||||||||
| Total financing lease liabilities | $ | $ | |||||||||
| Weighted-average remaining lease term | |||||||||||
| Weighted-average discount rate | % | % | |||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Operating Leases: | |||||||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | |||||||||||||||||||
| Financing Leases: | |||||||||||||||||||||||
| Amortization expense | |||||||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total lease costs | $ | $ | $ | $ | |||||||||||||||||||
15
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | |||||||||
| Right-of-use assets (“ROU”) obtained in exchange for new operating lease liabilities | $ | $ | |||||||||
| Operating Leases | Financing Leases | ||||||||||
| Year ended December 31, | |||||||||||
| 2022 | $ | $ | |||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| Thereafter | |||||||||||
| Total minimum lease payments | |||||||||||
| Less: interest | |||||||||||
| Present value of lease liabilities | $ | $ | |||||||||
Sale-leasebacks
In March 2022, we entered into an amendment to our August 2018 long-term financing facility which extended the end date of the agreement from March 31, 2022 to June 30, 2022. In June 2022, we entered into another amendment to this facility which further extended the end date of the agreement from June 30, 2022 to September 30, 2022. We sold and leased back two energy assets for $8,201 in cash proceeds under this agreement during the six months ended June 30, 2022. As of June 30, 2022, approximately $220,367 remained available under this lending commitment.
In March 2022, we entered into an amendment to our December 2020 long-term financing facility which extended the end date of the agreement from December 31, 2021 to July 15, 2022. We sold and leased back three energy asset for $4,423 in cash proceeds under this facility during the six months ended June 30, 2022. As of June 30, 2022, approximately $11,515 remained available under this lending commitment, however, the financing commitment expired July 15, 2022.
These transactions are accounted for as failed sale leasebacks and are classified as long-term financing facilities. See Note 7 for additional information.
16
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
7. DEBT AND FINANCING LEASE LIABILITIES
| June 30, 2022 | December 31, 2021 | ||||||||||
Senior secured revolving credit facility (1) | $ | $ | |||||||||
| Senior secured term loans | |||||||||||
| Non-recourse construction revolvers | |||||||||||
| Non-recourse term loans | |||||||||||
Long-term financing facilities (2) | |||||||||||
Financing lease liabilities (3) | |||||||||||
| Total debt and financing lease liabilities | |||||||||||
| Less: current maturities | |||||||||||
| Less: unamortized discount and debt issuance costs | |||||||||||
| Long-term debt and financing lease liabilities, net of current portion, unamortized discount and debt issuance costs | $ | $ | |||||||||
(1) At June 30, 2022, funds of $ | |||||||||||
(2) These facilities are are accounted for as failed sale leasebacks and are classified as long-term financing facilities. See Note 6 for additional disclosures. | |||||||||||
(3) Financing lease liabilities are sale-leaseback arrangements under previous guidance. See Note 6 for additional disclosures. | |||||||||||
(4) As of June 30, 2022, we were in default on | |||||||||||
Senior Secured Credit Facility - Revolver and Term Loans
On March 4, 2022, we entered into the fifth amended and restated senior secured credit facility with five banks, which included the following amendments:
•increased the aggregate amount of total commitments from $245,000 to $495,000 ,
•increased the aggregate amount of the revolving commitments from $180,000 to $200,000 ,
•increased the existing term loan A from $65,000 to $75,000 ,
•extended the maturity date of the revolving commitment and term loan A from June 28, 2024 to March 4, 2025,
•added a delayed draw term loan A for up to $220,000 through a September 4, 2023 maturity date,
•increased the total funded debt to EBITDA covenant ratio from a maximum of 3.50 to 4.50 for the quarter ended March 31, 2022; 4.25 for the quarter ending June 30, 2022, 4.00 for the quarters ending September 30, 2022 and December 31, 2022; and 3.50 thereafter,
•specified the debt service coverage ratio (the ratio of (a) cash flow of the core Ameresco companies, to (b) debt service of the core Ameresco companies as of the end of each fiscal quarter to be less than 1.5 , and
•increased our limit under an energy conversation project financing to $650,000 , which provides us with flexibility to grow our federal business further.
The revolving credit facility may be increased by an amount up to an additional $100,000 in increments of at least $25,000 at the approval of the lenders, subject to certain conditions.
We accounted for this amendment as a modification and at closing we incurred $2,048 in lenders fees which were reflected as debt discount and $352 in third party fees which were reflected as debt issuance costs. The unamortized debt discount and issuance costs of the previous agreement are being amortized over the remaining term of the amended agreement, with the exception of $96 of costs relating to a previous syndicated lender which did not participate in this amendment. These costs were expensed in other expenses, net during the six months ended June 30, 2022.
On June 9, 2022, we entered into the first amendment to the fifth amended and restated senior secured credit facility, which increased the maximum indebtedness incurred under an energy conservation project financing from $650,000 to $725,000 from and after April 1, 2022, to and including December 30, 2022.
17
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
June 2022 Term Shelf Notes
On July 27, 2021, we entered into a non-recourse debt agreement with a group of lenders. The financing facility consisted of senior secured first lien term notes due March 2046, floating rate senior secured second lien term notes due July 2030, and a shelf facility of up to $60,000 available until July 2024.
On June 28, 2022, two senior secured notes (“Shelf Notes”) due March 31, 2042 were issued under our shelf facility, with gross proceeds of $7,113 . The Shelf Notes bear interest at a fixed rate of 5.45 % per annum and are payable quarterly commencing September 30, 2022.
At closing, we incurred $103 in lender fees and debt issuance costs. In connection with the Shelf Notes, we recorded a derivative instrument for make-whole provisions with an initial value of $1,088 , which was recognized in debt discount. See Note 11 for additional information.
Non-recourse Construction Revolvers
Construction Revolver, Commencement Date June 2020
On April 29, 2022, a wholly-owned subsidiary of ours executed a joinder agreement to the June 2020 construction revolver, which added it as an additional borrower under the master construction loan agreement. At closing, we borrowed $9,800 for a solar and storage project.
In June 2022, we entered into a fifth amendment to the June 2020 construction revolver to extend this facility from June 2022 to September 2022. All remaining unpaid amounts outstanding under the facility are due at that time. As of June 30, 2022, $28,807 is outstanding under the revolver and $71,193 was available for borrowing under this facility.
Construction Revolver, Commencement Date July 2020
As of June 30, 2022, $24,145 was available for borrowing under the July 2020 construction revolver. On July 15, 2022, we signed an extension of this instrument through September 15, 2022.
8. INCOME TAXES
We recorded a provision (benefit) for income taxes of $4,932 and $(1,896 ) for the three months ended June 30, 2022 and 2021, respectively. The estimated effective annualized tax rate impacted by the period discrete items is a provision of 13.0 % for the three months ended June 30, 2022, compared to a benefit of 11.9 % of estimated effective annualized tax rate for the three months ended June 30, 2021.
We recorded a provision for income taxes of $7,239 and $309 for the six months ended June 30, 2022 and 2021, respectively. The estimated effective annualized tax rate impacted by the period discrete items is 12.2 % for the six months ended June 30, 2022, compared to 1.0 % of estimated effective annualized tax rate for the six months ended June 30, 2021.
The principal reasons for the difference between the statutory rate and the estimated annual effective rate for 2022 were the effects of investment tax credits which we are entitled from solar plants placed into service or are forecasted to be placed into service during 2022, state taxes, and the tax deductions related to the Section 179D deduction.
The principal reasons for the difference between the statutory rate and the estimated annual effective rate for 2021 were the effects of investment tax credits which we are entitled from solar plants placed into service or are forecasted placed into service during 2021, the tax deductions related to the Section 179D deduction, the deduction of compensation expense associated with certain employee stock options, and tax basis adjustments on certain partnership flip transactions.
Under GAAP accounting rules deferred taxes are shown on a net basis in the condensed consolidated financial statements based on taxing jurisdiction. Under the guidance, we have recorded long term deferred tax assets and deferred tax liabilities based on the underlying jurisdiction in the accompanying condensed consolidated balance sheets.
18
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
| Gross Unrecognized Tax Benefits | |||||
| Balance, December 31, 2021 | $ | ||||
| Balance, June 30, 2022 | $ | ||||
The amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods was $440
9. COMMITMENTS AND CONTINGENCIES
From time to time, we issue letters of credit and performance bonds with our third-party lenders, to provide collateral.
Legal Proceedings
On November 6, 2017, we were served with a complaint filed by a customer against nine contractors, including us, claiming both physical damages to the customer’s tangible property and damages caused by various alleged defects in the design of the project through negligent acts and/or omissions, breaches of contract and breaches of the “implied warranty of good and workmanlike manner.” During the six months ended June 30, 2022, we entered into a settlement agreement and the net settlement was paid during the six months ended June 30, 2022. In addition, we reversed the loss recovery from insurance proceeds during this same period.
We are involved in a variety of other claims and other legal proceedings generally incidental to our normal business activities. While the outcome of any of these proceedings cannot be accurately predicted, we do not believe the ultimate resolution of any of these existing matters would have a material adverse effect on our financial condition or results of operations.
Commitment as a Result of an Acquisition
In August 2018, we completed an acquisition which provided for a revenue earn-out contingent upon the acquired business meeting certain cumulative revenue targets over 5 years from the acquisition date. The fair value decreased from $678 at December 31, 2021 to $358 at June 30, 2022 and is included in other liabilities on the condensed consolidated balance sheets. The contingent consideration will be paid annually in May, if any of the cumulative revenue targets are achieved. No payments have been made to date.
In December 2021, we completed our acquisition of Plug Smart which provided for an earn-out based on future EBITDA targets beginning with EBITDA performance for the month of December 2021 and each fiscal year thereafter, over a five-year period through December 31, 2026. The maximum cumulative earn-out is $5,000 and we evaluated financial forecasts of the acquired business and concluded that the fair value of this earn-out was approximately $2,160 upon acquisition and remained consistent as of December 31, 2021. At June 30, 2022, the fair value of the contingent consideration was $1,866 and is included in other liabilities on the consolidated balance sheets. A payment of $275 was made during the six months ended June 30, 2022.
See Note 10 for additional information.
10. FAIR VALUE MEASUREMENT
We recognize our financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Three levels of inputs that may be used to measure fair value are as follows:
Level 1: Inputs are based on unadjusted quoted prices for identical instruments traded in active markets.
Level 2: Inputs are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are
19
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
| Fair Value as of | |||||||||||||||||
| Level | June 30, 2022 | December 31, 2021 | |||||||||||||||
| Assets: | |||||||||||||||||
| Interest rate swap instruments | 2 | $ | $ | ||||||||||||||
| Total assets | $ | $ | |||||||||||||||
| Liabilities: | |||||||||||||||||
| Interest rate swap instruments | 2 | $ | $ | ||||||||||||||
| Commodity swap instruments | 2 | ||||||||||||||||
| Make-whole provisions | 2 | ||||||||||||||||
| Contingent consideration | 3 | ||||||||||||||||
| Total liabilities | $ | $ | |||||||||||||||
The following table sets forth a summary of changes in the fair value of contingent consideration liability classified as level 3:
| Fair Value as of | |||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||
| Contingent consideration liability balance at the beginning of period | $ | $ | |||||||||
| Contingent consideration issued in connection with acquisition | |||||||||||
| Changes in fair value included in earnings | ( | ||||||||||
| Payment of contingent consideration | ( | ||||||||||
| Remeasurement period adjustment | ( | ||||||||||
| Contingent consideration liability balance at the end of period | $ | $ | |||||||||
| As of June 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||
| Long-term debt (Level 2) | $ | $ | $ | $ | |||||||||||||||||||
The fair value of our long-term debt was estimated using discounted cash flows analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level two inputs. There have been no transfers in or out of level two or three financial instruments for the six months ended June 30, 2022 and the year ended December 31, 2021.
We are also required to periodically measure certain other assets at fair value on a nonrecurring basis, including long-lived assets, goodwill and other intangible assets. We calculated the fair value used in our annual goodwill impairment analysis utilizing a discounted cash flow analysis and determined that the inputs used were level 3 inputs. There were no
20
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
| Derivatives as of | |||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||
| Balance Sheet Location | Fair Value | Fair Value | |||||||||||||||
| Derivatives Designated as Hedging Instruments: | |||||||||||||||||
| Interest rate swap contracts | Other assets | $ | $ | ||||||||||||||
| Interest rate swap contracts | Other liabilities | $ | $ | ||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||
| Interest rate swap contracts | Other assets | $ | $ | ||||||||||||||
| Commodity swap contracts | Other liabilities | $ | $ | ||||||||||||||
| Make-whole provisions | Other liabilities | $ | $ | ||||||||||||||
As of June 30, 2022 and December 31, 2021, all but four
| Amount of Loss (Gain) Recognized in Net Income | |||||||||||||||||||||||||||||
| Location of Loss (Gain) Recognized in Net Income | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | |||||||||||||||||||||||||||||
| Interest rate swap contracts | Other expenses, net | $ | $ | $ | $ | ||||||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments: | |||||||||||||||||||||||||||||
| Interest rate swap contracts | Other expenses, net | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||
| Commodity swap contracts | Other expenses, net | $ | ( | $ | |||||||||||||||||||||||||
| Make-whole provisions | Other expenses, net | $ | ( | $ | ( | ||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||
| Derivatives Designated as Hedging Instruments: | |||||
| Accumulated loss in AOCI at the beginning of the period | $ | ( | |||
| Unrealized gain recognized in AOCI | |||||
| Loss reclassified from AOCI to other expenses, net | |||||
| Net gain on derivatives | |||||
| Accumulated loss in AOCI at the end of the period | $ | ( | |||
21
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
The following tables present all of our active derivative instruments as of June 30, 2022:
| Active Interest Rate Swaps | Effective Date | Expiration Date | Initial Notional Amount ($) | Status | ||||||||||||||||||||||
| October 2018 | October 2029 | $ | Designated | |||||||||||||||||||||||
| June 2018 | June 2033 | $ | Designated | |||||||||||||||||||||||
| June 2017 | December 2027 | $ | Designated | |||||||||||||||||||||||
| February 2023 | December 2038 | $ | Designated | |||||||||||||||||||||||
| February 2016 | February 2023 | $ | Designated | |||||||||||||||||||||||
| March 2020 | June 2028 | $ | Designated | |||||||||||||||||||||||
| March 2020 | June 2028 | $ | Designated | |||||||||||||||||||||||
| May 2020 | March 2033 | $ | Not Designated | |||||||||||||||||||||||
| May 2020 | March 2033 | $ | Not Designated | |||||||||||||||||||||||
| September 2008 | March 2024 | $ | Designated | |||||||||||||||||||||||
| December 2020 | September 2023 | $ | Not Designated | |||||||||||||||||||||||
| Active Commodity Swaps | Effective Date | Expiration Date | Initial Notional Amount (Volume) | Commodity Measurement | Status | |||||||||||||||||||||||||||
| December 2020 | June 2024 | MMBtus | Not Designated | |||||||||||||||||||||||||||||
| Other Derivatives | Classification | Effective Date | Expiration Date | Fair Value ($) | ||||||||||||||||||||||
| Make-whole provisions | Liability | June/August 2018 | December 2038 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | August 2016 | April 2031 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | April 2017 | February 2034 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | November 2020 | December 2027 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | October 2011 | May 2028 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | May 2021 | April 2045 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | July 2021 | March 2046 | $ | ||||||||||||||||||||||
| Make-whole provisions | Liability | June 2022 | March 2042 | $ | ||||||||||||||||||||||
22
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
12. VARIABLE INTEREST ENTITIES AND EQUITY METHOD INVESTMENTS
Variable Interest Entities
| June 30, | December 31, | ||||||||||
2022 (1) | 2021 (1) | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Accounts receivable, net | |||||||||||
| Costs and estimated earnings in excess of billings | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total VIE current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Energy assets, net | |||||||||||
| Operating lease assets | |||||||||||
| Restricted cash, net of current portion | |||||||||||
| Other assets | |||||||||||
| Total VIE assets | $ | $ | |||||||||
| Current portions of long-term debt and financing lease liabilities | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portions of operating lease liabilities | |||||||||||
| Total VIE current liabilities | |||||||||||
| Long-term debt and financing lease liabilities, net of current portion, unamortized discount and debt issuance costs | |||||||||||
| Long-term operating lease liabilities, net of current portion | |||||||||||
| Other liabilities | |||||||||||
| Total VIE liabilities | $ | $ | |||||||||
| (1) The amounts in the above table are reflected in Note 1 on our condensed consolidated balance sheets. | |||||||||||
See Note 13 for additional information on the call and put options related to our investment funds.
Non-controlling Interest
Non-controlling interest represents the equity owned by the other joint venture member of a consolidated joint venture. During the six months ended June 30, 2022, the other joint venture member contributed $15,186 to this joint venture which was formed for a specific project. The joint venture did not generate any earnings or losses during the six months ended June 30, 2022.
Equity Method Investments
Unconsolidated joint ventures are accounted for under the equity method. For these unconsolidated joint ventures, our investment balances are included in other assets on the condensed consolidated balance sheets and our pro rata share of net income or loss is included in operating income on the condensed consolidated statements of income.
We entered into one joint venture in late December 2021, therefore, the activity for the year ended December 31, 2021 was not material. Our results for the three and six months ended June 30, 2022 include activity for this joint venture in the table below.
23
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
| As of | |||||||||||||||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Equity method investments | $ | $ | |||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | ||||||||||||||||||||
| Earnings recognized | $ | $ | $ | $ | |||||||||||||||||||
13. REDEEMABLE NON-CONTROLLING INTERESTS
Our subsidiaries with membership interests in the investment funds we formed have the right to elect to require the non-controlling interest holder to sell all of its membership units to our subsidiaries, a call option. Our investment funds also include rights for the non-controlling interest holder to elect to require our subsidiaries to purchase all of the non-controlling membership interests in the fund, a put option.
The call options are exercisable beginning on the date that specified conditions are met for each respective fund. The put options for the investment funds are exercisable beginning on the date that specified conditions are met for each respective fund.
We initially record our redeemable non-controlling interests at fair value on the date of acquisition and subsequently adjust to redemption value. At both June 30, 2022 and December 31, 2021 redeemable non-controlling interests were reported at their carrying values, as the carrying value at each reporting period was greater than the estimated redemption value.
14. EARNINGS PER SHARE
Earnings Per Share
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (In thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Adjustment for accretion of tax equity financing fees | ( | ( | ( | ( | |||||||||||||||||||
| Income attributable to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic weighted-average shares outstanding | |||||||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Diluted weighted-average shares outstanding | |||||||||||||||||||||||
| Net income per share attributable to common shareholders: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
Potentially dilutive shares (1) | |||||||||||||||||||||||
| (1) Potentially dilutive shares attributable to stock options were excluded from the computation of diluted earnings per share as the effect would have been anti-dilutive. | |||||||||||||||||||||||
24
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
15. STOCK-BASED COMPENSATION
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Stock-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
Our stock-based compensation expense is included in selling, general and administrative expenses in the condensed consolidated statements of income. As of June 30, 2022, there was $51,268 of unrecognized compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted-average period of 3.4 years.
Stock Option Grants
During the six months ended June 30, 2022, we granted 1,563 common stock options to certain employees under our 2020 Stock Incentive Plan, which have a contractual life of ten years and vest over a five-year period. We did not grant awards to individuals who were not either an employee or director of ours during the six months ended June 30, 2022 and 2021.
16. BUSINESS SEGMENT INFORMATION
Our reportable segments for the three and six months ended June 30, 2022 were U.S. Regions, U.S. Federal, Canada, Alternative Fuels (formerly Non-Solar Distributed Generation (“Non-Solar DG”)) and All Other. On January 1, 2022, we changed the structure of our internal organization and our “All Other” segment now includes our U.S.-based enterprise energy management services previously included in our U.S Regions segment and our U.S. Regions segment now includes U.S. project revenue and associated costs previously included in our former Non-Solar DG segment. As a result, previously reported amounts have been reclassified for comparative purposes.
Our U.S. Regions, U.S. Federal and Canada segments offer energy efficiency products and services which include the design, engineering and installation of equipment and other measures to improve the efficiency and control the operation of a facility’s energy infrastructure, renewable energy solutions and services and the development and construction of small-scale plants that Ameresco owns or develops for customers that produce electricity, gas, heat or cooling from renewable sources of energy and O&M services.
Our Alternative Fuels segment sells electricity and processed renewable natural gas (“RNG”) derived from biomethane from small-scale plants that we own and operate, and provides O&M services for customer-owned small-scale RNG plants.
The “All Other” category includes enterprise energy management services, other than the U.S.-based portion; consulting services, energy efficiency products and services outside of the U.S. and Canada; and the sale of solar PV energy products and systems which we refer to as integrated-PV.
These segments do not include results of other activities, such as corporate operating expenses not specifically allocated to the segments. Certain reportable segments are an aggregation of operating segments.
25
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | All Other | Total Consolidated | ||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| (Gain) loss on derivatives | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Interest expense, net of interest income | ( | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization of intangible assets | |||||||||||||||||||||||||||||||||||
| Unallocated corporate activity | — | — | — | — | — | ( | |||||||||||||||||||||||||||||
| Income before taxes, excluding unallocated corporate activity | |||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| (Gain) loss on derivatives | ( | ||||||||||||||||||||||||||||||||||
| Interest expense, net of interest income | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization of intangible assets | |||||||||||||||||||||||||||||||||||
| Unallocated corporate activity | — | — | — | — | — | ( | |||||||||||||||||||||||||||||
| Income before taxes, excluding unallocated corporate activity | |||||||||||||||||||||||||||||||||||
| U.S. Regions | U.S. Federal | Canada | Alternative Fuels | All Other | Total Consolidated | ||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| (Gain) loss on derivatives | ( | ||||||||||||||||||||||||||||||||||
| Interest expense, net of interest income | ( | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization of intangible assets | |||||||||||||||||||||||||||||||||||
| Unallocated corporate activity | — | — | — | — | — | ( | |||||||||||||||||||||||||||||
| Income before taxes, excluding unallocated corporate activity | |||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | |||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Loss on derivatives | |||||||||||||||||||||||||||||||||||
| Interest expense, net of interest income | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization of intangible assets | |||||||||||||||||||||||||||||||||||
| Unallocated corporate activity | — | — | — | — | — | ( | |||||||||||||||||||||||||||||
| Income before taxes, excluding unallocated corporate activity | |||||||||||||||||||||||||||||||||||
See Note 3 for additional information about our revenues by product line.
26
AMERESCO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited) (Continued)
17. OTHER EXPENSES, NET
The following table presents the components of other expenses, net:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (Gain) loss on derivatives | $ | ( | $ | $ | $ | ||||||||||||||||||
| Interest expense, net of interest income | |||||||||||||||||||||||
| Amortization of debt discount and debt issuance costs | |||||||||||||||||||||||
| Foreign currency transaction loss (gain) | ( | ||||||||||||||||||||||
| Government incentives | ( | ( | |||||||||||||||||||||
| Other expenses, net | $ | $ | $ | $ | |||||||||||||||||||
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 included in our Annual Report on Form 10-K (“2021 Form 10-K”) for the year ended December 31, 2021 filed on March 1, 2022 with the U.S. Securities and Exchange Commission (“SEC”). This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward looking statements include statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management, expected market growth and other characterizations of future events or circumstances. All statements, other than statements of historical fact, including statements that refer to our expectations as to the future growth of our business and associated expenses; our expectations as to revenue generation; the future availability of borrowings under our revolving credit facility; the expected future growth of the market for energy efficiency and renewable energy solutions; our backlog, awarded projects and recurring revenue and the timing of such matters; our expectations as to acquisition activity; the impact of any restructuring; the uses of future earnings; our intention to repurchase shares of our Class A common stock; the expected energy and cost savings of our projects; the expected energy production capacity of our renewable energy plants; the results of the SEC’s investigation into our revenue recognition and compensation practices in our software-as-a-service businesses; the impact of the ongoing COVID-19 pandemic and supply chain disruptions and shortage of materials; our expectations related to our agreement with SCE including the impact of any delays; the impact of the U.S. Department of Commerce’s solar panel import investigation and other characterizations of future events or circumstances are forward-looking statements. Forward looking statements are often, but not exclusively, identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” “target,” “project,” “predict” or “continue,” and similar expressions or variations. These forward-looking statements are based on current expectations and assumptions that are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Risks, uncertainties and factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part I, Item 1A of our 2021 Form 10-K, Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and elsewhere in this Quarterly Report on Form 10-Q (“Q1 2022 Form 10-Q”). Subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so and undertake no obligation to do so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Overview
Ameresco is a leading clean technology integrator with a comprehensive portfolio of energy efficiency and renewable energy supply solutions. We help organizations meet energy savings and energy management challenges with an integrated comprehensive approach to energy efficiency and renewable energy. Leveraging budget neutral solutions, including energy savings performance contracts (“ESPCs”) and power purchase agreements (“PPAs”), we aim to eliminate the financial barriers that traditionally hamper energy efficiency and renewable energy projects.
Drawing from decades of experience, Ameresco develops tailored energy management projects for its customers in the commercial, industrial, local, state, and federal government, K-12 education, higher education, healthcare, public housing sectors, and utilities.
We provide solutions primarily throughout North America and the U.K. and our revenues are derived principally from energy efficiency projects, which entail the design, engineering, and installation of equipment and other measures that incorporate a range of innovative technology and techniques to improve the efficiency and control the operation of a facility’s energy infrastructure; this can include designing and constructing a central plant or cogeneration system for a customer providing power, heat and/or cooling to a building, or other small-scale plant that produces electricity, gas, heat or cooling from renewable sources of energy. We also derive revenue from long-term O&M contracts, energy supply contracts for renewable energy operating assets that we own, integrated-PV, and consulting and enterprise energy management services.
In addition to organic growth, strategic acquisitions of complementary businesses and assets have been an important part of our growth enabling us to broaden our service offerings and expand our geographical reach. In December 2021, we completed the acquisition of Plug Smart, an Ohio-based energy services company that specializes in the development and implementation of budget neutral capital improvement projects including building controls and building automation systems. This acquisition allowed us to expand our existing pipeline and solution offerings in the smart buildings sector. The pro forma effects of this acquisition were not material to our operations for the fiscal quarters presented.
28
Key Factors and Trends
The Southern California Edison (“SCE”) Agreement
In October 2021, we entered into a contract with SCE to design and build three grid scale battery energy storage systems (“BESS”) at three sites near existing substation parcels throughout SCE’s service territory in California with an aggregate capacity of 537.5 MW. The engineering, procurement and construction price is approximately $892.0 million, in the aggregate, including two years of O&M revenues, subject to customary potential adjustments for changes in the work.
We are obligated under the SCE Agreement to achieve substantial completion of all facilities, subject to extension for specified force majeure events and customer-caused delays, no later than August 1, 2022 (the “Guaranteed Completion Date”). If we fail to meet the Guaranteed Completion Date at any of the facilities, other than as a result of specified force majeure events, we may be required to pay liquidated damages up to an aggregate maximum of $89 million, and under certain circumstances SCE may have a right to terminate the agreement. We have also provided availability and capacity guarantees under the SCE Agreement, failure of which entitles the customer to liquidated damages.
As previously disclosed at the end of March 2022, our battery supplier for the SCE battery storage project indicated that the COVID-19 lockdowns in several regions around China were having an adverse impact on the supplier’s ability to deliver batteries on the agreed upon timeline. In addition, the supplier indicated that newly implemented Chinese transportation safety policies may cause delays in the shipment of a portion of the batteries. Following a review of these circumstances, we provided SCE with a force majeure notice under the SCE Agreement as we, at the time of providing the notice, determined that these circumstances may prevent us from fully completing all three BESS projects by the August 1, 2022 Guaranteed Completion Date. Considering the impact of these delays with other supply chain and permitting challenges, we now expect 200 to 300 MW of capacity to be in service in September 2022 and we expect to achieve substantial completion for all the projects by the end of 2022. Under the SCE Agreement, the occurrence of force majeure events, including certain COVID-related delays, results in extensions of required completion deadlines without liquidated damages and an increase in the contract price, subject to the party claiming a force majeure event being in compliance with its contractual obligations. We are continuing discussions with SCE regarding the applicability and scope of any force majeure relief relating to these circumstances, and are also actively working with SCE, our suppliers, and governmental agencies to mitigate delays.
We expect a material portion of our revenue for 2022 to be generated from this SCE Agreement.
COVID-19, Supply Chain Disruptions, and Other Global Factors
We continue to monitor the impact of COVID-19 on our operations, financial results, and liquidity. The impact to our future operations and results, however, remains uncertain and will depend on a number of factors, including, but not limited to, the emergence and spread of more transmissible variants, the overall duration and severity of the pandemic, and its impact on the global economy, our customers, and business and workforce disruptions. Infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic that may persist, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, and intermittent supplier delays as well as shortage of certain components needed for our business, such as lithium-ion battery cells for our energy storage products. During the three and six months ended June 30, 2022, we experienced supply chain disruptions, including as a result of COVID-19 and macroeconomic conditions, causing delays in the timely delivery of material to customer sites and delays and disruptions in the completion of certain projects, including those pursuant to the SCE Agreement. This negatively impacted our results of operations during the three and six months ended June 30, 2022. We expect the trends of supply challenges to continue for the remainder of this year. We continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate to address the challenges presented from these conditions. For example, in April 2022, we entered into a binding framework agreement term sheet with a battery manufacturer for the purchase and sale of BESS equipment for our BESS projects at committed amounts and agreed upon delivery dates for a period of several years. The purchase and sale commitment covers BESS equipment to be used for our BESS projects and assets. In connection with entering into the term sheet, we paid a $10 million deposit which will be credited against our future equipment purchases.
In March 2022, the U.S. Department of Commerce announced that it is investigating if certain solar cell and panel imports from Malaysia, Vietnam, Thailand and Cambodia are circumventing anti-dumping and countervailing duty orders. We do not expect that this investigation will have a material impact on our business in the near term, as we have a stockpile of solar panels from a large purchase several years ago. Furthermore, we believe that President Biden’s executive order issued in June 2022 further mitigates this risk. The order authorized the U.S. Secretary of Commerce to implement regulations to shield solar modules and cells imported from Malaysia, Vietnam, Thailand and Cambodia from any anti-dumping and countervailing duties for up to 24 months from the issuance of the order. In the longer term, the investigation and any resulting duties and tariffs imposed may
29
disrupt the solar panel supply chain, increase the cost for solar cells and panels and ultimately impact the demand for clean energy solutions. We are monitoring the investigation and any regulations issued by the U.S Secretary of Commerce closely.
Climate Change and Effects of Seasonality
The global emphasis on climate change and reducing carbon emissions has created opportunities for our industry. Sustainability has been at the forefront of our business since its inception, and we are committed to staying at the leading edge of innovation taking place in the energy sector. We believe the next decade will be marked by dramatic changes in the power infrastructure with resources shifting to more distributed assets, storage, and microgrids to increase overall reliability and resiliency. The sustainability efforts are impacted by regulations, and changes in the regulatory climate may impact the demand for our products and offerings. For example, we have taken advantage of Investment Tax Credits for certain of our projects. See “Our business depends in part on federal, state, provincial and local government support for energy efficiency and renewable energy, and a decline in such support could harm our business” in Item 1A, Risk Factors of our Q1 2022 Form 10-Q and “Compliance with environmental laws could adversely affect our operating results” in Item 1A, Risk Factors of our 2021 Form 10-K.
Climate change also brings risks, as the impacts have caused us to experience more frequent and severe weather interferences, and this trend may continue. We are subject to seasonal fluctuations and construction cycles, particularly in climates that experience colder weather during the winter months, such as the northern United States and Canada, and climates that experience extreme weather events, such as wildfires, storms or flooding, or at educational institutions, where large projects are typically carried out during summer months when their facilities are unoccupied. In addition, government customers, many of which have fiscal years that do not coincide with ours, typically follow annual procurement cycles and appropriate funds on a fiscal-year basis even though contract performance may take more than one year. Further, government contracting cycles can be affected by the timing of, and delays in, the legislative process related to government programs and incentives that help drive demand for energy efficiency and renewable energy projects. As a result, our revenues and operating income in the third and fourth quarter are typically higher, and our revenues and operating income in the first quarter are typically lower, than in other quarters of the year, however, this may become harder to predict with the potential effects of climate change. As a result of such fluctuations, we may occasionally experience declines in revenues or earnings as compared to the immediately preceding quarter, and comparisons of our operating results on a period-to-period basis may not be meaningful.
Our annual and quarterly financial results are also subject to significant fluctuations as a result of other factors, many of which are outside our control.
Stock-based Compensation
During the six months ended June 30, 2022, we granted 1,562,500 common stock options to certain employees under our 2020 Stock Incentive Plan. As a result, our unrecognized stock-based compensation expense increased from $41.1 million at December 31, 2021 to $51.3 million at June 30, 2022 and is expected to be recognized over a weighted-average period of three years years. See Note 15 “Stock-based Compensation” for additional information.
Backlog and Awarded Projects
Backlog is an important metric for us because we believe strong order backlogs indicate growing demand and a healthy business over the medium to long term, conversely, a declining backlog could imply lower demand.
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The following table presents our backlog:
| As of June 30, | |||||||||||
| (In Thousands) | 2022 | 2021 | |||||||||
| Project Backlog | |||||||||||
| Fully-contracted backlog | $ | 1,002,740 | $ | 781,190 | |||||||
| Awarded, not yet signed customer contracts | 1,828,530 | 1,429,710 | |||||||||
| Total project backlog | $ | 2,831,270 | $ | 2,210,900 | |||||||
| 12-month project backlog | $ | 756,700 | $ | 606,490 | |||||||
| O&M Backlog | |||||||||||
| Fully-contracted backlog | $ | 1,196,820 | $ | 1,121,230 | |||||||
| 12-month O&M backlog | $ | 73,475 | $ | 67,010 | |||||||
Our $892 million SCE Agreement was entered into in October 2021 and increased our fully-contracted backlog for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. We anticipate that the SCE Agreement will be an important driver of our results in 2022.
Total project backlog represents energy efficiency projects that are active within our sales cycle. Our sales cycle begins with the initial contact with the customer and ends, when successful, with a signed contract, also referred to as fully-contracted backlog. Our sales cycle recently has been averaging 18 to 42 months. Awarded backlog is created when a potential customer awards a project to Ameresco following a request for proposal. Once a project is awarded but not yet contracted, we typically conduct a detailed energy audit to determine the scope of the project as well as identify the savings that may be expected to be generated from upgrading the customer’s energy infrastructure. At this point, we also determine the subcontractors, what equipment will be used, and assist in arranging for third party financing, as applicable. Recently, awarded projects have been taking an average of 12 to 24 months to result in a signed contract and convert to fully-contracted backlog. It may take longer, as it depends on the size and complexity of the project. Historically, approximately 90% of our awarded backlog projects have resulted in a signed contract. After the customer and Ameresco agree to the terms of the contract and the contract is executed, the project moves to fully-contracted backlog. The contracts reflected in our fully-contracted backlog typically have a construction period of 12 to 36 months and we typically expect to recognize revenue for such contracts over the same period.
Our O&M backlog represents expected future revenues under signed multi-year customer contracts for the delivery of O&M services, primarily for energy efficiency and renewable energy construction projects completed by us for our customers.
We define our 12-month backlog as the estimated amount of revenues that we expect to recognize in the next twelve months from our fully-contracted backlog. See “We may not recognize all revenues from our backlog or receive all payments anticipated under awarded projects and customer contracts” and “In order to secure contracts for new projects, we typically face a long and variable selling cycle that requires significant resource commitments and requires a long lead time before we realize revenues” in Item 1A, Risk Factors in our 2021 Form 10-K.
Assets in Development
Assets in development, which represents the potential design/build project value of small-scale renewable energy plants that have been awarded or for which we have secured development rights, were estimated at $1.4 billion, which includes $79.8 million attributable to a non-controlling interest at June 30, 2022, and $1.1 billion at June 30, 2021. The portion related to spending for Energy as a Service assets was approximately $60.0 million and $70.0 million at June 30, 2022 and 2021, respectively. This is another important metric because it helps us gauge our future capacity to generate electricity or deliver renewable gas fuel which contributes to our recurring revenue stream.
Results of Operations
All financial result comparisons made below are against the same prior year period unless otherwise noted.
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The following tables set forth certain financial data from the condensed consolidated statements of income for the periods indicated:
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Year-Over-Year Change | |||||||||||||||||||||||||||||||||
| (In Thousands) | Amount | % of Revenues | Amount | % of Revenues | Dollar Change | % Change | |||||||||||||||||||||||||||||
| Revenues | $ | 577,397 | 100.0 | % | $ | 273,920 | 100.0 | % | $ | 303,477 | 110.8 | % | |||||||||||||||||||||||
| Cost of revenues | 496,094 | 85.9 | % | 220,598 | 80.5 | % | 275,496 | 124.9 | % | ||||||||||||||||||||||||||
| Gross profit | 81,303 | 14.1 | % | 53,322 | 19.5 | % | 27,981 | 52.5 | % | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 38,249 | 6.6 | % | 31,882 | 11.6 | % | 6,367 | 20.0 | % | ||||||||||||||||||||||||||
| Operating income | 43,054 | 7.5 | % | 21,440 | 7.8 | % | 21,614 | 100.8 | % | ||||||||||||||||||||||||||
| Other expenses, net | 5,249 | 0.9 | % | 5,450 | 2.0 | % | (201) | (3.7) | % | ||||||||||||||||||||||||||
| Income before income taxes | 37,805 | 6.5 | % | 15,990 | 5.8 | % | 21,815 | 136.4 | % | ||||||||||||||||||||||||||
| Income tax provision (benefit) | 4,932 | 0.9 | % | (1,896) | (0.7) | % | 6,828 | (360.1) | % | ||||||||||||||||||||||||||
| Net income | 32,873 | 5.7 | % | 17,886 | 6.5 | % | $ | 14,987 | 83.8 | % | |||||||||||||||||||||||||
| Net (income) loss attributable to redeemable non-controlling interest | (657) | (0.1) | % | (4,231) | (1.5) | % | $ | 3,574 | 84.5 | % | |||||||||||||||||||||||||
| Net income attributable to common shareholders | $ | 32,216 | 5.6 | % | $ | 13,655 | 5.0 | % | $ | 18,561 | 135.9 | % | |||||||||||||||||||||||
Our results of operations for the three months ended June 30, 2022 are due to the following:
•Revenues: total revenues for the three months ended June 30, 2022 increased over 2021 primarily due to a $292.9 million, or 149%, increase in our project revenues attributed to the timing of revenue recognized as a result of the phase of active projects versus the prior year, including our SCE battery storage project, and a $6.0 million, or 16%, increase in our energy asset revenue attributed to the continued growth of our operating portfolio, strong renewable gas production, and higher pricing on renewable identification numbers (“RINs”) generated from certain alternative fuel generation assets in operation.
•Cost of Revenues and Gross Profit: the increase in cost of revenues is primarily due to the increase in project revenues described above. Gross profit increased due to increased revenue, however, our gross profit as a percent of revenues decreased due to the higher revenue contribution from our lower margin SCE battery storage project.
•Selling, General and Administrative Expenses (“SG&A”): SG&A expenses for the three months ended June 30, 2022 increased over 2021 primarily due to higher net salaries and benefits of $4.4 million as a result of increased headcount and an increase in non-cash stock compensation expense and higher insurance costs.
•Other Expenses, Net: Other expenses, net, includes gains and losses from derivatives transactions, foreign currency transactions, interest expense, interest income, amortization of financing costs and certain government incentives. Other expenses, net for the three months ended June 30, 2022 decreased over 2021 primarily due to government incentive income of $2.0 million and a gain on derivatives of $1.1 million compared to a loss of $1.6 million in the prior year, partially offset by higher interest expenses of $3.3 million related to an increase in amounts outstanding on our senior secured debt facility.
•Income before Income Taxes: the increase in income before income taxes is due to reasons described above.
•Income Tax (Benefit) Provision: the provision for income taxes is based on various rates set by federal, state, provincial and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements. The effective tax rate was higher in 2022 as compared to 2021 primarily due to higher domestic income resulting in higher state taxes, lower levels of compensation deductions related to employee stock option exercises, and less favorable tax adjustments related to partnership flip transactions.
•Net Income and Earnings Per Share: Net income attributable to common shareholders increased due to the reasons described above. Basic earnings per share for the three months ended June 30, 2022 was $0.62, an increase of $0.35 per share compared to the same period of 2021. Diluted earnings per share for 2022 was $0.61, an increase of $0.35 per share compared to last year. The results for the three months ended June 30, 2022 and 2021 reflect a non-cash downward adjustment of $0.7 million and $4.2 million, respectively, related to non-controlling interest activities.
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| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Year-Over-Year Change | |||||||||||||||||||||||||||||||||
| (In Thousands) | Amount | % of Revenues | Amount | % of Revenues | Dollar Change | % Change | |||||||||||||||||||||||||||||
| Revenues | $ | 1,051,399 | 100.0 | % | $ | 526,122 | 100.0 | % | $ | 525,277 | 99.8 | % | |||||||||||||||||||||||
| Cost of revenues | 901,718 | 85.8 | % | 425,891 | 80.9 | % | 475,827 | 111.7 | % | ||||||||||||||||||||||||||
| Gross profit | 149,681 | 14.2 | % | 100,231 | 19.1 | % | 49,450 | 49.3 | % | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | 77,941 | 7.4 | % | 60,483 | 11.5 | % | 17,458 | 28.9 | % | ||||||||||||||||||||||||||
| Operating income | 71,740 | 6.8 | % | 39,748 | 7.6 | % | 31,992 | 80.5 | % | ||||||||||||||||||||||||||
| Other expenses, net | 12,330 | 1.2 | % | 9,122 | 1.7 | % | 3,208 | 35.2 | % | ||||||||||||||||||||||||||
| Income before income taxes | 59,410 | 5.7 | % | 30,626 | 5.8 | % | 28,784 | 94.0 | % | ||||||||||||||||||||||||||
| Income tax provision | 7,239 | 0.7 | % | 309 | 0.1 | % | 6,930 | 2,242.7 | % | ||||||||||||||||||||||||||
| Net income | 52,171 | 5.0 | % | 30,317 | 5.8 | % | $ | 21,854 | 72.1 | % | |||||||||||||||||||||||||
| Net (income) loss attributable to redeemable non-controlling interest | (2,571) | (0.2) | % | (5,488) | (1.0) | % | $ | 2,917 | 53.2 | % | |||||||||||||||||||||||||
| Net income attributable to common shareholders | $ | 49,600 | 4.7 | % | $ | 24,829 | 4.7 | % | $ | 24,771 | 99.8 | % | |||||||||||||||||||||||
Our results of operations for the six months ended June 30, 2022 are due to the following:
•Revenues: total revenues for the six months ended June 30, 2022 increased over 2021 primarily due to a $505.6 million, or 149%, increase in our project revenues attributed to the timing of revenue recognized as a result of the phase of active projects versus the prior year, including our SCE battery storage project.
•Cost of Revenues and Gross Profit: the increase in cost of revenues is primarily due to the increase in project revenues described above. Gross profit increased due to increased revenue, however, our gross profit as a percent of revenues decreased due to the higher revenue contribution from our lower margin SCE battery storage project.
•Selling, General and Administrative Expenses (“SG&A”): SG&A expenses for the six months ended June 30, 2022 increased over 2021 primarily due to higher net salaries and benefits of $11.7 million as a result of increased headcount and an increase in non-cash stock compensation expense. The increase is also attributed to higher miscellaneous expenses related to a settlement of an outstanding legal proceeding and higher insurance costs.
•Other Expenses, Net: Other expenses, net, includes gains and losses from derivatives transactions, foreign currency transactions, interest expense, interest income, amortization of financing costs and certain government incentives. Other expenses, net for the six months ended June 30, 2022 increased over 2021 primarily due to higher interest expenses of $5.0 million related to an increase in amounts outstanding on our senior secured debt facility. This was partially offset by government incentive income of $2.0 million.
•Income before Income Taxes: the increase in income before income taxes is due to reasons described above.
•Income Tax (Benefit) Provision: the provision for income taxes is based on various rates set by federal, state, provincial and local authorities and is affected by permanent and temporary differences between financial accounting and tax reporting requirements. The effective tax rate was higher in 2022 as compared to 2021 primarily due to primarily due to higher domestic income resulting in higher state taxes, lower levels of compensation deductions related to employee stock option exercises, and less favorable tax adjustments related to partnership flip transactions.
•Net Income and Earnings Per Share: Net income attributable to common shareholders increased due to the reasons described above. Basic earnings per share for the six months ended June 30, 2022 was $0.96, an increase of $0.47 per share compared to the same period of 2021. Diluted earnings per share for 2022 was $0.93, an increase of $0.45 per share compared to last year. The results for the six months ended June 30, 2022 and 2021 reflect a non-cash downward adjustment of $2.6 million and $5.5 million, respectively, related to non-controlling interest activities.
Business Segment Analysis
Our reportable segments for the three and six months ended June 30, 2022 were U.S. Regions, U.S. Federal, Canada, Alternative Fuels (formerly Non-Solar Distributed Generation (“Non-Solar DG”)) and All Other. On January 1, 2022, we changed the structure of our internal organization and our “All Other” segment now includes our U.S.-based enterprise energy management services previously included in our U.S Regions segment and our U.S. Regions segment now includes U.S. project revenue and associated costs previously included in our former Non-Solar DG segment. As a result, previously reported amounts have been reclassified for comparative purposes. These segments do not include results of other activities, such as corporate operating
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expenses not specifically allocated to the segments. See Note 16 “Business Segment Information” for additional information about our segments.
All financial result comparisons made below relate to both the three and six month periods and are against the same prior year period unless otherwise noted.
Revenues
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In Thousands) | 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | |||||||||||||||||||||||||||||||||||||||
| U.S. Regions | $ | 397,385 | $ | 118,023 | $ | 279,362 | 236.7 | % | $ | 711,905 | $ | 207,267 | $ | 504,638 | 243.5 | % | |||||||||||||||||||||||||||||||
| U.S. Federal | 101,428 | 90,198 | 11,230 | 12.5 | 177,074 | 192,412 | (15,338) | (8.0) | |||||||||||||||||||||||||||||||||||||||
| Canada | 14,461 | 10,875 | 3,586 | 33.0 | 31,633 | 22,518 | 9,115 | 40.5 | |||||||||||||||||||||||||||||||||||||||
| Alternative Fuels | 29,192 | 26,213 | 2,979 | 11.4 | 58,453 | 51,793 | 6,660 | 12.9 | |||||||||||||||||||||||||||||||||||||||
| All Other | 34,931 | 28,611 | 6,320 | 22.1 | 72,334 | 52,132 | 20,202 | 38.8 | |||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 577,397 | $ | 273,920 | $ | 303,477 | 110.8 | % | $ | 1,051,399 | $ | 526,122 | $ | 525,277 | 99.8 | % | |||||||||||||||||||||||||||||||
•U.S. Regions: the increase is primarily due to an increase in project revenue attributable to the timing of revenue recognized as a result of the phase of active projects, including our SCE battery storage projects, versus the prior year.
•U.S. Federal: the change in revenue is primarily due to the timing of project revenue recognized as a result of the phase of active projects which were impacted by supply chain delays during the first quarter of 2022.
•Canada: the increase is primarily due to an increase in project revenues attributable to the timing of revenue recognized as a result of the phase of active projects versus the prior year.
•Alternative Fuels: the increase is primarily attributed to higher energy asset revenues resulting from the continued growth of our operating portfolio, increased renewable gas production levels and higher pricing on RINs generated from certain alternative fuel generation assets in operation.
•All Other: All other revenues increased over 2021 primarily due to higher project revenues as a result of the phase of active projects versus the prior year and an increase in integrated-PV revenue.
Income before Taxes and Unallocated Corporate Activity
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| (In Thousands) | 2022 | 2021 | Dollar Change | % Change | 2022 | 2021 | Dollar Change | % Change | |||||||||||||||||||||||||||||||||||||||
| U.S. Regions | $ | 32,840 | $ | 7,718 | $ | 25,122 | 325.5 | % | $ | 51,058 | $ | 10,957 | $ | 40,101 | 366.0 | % | |||||||||||||||||||||||||||||||
| U.S. Federal | 12,011 | 11,082 | 929 | 8.4 | 20,897 | 23,112 | (2,215) | (9.6) | |||||||||||||||||||||||||||||||||||||||
| Canada | 1,012 | 749 | 263 | 35.1 | 1,291 | 664 | 627 | 94.4 | |||||||||||||||||||||||||||||||||||||||
| Alternative Fuels | 6,476 | 4,716 | 1,760 | 37.3 | 13,898 | 13,488 | 410 | 3.0 | |||||||||||||||||||||||||||||||||||||||
| All Other | 3,139 | 1,817 | 1,322 | 72.8 | 5,848 | 3,462 | 2,386 | 68.9 | |||||||||||||||||||||||||||||||||||||||
| Unallocated corporate activity | (17,673) | (10,092) | $ | (7,581) | (75.1) | (33,582) | (21,057) | (12,525) | (59.5) | ||||||||||||||||||||||||||||||||||||||
| Income before taxes | $ | 37,805 | $ | 15,990 | $ | 21,815 | 136.4 | % | $ | 59,410 | $ | 30,626 | $ | 28,784 | 94.0 | % | |||||||||||||||||||||||||||||||
•U.S. Regions: the increase is primarily due to the increase in revenues described above, partially offset by higher salaries and benefits and other expenses.
•U.S. Federal: the increase for three months ended June 30, 2022 is primarily due to increased revenues and the decrease for the six months ended June 30, 2022 is primarily due to the decrease in revenues described above.
•Canada: the increase is primarily due to the increase in revenue described above, partially offset by higher salaries and benefits.
•Alternative Fuels: the increase is primarily due to higher revenues noted above, partially offset by increased interest expenses.
•All Other: the increase is primarily due to the increase in revenues described above.
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•Unallocated corporate activity includes all corporate level selling, general and administrative expenses and other expenses not allocated to the segments. We do not allocate any indirect expenses to the segments. Corporate activity increased primarily due to higher net salaries and benefit costs, insurance costs, and interest expenses.
Liquidity and Capital Resources
Overview
Since inception, we have funded operations primarily through cash flow from operations, advances from Federal ESPC projects, our senior secured credit facility, and various forms of other debt. In addition, in March 2021, we completed an underwritten public offering of 2,875,000 shares of our Class A Common Stock, for total net proceeds of $120.1 million. See Note 7 “Debt and Financing Lease Liabilities” for additional information.
Working capital requirements, which can be susceptible to fluctuations during the year due to seasonal demands, generally result from revenue growth, our solar equipment purchase patterns, the timing of funding under various contracts, or advances from Federal ESPC projects, and payment terms for receivables and payables.
We expect to incur additional expenditures in connection with the following activities:
•equity investments, project asset acquisitions and business acquisitions that we may fund from time to time
•capital investment in current and future energy assets
•material, equipment, and other expenditures for our SCE battery storage project
We regularly monitor and assess our ability to meet funding requirements. We believe that cash and cash equivalents, working capital and availability under our revolving senior secured credit facility, combined with our right (subject to lender consent) to increase our revolving credit facility by $100.0 million, and our general access to credit and equity markets, will be sufficient to fund our operations through at least August 2023 and thereafter. We funded a significant portion of the contract expenditures for our SCE battery storage project during the six months ended June 30, 2022. However, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate and that we can meet our capital requirements during these uncertain times. This may include limiting discretionary spending across the organization and re-prioritizing our capital projects amid times of political unrest, the evolution of the COVID-19 pandemic, the duration of supply challenges, and the rate and duration of the inflationary pressures. For example, recent increases in inflation and interest rates have impacted overall market returns on assets. We have therefore been particularly prudent in our capital commitments over the past couple of quarters, ensuring that our assets in development continue to align with our hurdle rates.
Sources of Liquidity
Senior Secured Credit Facility
On March 4, 2022, we entered into the fifth amended and restated senior secured credit facility, which increased the aggregate amount of total commitments from $245.0 million to $495.0 million. This amendment increased the aggregate amount of the revolving commitments from $180.0 million to $200.0 million, increased the existing term loan A to $75.0 million, and extended the maturity date of the revolving commitment and term loan A from June 28, 2024 to March 4, 2025. In addition, it added a delayed draw term loan A for up to $220.0 million through a September 4, 2023 maturity date, increased the total funded debt to EBITDA covenant ratio from a maximum of 3.50 to 4.50 for the quarter ended March 31, 2022; 4.25 for the quarter ending June 30, 2022, 4.00 for the quarters ending September 30, 2022 and December 31, 2022; and 3.50 thereafter. The amendment also specified the debt service coverage ratio to be less than 1.5 and increased our limit under an energy conversation project financing to $650.0 million, which provides us with flexibility to grow our federal business further. As of June 30, 2022, the balance on the senior secured term loans was $275.0 million, the balance on the senior secured revolving credit facility was $165.0 million, and we had funds available of $19.6 million.
On June 9, 2022, we entered into the first amendment to the fifth amended and restated senior secured credit facility, which increased the maximum indebtedness incurred under an energy conservation project financing from $650.0 million to $725.0 million from and after April 1, 2022 to and including December 30, 2022.
Project Financing - Non-recourse Revolvers, Loans and Financing Facilities
We have entered into a number of construction and term loan agreements for the purpose of constructing and owning certain renewable energy plants. While we are required under generally accepted accounting principles (“GAAP”) to reflect these loans as liabilities on our consolidated balance sheets, they are generally non-recourse and not direct obligations of Ameresco, Inc.
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During the six months ended June 30, 2022, we received gross proceeds from these non-recourse financings of $32.9 million. At June 30, 2022, the balance outstanding on our non-recourse debt was $358.0 million and approximately $380.1 million remained available under these lending commitments, which expire at various dates from July 2022 through July 2024. Approximately $11.5 million of this lending commitment expired July 15, 2022. We expect to renew this commitment before the end of fiscal year 2022. See Notes 6. “Leases” and 7. “Debt and Financing Lease Liabilities” for additional details.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities:
| Six Months Ended June 30, | |||||||||||||||||
| (In Thousands) | 2022 | 2021 | $ Change | ||||||||||||||
| Cash flows from operating activities | $ | (307,843) | $ | (96,483) | $ | (211,360) | |||||||||||
| Cash flows from investing activities | (132,287) | (105,751) | (26,536) | ||||||||||||||
| Cash flows from financing activities | 465,674 | 196,924 | 268,750 | ||||||||||||||
| Effect of exchange rate changes on cash | (1,291) | 315 | (1,606) | ||||||||||||||
| Total net cash flows | $ | 24,253 | $ | (4,995) | $ | 29,248 | |||||||||||
Our service offering also includes the development, construction, and operation of small-scale renewable energy plants. Small-scale renewable energy projects, or energy assets, can either be developed for the portfolio of assets that we own and operate or designed and built for customers. Expenditures related to projects that we own are recorded as cash outflows from investing activities. Expenditures related to projects that we build for customers are recorded as cash outflows from operating activities as cost of revenues.
Cash Flows from Operating Activities
Our cash flows from operating activities decreased from the same period last year primarily due to an increase of $349.7 million in unbilled revenue (costs and estimated earnings in excess of billings) due to the timing of when certain projects are invoiced, including our SCE battery storage project and a $59.6 million increase in accounts receivable, which were partially offset by increases of $149.7 million in accounts payable, accrued expenses and other current liabilities and $21.9 million in net income when compared to the prior year period.
Cash Flows from Investing Activities
During the six months ended June 30, 2022 we made capital investments of $124.9 million in new energy assets and $4.8 million in major maintenance of energy assets, compared to $97.9 million and $6.4 million, respectively, in 2021.
We currently plan to invest approximately $90 million to $140 million in additional capital expenditures during the remainder of 2022, principally for the construction or acquisition of new renewable energy plants, the majority of which we expect to fund with project finance debt.
Cash Flows from Financing Activities
Our primary sources of financing for the six months ended June 30, 2022 were net proceeds from long-term debt of $305.2 million, net proceeds received from Federal ESPC projects and energy assets of $126.4 million, and net proceeds from our senior secured revolver of $120.0 million, partially offset by payments on long-term debt of $101.0 million.
Our primary sources of financing for the six months ended June 30, 2021 were net proceeds from our equity offering of $120.1 million, net proceeds received from Federal ESPC projects and energy assets of $70.0 million, net proceeds from long-term debt financings of $64.9 million, partially offset by net payments from our senior secured credit facility of $28.1 million, and payments on long-term debt of $33.7 million.
We currently plan additional project financings of approximately $140 million to $190 million during the remainder of 2022 to fund the construction or the acquisition of new renewable energy plants as discussed above.
Critical Accounting Estimates
Preparing our condensed consolidated financial statements in accordance with GAAP involves us making estimates and assumptions that affect reported amounts of assets and liabilities, net sales and expenses, and related disclosures in the accompanying notes at the date of our financial statements. We base our estimates on historical experience, industry and market
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trends, and on various other assumptions that we believe to be reasonable under the circumstances. However, by their nature, estimates are subject to various assumptions and uncertainties, and changes in circumstances could cause actual results to differ from these estimates, sometimes materially.
Income Taxes
We have reviewed all tax positions taken as of June 30, 2022 and there were no additional uncertain tax positions taken during the three months ended June 30, 2022. We believe our current tax reserves are adequate to cover all known tax uncertainties.
Other than as noted above, there have been no material changes in our critical accounting estimates from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2021 Form 10-K. In addition, refer to Note 2 “Summary of Significant Accounting Policies” for updates to critical accounting policies.
Recent Accounting Pronouncements
See Note 2, “Summary of Significant Accounting Policies” for a discussion of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2022, there have been no significant changes in market risk exposures that materially affected the quantitative and qualitative disclosures as described in Item 7A to our 2021 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this quarterly report, or the evaluation date. Disclosure controls and procedures are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, after evaluating the effectiveness of our disclosure controls and procedures as of the evaluation date, concluded that as of the evaluation date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
During the six months ended June 30, 2022, we implemented a new Enterprise Resource Planning (“ERP”) system. In connection with this ERP implementation, we are updating and will continue to update our internal control over financial reporting, as necessary, to accommodate modifications to our business processes and accounting procedures. We do not believe this implementation has had or will have a material adverse effect on our internal control over financial reporting.
Except as disclosed above, there were no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations, and claims. Although we cannot predict with certainty the ultimate resolution of such lawsuits, investigations and claims against us, we do not believe that any currently pending or threatened legal proceedings to which we are a party will have a material adverse effect on our business, results of operations or financial condition.
For additional information about certain proceedings, please refer to Note 9, Commitments and Contingencies, to our condensed consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated into this item by reference.
Item 1A. Risk Factors
Our business is subject to numerous risks, a number of which are described below and under “Risk Factors” in Part I, Item 1A of our 2021 Form 10-K and Part II, Item 1A. “Risk Factors” of our Q1 2022 Form 10-Q.
You should carefully consider these risks together with the other information set forth in this report, which could materially affect our business, financial condition and future results. The risks described in Part I, Item 1A of our 2021 Form 10-K as supplemented and updated in Part II, Item 1A. “Risk Factors” of our Q1 2022 Form 10-Q are not the only risks we face. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
Item 2. Unregistered Sales of Equity and Use of Proceeds
Stock Repurchase Program
We did not repurchase any shares of our common stock under our stock repurchase program authorized by the Board of Directors on April 27, 2016 (the “Repurchase Program”) during the three months ended June 30, 2022. Under the Repurchase Program, we are authorized to repurchase up to $17.6 million of our Class A common stock. As of June 30, 2022, there were shares having a dollar value of approximately $5.9 million that may yet be purchased under the Repurchase Program.
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Item 6. Exhibits
Exhibit Index
| Exhibit Number | Description | ||||
| 10.1 | |||||
31.1* | |||||
31.2* | |||||
32.1** | |||||
101* | The following condensed consolidated financial statements from Ameresco, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Changes in Redeemable Non-Controlling Interests and Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. | ||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
| *Filed herewith. | |||||
**Furnished herewith. | |||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AMERESCO, INC. | |||||||||||||||||
| Date: | August 2, 2022 | By: | /s/ Spencer Doran Hole | ||||||||||||||
| Spencer Doran Hole | |||||||||||||||||
| Senior Vice President and Chief Financial Officer (duly authorized and principal financial officer) | |||||||||||||||||
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TABLE OF CONTENTS
Part I - Financial InformationItem 1. Condensed Consolidated Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity and Use Of ProceedsItem 6. Exhibits